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What Sole Traders and SMEs Need to Know at Tax Time

tax time

By Bessie Hassan | Money Expert at finder.com.au

The end of financial year (EOFY) represents a time for small businesses to examine their business finances and to ensure that they’re in a position to meet their tax obligations. Whether it’s paying your taxes, seeing what concessions you can claim or learning more about new tax rules that affect your business, it’s important that you prepare as best you can.

Below are some of the key things you should keep in mind before submitting your tax return for the 2016-17 EOFY.

  • Find out what taxes you need to pay

As a business owner, you are responsible for both GST and PAYG. For GST, you need to pay 10% of your taxable goods and services. To cover PAYG, you’ll need to pay deductions from the gross wages you pay to employees.

Generally, you’ll pay these taxes when you submit your Business Activity Statement (BAS) to the Australian Taxation Office (ATO). If your annual income exceeds $75,000, you’ll need to register for GST if you haven’t already done so.

You may also need to pay business income tax. Your obligations for this tax will depend on your company structure. If you’re operating as a sole trader, your tax will come out of your personal income tax, whereas if you’re a company owner, your small business income tax rate is 27.5% and you’ll need to pay this at tax time.

  • See what concessions are available

Knowing what unique tax breaks or concessions are available to your business can help you pocket more money at tax time.

Firstly, you may be eligible for GST credits which can reduce the total amount you fork out for business tax. The amount you can claim in GST credits is typically the amount you’ve paid in GST for business-related costs.

For instance, if you pay $1,000 for a laptop and you pay $100 GST on it, you can potentially claim $100 in GST credits. This is because you’ve already paid $100 in business tax for this expense.

You may also be able to take advantage of the small business tax offset. This tax offset is provided for those who are paying tax on small business income. In 2016-17, this is an 8% discount up to a maximum of $1,000 per annum. Both small business sole traders and those who earn a share of a small business are eligible for this offset.

The tax write-off scheme for small businesses 

If you purchase an asset before 1 July 2017 and it’s valued less than $20,000, you can deduct the business portion of the expense right away. You will have to have an annual turnover of $10 million or less if you want to claim a deduction for the business portion of the asset.

However, you can’t immediately deduct assets costing $20,000 or more.

  • Know what deductions you can claim

You can also claim tax deductions for business costs incurred during the 2016-17 financial year. For example, if you’re a sole trader and your home is your place of business, you can claim deductions for a portion of the costs of owning, maintaining and using your home to run your business.tax time

These deductions include occupancy expenses (eg, council rates and land taxes) and running expenses (eg, gas and electricity or cleaning costs). Keep in mind that if your home is your primary place of business, you may be liable for capital gains tax when you sell the property.

You can also make deductions for salary, wages and super contributions, so be sure to check out the ATO website to find out more.

Also, if you work in the medical industry, the BOQ Specialist platform provides support for businesses, including for doctors, dentists and vets, so this could be a useful resource at tax time.

  • Lodge your income tax return

As a sole trader, you’ll need to submit a tax return for individuals and a business items schedule for individuals. In your return, you’ll need to disclose your taxable income, including your assessable business income less any deductions you can claim.

You can submit your tax return online through myTax or with a registered tax accountant.

Tax time doesn’t have to be daunting as long as you do some research and make sure you’re meeting the financial responsibilities for your business.

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About the author: Bessie Hassan is the Money Expert at finder.com.au – Australia’s most visited comparison website – and is a respected media commentator who regularly appears on radio, TV and throughout digital publications sharing her best money-saving hacks and advice. 

This blog post is for general information purposes only and is not intended as financial or professional advice. It has not been prepared with reference to the financial circumstances of any particular person or business and should not be relied on as such. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article.

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