Tax Preparation Checklist for Australian Small Businesses

Posted by Mary Milorrie Campos

Jan 20, 2021 4:30:00 PM

Gathering all necessary documents for lodging your taxes allows you to plan your finances accordingly and avoid incurring unwanted penalties. This tax preparation checklist will guide you in securing the documents you’ll need.

tax preparation checklist for small businesses in australia

 

Small Business Tax Preparation Checklist

Time is money, especially for businesses. This tax checklist for small businesses aims to make the process as efficient as possible by laying down the items you need to secure to complete your tax return quickly.

Here’s a run-through of this tax preparation checklist:

  • Be familiar with the tax time in Australia
  • Know your taxes
  • Gather your financial records
  • Find out all deductions you can claim
  • See if you’re eligible for tax concessions
  • Choose your preferred mode of payment
  • Prepare your payment details

 

RELATED: Corporate Tax Laws to Check Before Starting Your Business in Australia

 

Be familiar with the tax time in Australia

According to the Australian Taxation Office (ATO), the due dates for tax returns are determined by client type, the lodgement due date, and the date the return is lodged.

To make sure you’re on track, ATO provided a list of due dates for lodging and paying. Visit it anytime to see the latest updates.

 

Know your taxes

Businesses in Australia are taxed differently. Know your obligations by looking into your business structure, activities, and income.

Business structure

  • Sole trader - You’re a sole trader if you’re the only one who manages and runs your business. Keep these pointers in mind when preparing your taxes:
    • You can use your personal tax file number (TFN) when lodging your income tax return rather than requesting a new one
    • Apply for an Australian business number (ABN)
    • Register for Goods and Services Tax (GST) if your annual GST turnover is more than $75,000
    • If you’re a taxi driver, an operator of luxury vehicles, or if you provide car-for-hire service, you should register for GST
    • Your income tax rates are the same as individual taxpayers
    • You may be qualified for a small business tax offset if you meet its conditions
    • You can claim a deduction for your personal super contributions
  • Partnership - Your business is considered a partnership if you operate it with two or more people. It has three types: general partnership (GP), limited partnership (LP), and incorporated limited partnership (ILP). Here are the key elements of this structure:
    • Each partner has its separate TFN
    • Apply for an ABN as a business
    • Doesn’t have to pay income tax as a business. Instead, each partner has to lodge their share of the net partnership income in their individual tax return
    • When filing taxes, follow the individual tax rates
    • The partnership may be eligible for the small business tax offset if it meets its conditions
    • Register for GST if the annual GST turnover exceeds $75,000
    • Each partner is responsible for their super contributions.
  • Company - A company is a separate legal entity that is run by directors and owned by shareholders. If your business is registered as a company, you should:
    • Apply for its TFN and use it when lodging its annual tax return
    • Register and comply with all obligations stated in the Corporations Act 2001 to obtain its ABN
    • Register for GST if its annual GST turnover exceeds $75,000
    • The company, not the owner or shareholders, owns the money the business earns unless there’s a formal distribution of profits or wages
    • Lodge an annual company tax return
    • Pay the full company tax rate (30%) or lower company tax rate (26%)
    • Check eligibility for small business tax concessions
    • Can pay income tax by instalments. See PAYG instalments for more information.
    • Pay the super guarantee contributions (SGC) of qualified employees.
  • Trust - If the owner gives you the control to manage his/her business assets, then your business structure is called a trust. A trust should:
    • Have its own TFN and use it when lodging its annual tax return
    • Apply for an ABN
    • Register for GST if its annual GST turnover exceeds $75,000
    • Pay tax based on the terms of its deeds or its trust splitting arrangement
    • Check eligibility for small business tax concessions
    • Pay super of its employees

Key business taxes in Australia

  • Company (income) tax - The tax imposed on all registered companies in Australia. It includes resident and non-resident companies, corporate unit trusts, and public trading trusts.
  • Capital gains tax (CGT) - The tax on the profit you’ve made by selling an asset.
  • Goods and services tax (GST) - The tax levied on goods and services.
  • Payroll tax - The employer withholds the required amount from the employees’ wages and pays it to the government on behalf of the employee.

Other taxes you may need to lodge include:

  • Fuel tax credit (FTC)
  • Fringe benefits tax (FBT)
  • Land tax

You can also talk with your tax accountant for a detailed review of your tax obligations.

 

READ NEXT: How Much Tax Does a Small Business Pay in Australia?

 

Gather your financial records

Before lodging your taxes, make sure your financial records are readily accessible. It includes, but are not limited to, the following:

  • Income statement
  • Balance sheet
  • Receipts
  • Bank and credit card statements
  • Business tax return from the last income year
  • Estimated tax payments
  • Asset purchase details
  • Accounting documents
  • Partnership agreements, if there’s any
  • Depreciation schedules

Keeping good records makes tax preparation easier. We recommend using accounting software to store and generate these records. Doing so will not only save you time but will also secure your documents from getting lost or damaged.

For tax purposes, you have to keep your important records for five years.

 

READ NEXT: Cloud Accounting 101: How Does Cloud Accounting Work?

 

Find out all deductions you can claim

As a business owner, it is crucial to take every penny that comes in — and out — of your business into account. Of course, it includes your taxes. You wouldn’t want to pay more if there’s a way to reduce it, will you?

This is why you should know all deductions you can claim.

In a video series, ATO explained the deductions you’re entitled to receive when operating a business. Here are some key takeaways:

  • The deductions you’re planning to claim should be directly connected to the assessable income you earn.
  • Keep in mind when your business started, including the time you’ve spent before it officially opened. This will allow you to get all the deductions you’re qualified for.
  • There are two methods used to account for your transactions: accrual accounting and cash accounting. Accrual accounting lets you claim the expense in the income year you made the expense. On the other hand, cash accounting lets you claim the expense when you pay the bill.
  • Your expenses are categorized into three main groups: expenses you can claim within the same income year, claim over a number of years, and expenses you can’t claim.

Expenses you can claim within the same income year

You can claim most of your business expenses within the same year such as:

  • Day-to-day expenses - It includes advertising, bank fees, education and training expenses, electricity, insurance, motor vehicle expenses, phone calls, repairs and maintenance, and tax preparation costs.
  • Home office expenses - It refers to occupancy expenses (mortgage interest, house insurance, council rates, rent) and running expenses (electricity, official business phone calls, lighting and cleaning expenses, cooling, depreciation of office furniture and equipment). You can use this home office expenses calculator to compute your allowable deductions.
  • Travel expenses - It refers to any of your business-related travel expenses. However, it usually excludes any travel expenses (even if it’s made for business) you incur before the actual start of your business. To claim deductions, make sure to keep records like receipts, boarding passes, and a diary.

Expenses you can claim over a number of years

Basically, it refers to your capital expenses. Capital expenses are the investments your business makes to improve or maintain your regular operations. Examples are buildings, vehicles, computers, and equipment.

Expenses you can’t claim

The rule is simple: You can’t claim any of your private or domestic expenses such as private travel or private use of your car. Aside from this, you can’t claim:

  • The non-taxable income of your staff
  • Non-deductible expenses (e.g., parking fines)
  • A deduction for GST credits if you’re qualified to pay these separately on your activity statement
  • Expenses you’ve made before your business start operating except for some legal costs in establishing the company and costs of licenses and permits

 

See if you’re eligible for tax concessions

There are several tax concessions available for businesses in Australia like income tax concessions, small business CGT concessions, and GST and excise concessions. Like your allowable deductions, finding out which concessions you’re qualified for will allow you to lower the amount of taxes you’re paying. Always try to figure out how you can work out your taxes so you won’t be paying any excess amount.

 

Choose your preferred mode of payment

You can lodge your taxes through:

  • Instalment - pay the partial amount over an agreed period; available through PAYG instalments
  • Pre-payment - pay in advance
  • Payment transfer - transfer your payment from one ATO account to another

Meanwhile, here are the different payment options available to you:

  • BPAY - Australia’s electronic bill payment system
  • Credit or debit card
  • Online payment - Use ATO’s Business Portal or myGov account linked to the ATO for sole traders if you prefer to pay online
  • Electronic transfer
  • Pay by phone
  • Pay by mail
  • Pay in person at Australia Post
  • Transfer from an overseas bank account

 

Prepare your payment details

Ensure all your details are correct and complete before making payment to avoid inconveniences, delays — or worst — unnecessary debt collection activity.

At this point, the most important information is your payment reference number (PRN) which is also called an EFT code. This unique number guarantees that your payment is credited to the correct account.

Take note that different types of tax require different PRN, so make sure to use the right PRN for the tax you’re paying for.

Meanwhile, if you’re planning to pay at the post office, you need to prepare your payment slip. It is usually available on notices of assessment or statements of account.

Preparing your taxes ahead of time helps you maintain a healthy cash flow. This tax preparation checklist laid down the basic requirements in lodging your taxes. There may have other things we’ve missed out on, especially those complex issues unique to your business. What’s important is for you to start planning now so you’ll know how to pay your taxes accordingly.

 

Stop Wasting Time on Tax Preparation

Why spend a significant amount of time preparing your taxes if you can spend it on your income-generating activities? Get the service of a certified tax accountant with us today. Download our whitepaper Solutions for Startups to learn how we can help ease your burdens in financial management.

Download Solution for Startups

 

Topics: Solutions for Start-Ups

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