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Tax Returns: Nexia Court & Co, ATO Issue Tips For Business Owners

Tax time prompts planning warning

By Michelle Hammond
Friday, 06 May 2011

Tax experts are urging business owners to start preparing for tax time to avoid becoming overwhelmed, offering tips to help businesses maximise their tax returns and avoid penalties.


Chartered accountancy firm Nexia Court & Co says in light of the recent crackdown on tax evasion and fraud, it is even more important for business owners to prepare accurate tax returns.


“Companies unsure if any of its business activities may be considered illegitimate should seek advice from the Australian Tax Office immediately,” a company spokesperson says.


The spokesperson says business owners are encouraged to visit the ATO website to keep up-to-date on their requirements, including what they may be eligible to claim as a deduction.


The warning comes just days after the ATO released an alert about tax deductions for holiday packages when they are made to appear as work-related study tours.


This refers to arrangements whereby a taxpayer claims a deduction for expenses, incurred in relation to educational courses and seminars, where the relevant expenses don’t have a solid enough connection to the taxpayer’s employment.


“These expenses include the costs for domestic or overseas travel on a holiday activity or to a holiday destination,” the alert warns.


Paul Drum, head of investment and business policy at CPA Australia, says taxpayers should approach this issue with caution when preparing their tax returns.


According to Nexia Court & Co, business owners also need to consider the following at tax time:

  • Pay superannuation contributions before June 30 to ensure a deduction. Employers must check they have made sufficient superannuation contributions (9%) for all employees on a quarterly basis throughout the financial year to avoid incurring a penalty.
  • Scrap obsolete plant and machinery. The best way to get a write-off deduction for obsolete objects is to review your asset register and take the necessary action before June 30.

    The asset register is a list you should be keeping of all company equipment, including furnishings and all items bought, sold or disposed of during the year.
  • Get capital gains tax concessions. This concession allows you to reduce the capital gain arising from a business asset by 50%.

    To qualify for the 50% active asset reduction, you need to satisfy the basic conditions that apply to all the capital gains tax small business concessions.
  • Value trading stock at the lower cost: market value or replacement value. If you are required to include a value in your accounts of stock on hand as at June 30, you are able to select the most advantageous valuation method, which could allow you to reduce your trading income.
  •  Write-off bad debts and claim back the GST credits where the debt has been outstanding for more than 12 months.

    To do this, the debt must have been brought to account as assessable income and you must have physically written off the debt prior to the end of the year. Bad debts cannot be claimed by taxpayers who recognise income on a cash basis.
  •  Ensure private company loans that extend beyond the end of the income year are properly documented.

    If they are not set up correctly they may be deemed by the ATO as unfranked dividends paid to the shareholder by the company. If this is the case, you could be paying more tax than necessary.

  • Review PAYG installment obligations. Consider varying the installment for the June 2011 quarter where your estimate of income tax payable for the year is less than the installments calculated by the ATO.
  • Claim a deduction for directors’ fees and bonuses. If you intend to pay directors’ fees or bonuses to your team, you may be able to claim the deduction in this financial year.

    Let the people you’re paying know the fee or bonus will be paid and document proof that you advised them prior to the end of the tax year.

    The payment does not have to be made this financial year to claim the deduction. If the payment is not made until July, the person will not have to declare the income until the next financial year.

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