From a pandemic to bushfires and floods, COVID-19 restrictions and lockdowns, it goes without saying that the past 12-18 months have been challenging for many Australian small business owners. The good news is that your small business tax return could be the silver lining to a tough year with just the injection of cash (and optimism) you might need right now.
When it comes to running a small business, it might feel like there is a lot that you can’t control – and we know that many SME business owners have had to put in a marathon effort to keep their businesses running. But now is the time to explore all the options possible to make your 2021 tax return work for you.
We’re not tax experts and recommend you speak to your tax accountant before lodging your return, but here are our tips for getting the most out of your small business 2021 tax return.
Claim, claim, claim.
Even as we start to move into recovery mode, the financial outlay required to keep many small businesses up and running in response to the COVID-19 pandemic has been huge. From safety equipment to rising production costs, every small business in Australia has had to spend money to keep making money. So when it comes to what tax deductions you can claim – if you have had to spend money on it to keep carrying on your business and it directly relates to earning your assessable income, you can generally deduct it.
The ATO website has a detailed list of goods and services you can claim, but some of the standout items for 2021 include:
- COVID Safe personal protective equipment (PPE) gear for you, your staff, and your customers for use in your business
- Self-education for small business owners who have been upskilling for their role during lockdown
- New technology required to allow you to continue to operate your business and replicate complex office environments while working from home
- Small business accounting fees
The Government’s Instant Asset Write off and Temporary Full Expensing schemes in place during FY21 also allow you to claim an upfront tax deduction for most assets, such as furniture and computer equipment, instead of depreciating over a number of years. Visit the ATO website for more details or contact your tax accountant to discuss your situation.
Do you declare Job Keeper and Job Seeker?
Like 2020, lodging your tax return this year is slightly more complex than in normal years with the introduction of various government support measures for small business in response to COVID-19. However, when it comes to claiming it’s pretty straightforward – you must declare any Job Keeper and Job Seeker payments as income.
For more information about incorporating the COVID-19 financial packages into your FY2020/21 tax return, check out the ATO’s handy guide.
Unpaid invoices can work in your favour
If you have unpaid invoices that your customers are unable to pay (which is not uncommon given the spate of lockdowns many small businesses have had to endure) then the good news is there’s a chance you can write those off as a bad debt.
‘Bad debt’ refers to any unpaid invoices you might have, where you are confident those outstanding invoices are not going to be paid and you have made several attempts to redeem payment. Writing off bad debts can reduce your taxable income, however as always, it’s best to chat with your business tax accountant about your specific circumstances and how to write off bad debts.
Boozy lunches are (still) not a tax write off
Thinking you can sneak in some pub lunches on your small business tax return this year? Think again. Although it might be tempting to lean into some ‘creative accounting’ at tax time, it’s important to play by the rules when it comes to what you can claim as a small business write off. Aside from the penalties (which can incur fines of up to $360,000 and jail time in some cases), you must also bear in mind you have a business, and staff, to consider.
It’s a good idea to check what you can and cannot claim, but some of the more common mistakes made by small business owners include claiming items such as:
- Client lunches or dinners
- Personal UBER or taxi fares
- Uniform dry cleaning for non-uniform items
- Luxury bags posing as ‘laptop bags’
- Vehicle costs over 5,000km without a logbook
Contact us to find out more about how BOQ Business can support your small business
Australian Tax Office (ATO) – the ATO’s website offers helpful tips including information about business tax rates, a small business income tax offset calculator, COVID-19 support and an A to Z of tax topics.