,

Taxing Wisely: 5 Tips to Use Your Tax Refund

Paying taxes is an activity that any law-abiding citizen must do. By paying taxes, there are times when you get a tax refund. As the name suggests, a tax refund is an excess of taxes that are given back to the taxpayer.

Most people would agree that a tax refund is a lifesaver. This is because an annual tax refund gives you many options on what to do with it, such as paying back debts or simply saving them for future use. In other words, a tax refund has a significant effect on your finances.

How exactly do you use your tax refunds wisely? This article lists down some ways that you can do this. Read on below to learn more.

#1 – Super Contribution Top-up

According to the Australian Securities and Investments Commission (ASIC), the average single person who retires at 65 with a “modest” lifestyle will need approximately $300,000 today to retire. On the other hand, those who want a “comfortable” lifestyle in retirement will need roughly $544,000.

For most people, those are massive numbers. If you add to your super very early on, it gives your savings a lot of time to grow. Simply get in touch with a superannuation advisor, and they will tell you how to transfer your tax refund into your super fund. It may seem like a small thing now, but your future self will thank you once you retire.

#2 – Term Deposit for Your Children

If you have children, your tax refunds can be used for their benefit. Tax refunds are like a long-term investment that you can use for your children’s big-ticket expenses, such as their education or their first car.

While not everyone has term deposits on their plans, it pays to set aside some funds for your children—especially considering the rising living costs in the country.

#3 – Buy Work-Related Equipment

Buying work-related equipment such as computers is no easy task. If you don’t have enough money, chances are you’ll be stuck with a subpar piece of equipment that hinders your job performance.

Work-related items that cost more than $300 must be depreciated over the “life” of the item. If you buy them by the end of a financial year, then the benefits on your subsequent tax will be small.

On the other hand, your depreciation calculation will cover more time if you buy them between July to August. In other words, it’s a bigger deduction on your next tax return.

#4 – Pay Off Debts or Loans

If you have credit card debts or personal loans that you’re paying off for a long time, then it’s recommended that you use your tax refunds to pay for them.

It’s a good idea to do so because your interest repayments will go down as soon as you lower your outstanding balance. Aside from that, you can now use the money for yourself instead of it going to your lender.

#5 – Put It in a Mortgage Offset Account

If you have a mortgage, chances are your mortgage provider is offering a mortgage offset option. A mortgage offset account is like a savings account, but it works a little differently. Your offset balance is deducted from your outstanding mortgage loan balance to calculate the interest component of your mortgage payments.

Because of this, you end up paying less interest for your mortgage, which leaves you with more money. You can pay off your mortgage quicker while your offset account balance is ready to be used in case of an emergency.

Conclusion

Tax refunds are money that comes back to you, so you must use them wisely. You can use them to pay debts or save them for later if a financial emergency occurs, as well as keep them as deposits for your children. In the end, you’ll be glad you have done so, because you will be able to get out of a bad spot quicker.

SMB Accounting has knowledgeable tax consultants who can help you get started with taking care of your tax refunds. We make sure that our clients use their tax refunds wisely, and we also offer other services such as accounting and business advice. Contact us today for a consultation!

/by
,

Your Guide to Claiming Home Office Expenses in 2021

Even if the room is not set aside purely for work-related purposes, you may be able to claim a tax deduction for the costs of running your home office, provided you did some of your work from it in the previous financial year. These critical tax deductions typically cover the expenditures of working from home or running a home-based business.

The question is, how can you claim your home office expenses this year? This essay will serve as a roadmap for you.

What are the new arrangements?

Due to COVID-19, the Australian Taxation Office (ATO) made specific provisions last year to make it easier for persons to claim deductions for working from home.

Rather than calculating expenditures for specific running expenses, the new ‘shortcut technique’ allows people to claim a rate of 80 cents per work hour for all their running costs.

This rate is available to multiple people living in the same residence. For instance, a couple living together might each claim the 80 cents per hour rate.

Which strategy should you use when claiming?

You have three options for calculating your home office expenses:

Shortcut Method

Claim a rate of 80 cents per work hour for all additional running expenditures.

Fixed-Rate Method

Calculate the work-related portion of your phone and internet expenses, computer consumables, stationery, and the decline in value of a computer, laptop, or similar device at a rate of 52 cents per work hour.

Actual Cost Method

Claim the portion of all your operating expenses directly relevant to your job, which you must calculate on a fair basis.

Whatever approach you use, please follow the following rules:

  • The money has to have been spent by the taxpayers and not repaid.
  • The claim must be directly tied to income generation.
  • There must be documentation to back up the claim.

What are the expenses you can deduct?

You can claim the following expenditures if you are claiming using the fixed-rate method or the actual cost approach.

Running Expenses

Home office operating expenditures, such as energy, gas, and office furniture depreciation, can be deducted (e.g., desk, tables, chairs, cabinets, shelves, professional library).

You should keep diary/logbook documentation for four weeks to prove a pattern of working from home and justify the number of hours you are claiming, exactly like with a motor vehicle claim.

When no additional costs are spent, such as when you work in a room where others are watching TV or when the income-producing use of the residence is incidental, no deduction is allowed.

You’ll need receipts for the following expenses:

  • Work-related equipment in the home office.
  • Repairs to the home office, as well as furniture and equipment utilised for business reasons.
  • Cleaning costs for the home office.
  • Any extra costs associated with maintaining a home office on a day-to-day basis.
  • Keep a journal entry for each of your minor expenses ($10 or less) that total no more than $200.

Telephone (and mobile phone) and Internet Expenses

If you can recognise work or business calls from an itemised phone bill, you can claim the deduction for the billed percentage related to work or business.

For the whole year, a representative four-week period will indicate a pattern of internet and telephone use.

If you are “on-call” or compelled to contact your company or client frequently, your phone rental expenditures may be partially deductible.

Equipment Depreciation Expenses

You can claim depreciation on home office equipment such as computers, printers, photocopiers, scanners, and modems, but it must be allocated to the equipment’s use for work or company purposes. You can claim depreciation on office equipment and furnishings if you use the actual cost approach.

Occupancy Expenses

Only if the residence is used as a place of business is a claim for occupation expenditures allowed. The claim must be filed as an apportionment of total expenses incurred on a floor area basis.

  • Rent
  • Interest on a mortgage
  • The cost of water
  • Repairs
  • Premiums for homeowners’ insurance.

If you sell your home in the future, being able to claim these expenses may influence your principal residence exemption for capital gains tax reasons.

When does a house become a business?

The following indicators, none of which are conclusive on their own, may help to determine if a designated area contains the characteristics of a business:

  • The area is marked as a business district.
  • The area is not readily adaptable or suited for private or domestic use in the home context in general.
  • The region is used solely or virtually exclusively to conduct business.
  • Client or customer visits are typical in this area.

You are not entitled to a deduction for occupation expenses if you use your house to carry out income-producing activities as a matter of convenience. It would be unusual for a worker to be able to claim travel expenses.

Working with a tax professional can help you avoid common mistakes while filing your tax return and maximising the amount of money you get back. Please contact your trusted accountant on the Sunshine Coast from SMB Accounting for assistance with your tax return!

/by

8 Factors to Consider When Choosing Accounting Software

When running a small business, you’re typically working with a small budget, which means you’re always looking for the most cost-efficient way of doing things. You don’t have the time to manually do your business’s numbers, so it makes sense to choose from the many accounting software packages available. However, finding the best one for your needs can be challenging, especially when the software seems similar.

Fortunately, a few things can help you select a small business accounting software that perfectly matches your company’s needs. Here are eight factors to think about when choosing accounting software for your business:

Overall Functionality

Before you start your search, write a list of the core functions that you need. Whether you want to raise purchase orders or hold a stock of raw materials, ensure that your chosen software accommodates all that. Although all adequate accounting systems will help you keep basic accounting records, they vary in functionality, making it essential to determine what you want before starting your search.

Industry-Specific Capabilities

Depending on your business’s industry, you may need specific functions out of your accounting software. If you’re an online business, you’ll want accounting software that easily integrates with eCommerce programs. For this reason, avoid limiting your search to popular, general accounting packages, as you might not get the most value from them.

Multi-currency Abilities

If your business regularly posts transactions in other currencies, you’ll need software that offers multi-currency functionality, allowing you to post transactions in foreign and home currencies. If your other assets and liabilities are in different currencies, you must perform currency revaluations, making this feature vital in the software you choose. It’s important to note that foreign currency functionality isn’t a standard inclusion in business accounting systems, so ensure to check for it when you find software that seems to fit you.

Cloud or Desktop Software

Before the Internet, desktop software reigned supreme. Nowadays, cloud software is the norm, as you can access your accounting system regardless of where you are. Other people can also enjoy access to your accounts to take care of specific tasks for you, like your accountant or bookkeeper. However, you’ll need Internet access for cloud software to work, which is a factor to keep in mind if you have an unstable connection. 

Bank Integration

Another feature that makes accounting software incredibly convenient is bank integration, allowing you to download your bank transactions and complete bank reconciliations. If you automate these processes, you’ll save a lot of time and effort. 

Scalability

Since you intend to make your business grow, you’ll need software that can grow with it. An expanding business naturally means more transactions, which means you’ll need software that can process a steep increase in volume. Be sure to check the upgrades you may need to keep up with the future growth of your business and how much they’ll cost.

Security

Security is an essential feature in the software that you’ll need to inspect yourself. You must outline what each user can do or see on your system, especially when you have multiple people using the software. Look for role-based security as well for added defences.

Customer Support

Lastly, choose small business accounting software that offers exceptional customer support. When you first use the system, you’ll need to be walked through its features, requiring training from the software provider. Once you get accustomed to the system, you’ll also need continuous support. Opt for software with 24/7 support, mainly when you use the weekends to update your accounts.

Conclusion

Finding the perfect accounting software is crucial for every business, as it will help you keep a close eye on your finances and ensure you stay afloat. By considering these factors, you’ll find software that perfectly suits your needs.

SMB Accounting is a team of business accountants on the Sunshine Coast offering small business accounting, individual tax returns, accounting software consulting, and various audits. Contact us today to learn more about how we can help your business!

/by

Financial Statement Basics Business Owners Should Know

Financial statements are an integral part of any business, as they explain the company’s performance in terms of finances and profitability. Some of the basic financial statements business owners need to be familiar with include the balance sheets, income statements, and cash flow statements. 

What Is a Balance Sheet?

The balance sheet lists down a business’s assets, liabilities, and equity. This shows the company’s financial position at a given point in time. 

A company’s assets include anything that can generate revenue, and they may be tangible or intangible. Tangible assets include cash, equipment, machinery, vehicles, and inventory, among others. On the other hand, intangible assets could consist of copyrights, patents, trade names, and trademarks.

Next, there are liabilities. A liability is essentially something the company owes. These could include accounts payables, loans, mortgages, accrued expenses, and more. 

Lastly, there’s equity. One of the basic formulas in accounting is “assets – liabilities = equity,” which shows a company’s true value. Equity is also commonly referred to as owner’s equity, shareholder’s equity, or net worth, and it could include retained earnings, common stock, and additional paid-in capital.

What Is an Income Statement?

The income statement shows a business’s income and expenditures for a period of time. It will basically indicate whether a company is making a profit or a loss. The income statement also provides information regarding operation capabilities, returns on investments, financial flexibility, and risks. 

What Is the Cash Flow Statement?

The cash flow statement or statement of changes in financial position shows the cash inflows and outflows of a business. These cash flows can be categorised into operating activities, investing activities, and financing activities.

Generally, the operating activities show where the cash came from and how it was used concerning a company’s daily operations. These include cash from sales and inventory. On the other hand, the investing activities are cash activities related to the buying and selling of assets. Lastly, the financing activities involve a company earning money from bond issues or stocks.

How Are Balance Sheets and Income Statements Connected?

These two financial statements connect through the net income account. By using an income statement formula, a business can generate its income statement. This formula will calculate the net income by deducting the expenses from the revenue.

Since income statement accounts are temporary and adjust back to zero at the end of every month and year, the net impact of the income statement is shown as the net income on the balance sheet. So, the ending balances of the income statement get carried over from one month to the next in the balance sheet.

How Are Balance Sheets and Cash Flows Connected?

The cash flow statement will add up all the inflows and outflows to get the net change in cash for a given period. This ending balance should be equal to the balance sheet’s ending cash balance. 

Conclusion

The balance sheet shows a company’s financial position at a point in time by listing the assets, liabilities, and equity. On the other hand, the income statement reflects the company’s income and expenditures. The ending balance of a month’s income statement is carried over to the next month in the balance sheet as the net income. Lastly, there’s the cash flow statement which documents the cash inflows and outflows of a company. The ending cash balance of the cash flow statement and the balance sheet must be equal. 

For your business’s accounting needs, you can count on SMB Accounting to do the job right. We are accountants in Sunshine Coast, QLD, that is fast becoming a leader around Australia through outstanding service to our clients, both business and individuals alike. We offer a range of accounting services, including business advice, taxation and XERO/MYOB/Quickbooks consulting. Contact us today to get started!

/by

3 Things to Consider Before Auditing Your Trust Account

Trust accounts are a unique way to keep your assets and earnings safe. Basically, an agent will handle and manage them for you until such time that you will need them again. Think of it as a way of asking a friend to look after your valuables, and the only time that they will give it back is when you will finally use them. Of course, the conditions in a trust account are a bit different. The grantor has to surrender the assets to the third party or the trustee first before they may even be given to you, the beneficiary, at the right time. In any case, the principle is basically similar.

For the main reason of keeping tabs on the records and checking for any discrepancies, you may want your trust account audited by a professional. However, not everyone is familiar with the ins and outs of the process. In such a case, you must first consider the following pointers before sending in the auditor. Not only will they ensure that the process goes smoothly, but they will also enable you to understand the procedure as a whole.

1. Keep a Receipt of All Your Processes

Receipts are a great way to have a paper trail of your own. Most of the details that the auditing process will touch on are included in them. If you do not save them, you may be overwhelmed by the amount of backtracking that you’ll have to do just to find all the necessary evidence to debunk any error in the computations. Receipts will support your claim if the total by the end doesn’t add up. The auditing process is not simple; that is why you should prepare all the necessary paperwork to ensure that your auditors will not have a hard time keeping tabs on the numbers.

2. Utilise Accounting Software to Help With the Process

You do not have to worry about this if your auditor already has all the necessary tools to accomplish the task efficiently; however, you may still need to coordinate this with them. Accounting software will definitely make it easier for everyone, not to mention quicker and accurate.

Most accounting software today even has the functionality of reconciling the numbers between the account and the other transactions involved in that account so that you and the other parties will have a clear view of what went on with your trust account.

3. Create a Digital Footprint of Your Transactions

This is somewhat similar to the first pointer, but you will have a digital copy of all the numbers at your disposal instead of keeping physical receipts. Your auditors will not have a hard time trying to track your account transactions, and neither will they encounter any miscalculations as the digital trail is enough to piece together a “story” of what is currently happening with your trust account. Don’t worry about your privacy, as the only ones who will access your digital trail would be your auditor, your grantor, and your trustee. Think of this method as your security camera, a sure way of monitoring how and when the assets were handed to you by the trustee, going as far as to include the exact amount.

Conclusion

There are a couple of things to consider when auditing your trust account. While it may be tempting to jump ahead to the process itself, a few preparations are set in place to ensure that you and the auditor will not have a hard time analysing the numbers. Keeping tabs on the process and the transactions will not only show your grantor that the assets they’ve entrusted with the trustee were delivered on time, but it will also give them an idea of how you were able to use them once you’ve received them. Prepare for the audit and see the appropriate results.

If you would like to get an accurate financial audit of your trust account, look no further than our expertise here at SMB Accounting. We specialise in individual tax returns, small business accounting, SMSF audits, among other things. Contact us today for more information about our accounting services.

/by

What Are the Requirements for SMSF Auditing and Reporting?

A self-managed super fund (SMSF) is a private super fund that allows for more control over a person’s retirement savings. It is different from retail or industry super funds; this type enables individuals to choose investments and insurance. 

An SMSF allows up to six members, with most having two or more. These members are trustees who are responsible for the fund. Although controlling one’s own super may sound enticing and beneficial, the individual must be ready to shoulder the responsibilities that come with it. 

Having an SMSF is a significant commitment that entails a lot of work. With this, it’s necessary to know what obligations you will have to follow as a member.

What Are My Obligations as a Trustee?

SMSF trustees have many legal obligations that need to be met, ranging from reporting and record-keeping to administrative responsibilities. They must ensure that the fund complies with superannuation legislation and taxation. Otherwise, they are subject to penalties from the Australian Taxation Office (ATO).

Although it requires a significant amount of paperwork, keeping up with the obligations also ensures that the fund remains eligible for tax incentives under Australian superannuation law. For compliant super funds, member contributions and earnings have a concessional rate of 15% in Australia.

Hiring an Approved SMSF Auditor

SMSF members must appoint an auditor at least 45 before the due date of the annual return. It’s necessary to hire an independent auditor that must not have a financial interest or any personal relationships with the fund trustees. They will be required to register with the Australian Securities and Investments Commission (ASIC).

The auditors will be in charge of bookkeeping and assessment to check if the fund is compliant with superannuation law. They will request documents that need to be provided within 14 days. They also have the obligation to report any non-compliance issues to the trustees and the ATO.

Record-Keeping Duties

When working with SMSF auditors, it’s best to keep records in check to ensure quick and efficient completion of requirements. Doing so can help all parties involved save a significant amount of time and money.

General records include trust deeds, fund member information, a documented investment strategy, trustee declarations, registration documents, and the minutes of trustee meetings. These are necessary to provide complete and accurate information for the SMSF.

Financial year records are also essential for preparing financial statements, tax returns, and an annual audit. Required documents generally include the fund’s income, assets, member benefit payments, and deductible expenses.

Reporting Requirements

Once an SMSF member starts a retirement phase income stream, they must submit a transfer balance account report to the ATO. This report should include details about the income stream. From that point forwards, any event that may affect a trustee’s transfer balance must be reported.

Members must also report any changes to SMSF fund members/trustees to the ATO within 28 days. 

Annual SMSF Supervisory Levy Payments

SMSFs need to pay an annual supervisory levy to the ATO. Trustees need to pay it in advance, meaning they must pay double the annual levy in the first year of the operation.

Hire SMSF Auditors in Australia Today

Managing an SMSF has many benefits, including more control over retirement savings. However, it does have its fair share of responsibilities. By keeping these obligations in mind, you can better ensure that you’re fully protected and compliant with the laws and regulations in place.

If you’re looking for SMSF auditors in Australia, SMB Accounting has you covered. Our professionals will provide you with highly efficient and comprehensive audit work, ensuring that all requirements are covered. Get in touch with us today!

/by

3 Simple Tips to Keep Your Business in Line with the ATO

Businesses of all sizes must guarantee compliance with Australian Tax Office rules. ATO maintains a close eye on all commercial operations. Failure to comply with their guidelines—whether intentional or unintentional—will result in severe fines. Australian businesses are expected to disclose total income, file complete and accurate tax statements, submit returns and statements on time, and correctly withhold sums needed under the PAYG system.

To make sure your business doesn’t end up in hot water with the authorities, you must ensure that you keep your tax obligations in mind. Here are some basic guidelines for companies to follow to guarantee tax compliance and avoid fines and penalties.

The Need to Identify Business Expenses

It is a must for businesses to be able to identify business-related expenditures since non-business expenses are not deducted. The Australian Tax Office’s “three golden criteria” for defining business deductible expenditures are as follows:

  • If the cost is for business and personal use, you may only claim the amount utilized for business.
  • The expenditure had to be for a commercial purpose, not for personal use.
  • You must keep documents to back up your claim.

Evidence of business expenditure must contain the following items:

  • Name of supplier
  • Nature of the goods or services
  • Date the expense was paid
  • Amount of expense
  • Date of the document
  • Tax invoice number
  • Payment summaries, bank statements showing earned interest, and receipts or invoices for asset purchases and sales are all examples of evidence.

Consider the Costs

There are financial expenses associated with handling tax affairs, such as buying tax reference material and tax software. These expenses may be deducted as well. ATO has highly developed data analytics and data matching technologies used to detect work-related expenditures.

The ATO also possesses the information needed to target internet merchants, credit cards, and share registrations. Given the digital predominance of business revenue activities, caution is advised. Failure to comply with the ATO’s reporting requirements may result in fines of up to 75% of the shortfall amount or the difference between your actual tax due and calculated based on the information you supplied.

Utilize Tax Advice and Other Tools

While hiring tax accountants has a cost, our expertise and experience mean that we can handle the intricacies of tax time and guarantee that you satisfy the ATO’s tax obligations. Other accounting software programs (like Xero) may be used to help manage invoicing, single-touch payroll requirements, and other data. Cloud technology, like Xero, links you with your accountant and centralizes information in real-time, making the process easier for everyone involved. These apps have grown in popularity owing to their user-friendly approach to handling the accounts and taxes of small businesses.

Final Thoughts

Accounting is essential in companies of all sizes. However, it frequently falls to the bottom of the priority list for small company owners, especially when juggling all other duties of managing and sustaining day-to-day operations. It should never be an afterthought. Maintaining balanced accounts may assist you in financially forecasting months in advance and alerting you to possible financial shortages. Accounting knowledge may even help you rescue your company if times become bad.

At SMB Accounting, we specialize in many financial services. Our SMB consultants can help you with your income tax returns, audits, company set-ups, and ongoing bookkeeping and accounting services that will help your business stay on top of its finances. Get in touch with us today!

/by
,

How To Survive a Tax Audit: A Checklist for Small Businesses

You’ve got mail! The Australian Taxation Office (ATO) is requesting a tax audit of your business. Since it is your first time undergoing this, you start to think of what you need to prepare for the auditing to ensure that you won’t miss any important detail. 

Surviving a tax audit is no easy feat, as even the most seasoned business owners will be tested. Instead of fidgeting, why don’t you take a good read of this blog and learn what you should do to prepare for a tax audit? Here are some steps you can take to make sure that you have a smooth auditing experience. 

Always Keep Your Records Accurate and Updated

Having inaccurate data will prompt the auditor to dig further for nonconformities. To ensure that the audit will run smoothly and be completed quickly, keep your records updated and error-free. 

One of the ways to organise your records is by using accounting software to store your data. The best accounting program to use should be equipped with the updated tax regulations to comply with them easily. Working alongside your accountant or a tax professional will also keep you in check of the taxes your business should be paying.

Check Your Tax Return Entries Twice Before Submitting

Errors are inevitable. While you are confident that your accountant is competent enough to produce an error-free tax return form, it won’t cost you a penny to double-check the entries. The margin for error gets wider when you enter data manually. You can avoid having erratic entries when you use accounting software.

Organise Your Documents and Keep Files From the Last 5 Years

As a standard practice, auditors only check on the previous year’s tax return. However, they can also audit tax documents covering the last five years, especially if they find enough proof that you are understating your business’ taxable income. If you organise your files regularly, it will be easy for you to take out the necessary documents at any time to back up your claim. 

Correct Errors Immediately

When you spot errors in your tax return, being diligent in rectifying them pays off. The ATO has the discretion to reduce your penalties for the tax entry miscues.

Aside from these must-do tasks, you need to know what the ATO looks for, so you are prepared anytime you get a notification from the office that you will get audited. Below are some of the things about your business that the ATO will probe into:

  • An accurate declaration of all your income
  • Deduction entitlement, credits or tax offsets claimed
  • Accurate reporting and withholding of Pay As You Go (PAYG) figures
  • Accurate calculation and reporting of other tax-related obligations

As a tip, never think even for a second that the ATO will overlook some discrepancies with your tax documents as the institution uses a system that can reveal irregularities and unusual transactions. Not paying the right amount of tax your business owes is punishable by ATO’s laws, and they can subject you to hefty fines.

Conclusion

Follow the guide mentioned above will give you a worry-free auditing experience and pass it with flying colours. If you’re still not confident, you can also consult with an accounting professional. 

Are you facing a business audit anytime soon? SMB Accounting is here to help. Our firm completes income tax returns in a timely manner within our office, whether via personal interview, telephone or email. We also offer a range of accounting services, including business advice, taxation and XERO/MYOB/QuickBooks consulting. Get in touch with us. 

 

/by

4 Tax Mistakes Businesses Commit During Tax Audits

Every year, the Australian Taxation Office (ATO) becomes stricter in implementing its standards when it comes to good business practices and accurate record-keeping of taxes. If you don’t want to get in trouble with tax authorities, you must adhere to those set standards at all times, or you risk being hunted for during tax or financial audits. Consider the following business mistakes you should avoid, so you don’t put yourself under the ATO’s radar.

Claiming Ineligible Donations

Receiving donations isn’t uncommon, but don’t make the mistake of claiming for donations that are ineligible for a tax deduction. In order for a donation to be eligible for a deduction, it must be a purely charitable gift, with no reward or benefit being accrued by the donor. Another requirement is it must also be made to a Deductible Gift Recipient (DGR) approved by the ATO. One such example of a non-qualifying donation are donations given by a company to a political party. First of all, they are not DGR s and a reward or benefit is already implicit in such a donation. 

Failing to Disclose Shares or Other Assets Subject to CGT

As a general rule of thumb, you need to keep records of all your invoices and every transaction your business has made for at least five years, especially those that are relevant to working out a capital gain or loss from a capital gains tax (CGT) event. Despite this, some business owners still fail to declare shares and other assets that could be subject to CGT. This is a big no-no in the eyes of the ATO, and you can get penalised for any missing records. Make sure you have a complete set of financial and bookkeeping records for your company that includes all the little details in case you’re up for a financial audit.

Claiming Expenses Paid by Cash and Without Receipts

Claiming for expenses paid for in cash and for which you have no written evidence is a common error committed by taxpayers. The ATO always requires written and documented evidence for any expense valued at $300 or more. This can be a document from a supplier of goods and services that contains all the necessary information like:

  • The supplier’s name
  • The amount of the expense
  • The nature of the goods or services
  • The date the expense was incurred
  • The date of the document

 

That’s an excellent example of written evidence that is acceptable to the tax authorities. However, written evidence could also be another document or combination of documents containing the details listed above, such as credit card statements, email receipts, bank statements, etc.

Giving Employees Interest-Free Loans Subject to FBT

Giving loans to employees isn’t something new to businesses. It’s one of the perks of working for an employer. However, what’s wrong is offering employees low or interest-free loans without being aware that they may be subject to Fringe Benefits Tax (FBT). Any loans will attract FBT if there is no interest charged or the rate you’re offering is less than the relevant statutory interest rate. If the employee is also under no obligation to repay the loan, then that’s also subject to FBT.

Conclusion

Tax and business finance can be a complicated and stressful endeavour, especially if you’re under the pressure of a tax audit. What’s worse is, being prepared for an audit is a continuous process. It doesn’t end after the audit results are in and the tax authorities have no major findings. You need to continuously keep good and accurate records and follow the ATO standards even after the audit is done to make sure you won’t be violating anything in the future.

SMB Accounting is your partner when it comes to keeping your taxes and your finances in check. You never have to worry about failing a tax audit and being hunted down by tax authorities. We offer a range of accounting services, including taxation, business advice, and XERO/MYOB/Quickbooks consulting. If you’re looking for a competent accountant in Sunshine Coast, SMB Accounting firm can help. Get in touch with us today!

/by

3 Key Mistakes the ATO Can Hunt You for during Tax Audits

With the Australian Taxation Office (ATO) becoming stricter year after year, adhering to set standards is absolutely essential for a much smoother accounting and bookkeeping experience.

Whether you’re a small business owner or an executive of a large conglomerate, you likely already know that nothing reigns supreme except for the ATO’s rules when it comes to financial matters. Fines for tax and financing-related blunders are skyrocketing, and related penalties are growing more severe, which is why it’s critical to ensure that you stay in the good graces of authorities.

This means it’s crucial to be mindful of mistakes that the ATO can pick up during tax audits.

Common Business Mistakes You Need to Avoid

With thousands of businesses being penalised by the ATO annually for avoidable mistakes, you must avoid the same fate to protect your finances and status. Staying away from tax mistakes isn’t as difficult as you might expect it to be; in fact, it merely requires simple awareness.

If you want to ensure that your company won’t commit blunders that can land it in hot water during tax audits, here are the pitfalls that you need to avoid:

Mistake #1: Failing to Keep Stock Records

Here’s something you should know: an increase in the value of your stock even in just a single year is classified as assessable income. Alternatively, a decrease in stock value is classified as an allowable deduction.

Some businesses value their trading stock at cost to minimise their taxes and have the lowest possible inventory value. Unfortunately, there are severe penalties for undervaluing business stock, similar to those imposed on businesses for not keeping records at all.

To help ensure that you don’t end up making the mistakes mentioned above, it’s ideal that you keep records of your stock for five years. It’s also worth noting that the records you keep much be written in English or in a form that the ATO can understand.

Mistake #2: Spending Too Much on Christmas Parties and Not Paying Your Fringe Benefits Tax (FBT)

So, you threw a much larger Christmas party last year and invited even your smallest clients to cut costs on tax audits. Well, newsflash: this doesn’t mean that you can avoid your FBT.

Aside from the fact that you can’t file your staff Christmas party under a classification of “staff amenities” for your deductions, actually throwing a party outside does not remove your obligation to pay Fringe Benefits Tax. If you want to avoid FBT the right way, you can celebrate at an after-hours offsite venue and keep the cost per employee for the celebration to under $300 (inclusive of GST).

Mistake #3: Maintaining Inadequate Record-Keeping

Another far-too-common mistake that business owners make is that they fail to maintain a distinct level of discipline with their record keeping. Even the smallest of mistakes when handling accounting and bookkeeping tasks can lead to severe lapses in your records. Unfortunately, these same lapses can result in the ATO levying severe penalties on your company once it finds out that things don’t add up.

If you want to avoid slacking on your record keeping-related work, then consider investing in professional bookkeeping and accounting services for your business’s finances. Through the help of an expert like SMB Accounting, you can ensure that your business has everything it needs to avoid problems with its numbers come tax time and beyond!

Conclusion

When it comes to keeping your business in shape and ensuring that it thrives, nothing is more important than ensuring that you don’t make any mistakes that the ATO can penalise you for. By keeping an eye out for the three mistakes mentioned above, you won’t experience any problems during your next tax audit!

We’re a business accounting firm on the Sunshine Coast specialising in a number of financial services, including tax returns, audits, company set-ups, and ongoing bookkeeping and accounting services that will help your business stay on top of its finances. Get in touch with us today to see how we can keep you in good financial shape!

/by