Tax Preparation for Small Businesses in Australia
Getting started – Step 1.
It is of the utmost importance to have the structure of your business right from the very beginning. This will ensure that your business has a strong foundation to support it going forward into the future and that it will be profitable. Being aware of every area of the business that needs to be addressed before you open the doors is imperative for the future success of any small business venture.
To safeguard any problems arising with your business in the future it is important that you access all the support that is available to you before you start planning. The tax obligations you will have as the owner of a small business, how to fulfil these obligations and when and how to pay any tax due to the Australian Tax Office is an important component of the operation of any small business. This is something every owner will need to address before opening the doors for the first time. If you comply with the requirements of the ATO from day one you can avoid any unnecessary financial worry and stress, and a possible impact on the operation of your business. Taking the time to understand all requirements will go a long way to prevent any mistakes that may cost you valuable time and money.
Consulting a Tax Professional
Before you begin to develop your business plan ensure that you put consulting a tax professional, like SDP Tax Accountants, at the top of the planning list. They will have all the experience needed to support you to structure your business so that it will be compliant with all the ATO tax requirements and in the process making sure that you avoid any possible problems from the day your business opens its doors.
Important issues a tax professional will be able to advise you on are the following:
- The most supportive type of structure for your business.
- What you need to know about the day to day running of your business.
- The tax obligations set out by the ATO and how to implement them.
- The annual cost of their support for you and your business.
Maintaining regular contact with your tax professional
It is important to you keep your tax professional regularly apprised as to how your small business is doing. In doing so they will then be prepared to support you to deal with any unexpected issues if they arise. Keeping your tax professional informed about the up to date situation of your business, especially your current status as regards your tax obligations, will ensure that the daily operation of your small business will be as smooth as possible.
Do not put off consulting your tax professional if the business is experiencing any problems, as the sooner they become aware of the issue the sooner they will be able to advise you on the optimal way to deal with what has arisen.
Keeping up to date and very accurate information on all aspects of the financial side of the business that relates to your tax obligations is essential. Always ensure that you keep accurate information on all your business dealings relating to your tax obligations. Being able to instantly access accurate and current records will keep any problems and associated stress to a minimum.
The first year of business
Start any planning for your small business by first understanding all the tax requirements of the Australian Tax Office that will be applicable. These requirements will include your business’s ongoing tax obligations which will include the planning for paying the annual tax bill and on what date this will need to be paid to the ATO.
When preparing your taxes, it is essential that you:
clearly understand all the tax obligations for your type of business before you are ready to open the doors.
take the time to investigate what are the most efficient and simple ways to keep all the records you will require to keep an accurate track of your business income and your business expenses.
decide on which business structure suits your business and to ensure that you have a full understanding of all the implications regarding the tax and legal requirements that will relate to this type of structure.
if your small business is to be a home-based business, then there are definitive guidelines to follow from the ATO. These will include the specific expenses you will be able to claim, or not claim, on an annual basis.
use the information from the ATO to confirm when your tax obligations commence and when payments will be due to be paid.
Tax payments in your first year of business
From the day you start to plan for your business, it is crucial to have the clearest understanding of all your tax obligations as set out by the Australian Tax Office.
It is important to:
- make sure that you put aside sufficient funds to pay your first tax bill.
- set up a tax bill account to pay any pre-payments into.
- begin to pay tax due instalments on a voluntary basis.
Keeping records for a small business
Current and accurate record keeping is essential from day one if your small business is to run as efficiently as possible. All your business relatable records, including any income and expenses information is required by the ATO to be retained for five years.
To help to record and retain all transactions relating to your small business it is crucial that you use the latest business technology available which includes accounting systems and point of sale software suitable for your business needs. Using these systems will enable a speedy summary of the current financial state of your business.
To also support your understanding of the financial state of the business make sure that you regularly carry out your own reconciliation processes by using the information available including the business’s bank statements, the till tapes, all receipts, and tax invoices.
This is where a tax professional such as SDP Tax Accountants, can support you and your business as they will have all the information you will require to ensure accurate record keeping. As they keep up to date with any changes in tax laws and tax obligations for a small business, they will be aware if there are any changes coming into law that will affect the daily running of your business as well as its tax obligations.
Income and Expenses – Getting it right at the start
To ensure that you submit an annual tax return that fulfils all your tax obligations as set out by the ATO it is essential to set up a business system that will keep an accurate and current summary of the business’s income and its expenses.
Income recording for a small business
- As set out by the Australian Tax Office all income that is related to your business must be declared. This income includes any cash payments made to you and any other funds that have been paid into a private account.
- You are held responsible to ensure that the reporting of the business’s income is accurate and that this can be supported by the business systems you have put in place.
- Any business irregularities can be tracked by the ATO so being totally honest with all aspects of your financial dealings will avoid any potential investigations by them.
Expenses recording for a small business
Before your business is ready to begin operations it is advisable to consult a tax professional such as SDP Tax Accountants for information regarding the business expenses you will be able to claim.
It is essential to clarify if the expenses you are claiming are related to the running of the business. Record and retain the relevant paperwork so you can produce it if in the future, proof is required that they are genuine expenses.
A business that is operated from home, either as a sole trader or as a partnership will be able to claim deductions for certain expenses. These will include deductions for a percentage of the interest you pay on the mortgage for your home, your home insurance, council rates, rent if you are a tenant of the property, the business phone, and your internet connection. The same percentage will be able to be claimed for any repairs to the home as long as you have the required documentation to support your claim.
The percentage of the expenses you can claim is calculated by working out the area of your office compared to the total area of the dwelling.
Expenses that are accrued by a home-based business are known as occupancy expenses and running expenses.
Reporting your small business activity
The tax professional you employ to support you and your business will be able to advise you on the mandatory process of reporting the status of your tax obligations and the income accrued by your business.
The two main reports that you will be responsible for on an ongoing basis are:
- Your annual income tax return.
In this return you will report the income from the business, your personal income, and the expenses and deductions that you are able to claim for the specified period.
- Your Business Activity Statement (BAS)
In your business’s activity statement, you will be regularly reporting on the amount of income tax that will be applicable to you and your small business.
- You will be required to report the amount of income tax you have withheld from your employee’s income, if this is applicable
- When you have registered for the ‘Pay as you go’ instalments systems you will be required to declare the instalments that are paid towards your personal tax.
- If your business is registered for GST (Goods and Services Tax) you will need to report the amount of GST that the business is liable for in a specific period.
Here at SDP Tax Accountants, we have assembled an exceptionally experienced team of tax professionals who are here to support you through every facet of the establishment of your small business and its ongoing operations. These professionals will advise you on your responsibility as to your tax obligations, the preparation of the required tax reports and the payment of taxes that will be due at certain times during the year. They are here to provide you with the answers to any questions you may have as well as the ongoing support for your business venture today and in the years ahead.
Disclaimer: the information contained in this article is for general information purposes only and in no event will SDP Tax Accountants or its affiliated entities be held liable for any loss or damage caused through the use of this information. Independent advice is recommended for all individual circumstances. Data and specifications included correct as at May 2021.