As the end of the financial year approaches, the Australian Taxation Office (ATO) is actively reminding small businesses about crucial considerations they need to keep in mind.
These reminders are aimed at helping small businesses navigate their tax obligations, maximize deductions, and stay compliant with the latest regulations.
The ATO recognizes that the end of the financial year can be a hectic time for small businesses, with numerous financial responsibilities and deadlines to meet. Therefore, it emphasizes the importance of being well-prepared and proactive to ensure a smooth transition into the new financial year.
As tax time approaches, the Australian Taxation Office (ATO) is urging small businesses to take note of three crucial factors:
Small business boosts: Unlocking opportunities
Small businesses investing in digital operations, skills training, or new equipment can benefit from a bonus 20% tax deduction. Eligible expenses, such as technology, cloud computing, e-invoicing, and cybersecurity, can lead to a $120 tax deduction for every $100 spent. However, there are caps on the total amount claimable. Businesses must ensure that items purchased are used or installed ready for use by June 30, 2023, to qualify.
Additionally, the Small Business Skills and Training Boost provides an extra 20 per cent tax deduction for training new and existing employees. Training must be conducted through a registered external training provider in Australia and is applicable between March 29, 2022, and June 30, 2024.
Temporary full expensing (TFE) deadline looms
Small businesses can still claim an immediate deduction for eligible assets used or installed by June 30, 2023. However, after this date, assets not in use or ready for use will no longer be eligible for an immediate TFE deduction in this year’s tax returns. The TFE mechanism supports small businesses by allowing immediate deductions for assets rather than depreciating them over multiple years. If assets are not installed and ready for use by the deadline, alternative deductions can be claimed under general or simplified depreciation rules.
Changes in deduction rates
Deduction rates for running a business from home and car expenses have been modified. Key points to note are:
- Car Expenses: The new rate per kilometer is set at 78 cents for the 2022-23 period. It is crucial to maintain written evidence to substantiate work-related kilometers. This method applies to sole traders and partnerships. Additionally, the car limit has increased to $64,741 for the 2022-23 income year.
- Working from Home: Small businesses can choose between the actual cost or fixed-rate method to claim deductions. However, only the fixed-rate method has undergone changes. It is important to consider the impact of business structure, particularly for companies or trusts, on the method and expenses that can be claimed.
ATO Assistant Commissioner Emma Tobias advises keeping comprehensive records to maximise deductions during tax time. Recognizing that tax matters can be complex, the ATO advises small businesses to seek guidance from registered tax professionals who can provide tailored advice based on their specific circumstances. Moreover, the ATO’s website serves as a valuable resource where small businesses can access relevant information, guides, and tools to navigate the end-of-financial-year process effectively.