Tax strategies for small business
There are a range of special tax laws that apply to small businesses and it’s important to be abreast of these to minimise your tax bill.
The Australian Federal Government has also announced it will be reviewing tax laws as they apply to small business, which means coming up there should be good news about taxes, as well as simplification of the tax process, for Australian small businesses.
Here are some of the key small business tax provisions, as well as a look at recent Federal government announcements about how it will provide tax relief to Australian small enterprises.
Mike Dixon, a practicing accountant and a member of the Association of Chartered Certified Accountants is a specialist in the area of tax for small businesses. He says “once of a reasonable size, small businesses are generally exposed to similar requirements of record keeping and compliance as large businesses.” Businesses with a small number of employees may be under the registration threshold for state payroll tax as well. In New South Wales, businesses only have to pay payroll tax, in general, if their salary bill exceeds $47,000 per month. These laws differ from state to state and it’s worthwhile making sure you are abreast of your own state’s laws. “These provisions remove the relevant reporting requirements for these taxes until such time as these thresholds are met,” Dixon says. As most of the Australian tax system revolves around businesses self assessing their liabilities from their accounting records, it is essential to have good internal processes and procedures for recording income, assets and tax liabilities. “This allows businesses to maximise their deductions and claims and provides good supporting information,” Dixon says. In addition, having regular business and tax planning sessions with an accountant – either an internal or external resource – will allow a good understanding of current and likely future taxation position. “This allows appropriate planning measures to be assessed and put in place,” Dixon says. At present there are a number of reviews and initiatives in train to support small businesses. “These have been initiated to review the level of red tape, and more recently as a result of the credit crunch, to assist small business generally,” says Dixon. For example, in December 2008 the Australian Federal Government announced it would “help small business by cutting the next quarterly pay-as-you-go (PAYG) instalment for 1.3 million small businesses by 20 per cent.” The Prime Minister Kevin Rudd says this reduction in the February instalment will “provide immediate and much-needed cash flow relief to small businesses over the summer.” In addition, Mr Rudd announced the Government will invest “$1.6 billion in a 10 per cent temporary investment allowance – provided as an additional tax deduction – which will encourage capital investment by Australian businesses. The allowance will be equal to 10 per cent of the cost of an eligible asset.” 4. What’s the government doing to reduce red tape for small businesses? In June 2008 the Australian Federal Government announced it was reviewing the red tape that weighs down many small businesses, especially in relation to tax. The review is part of the government’s comprehensive review of the Australian tax system, and should produce a much more streamlined tax reporting system for many businesses. For micro businesses (generally a business with five shareholders or staff or fewer), the government has said it is looking at allowing the shareholders to pay tax through their income tax, rather than through company tax. The proposal is part of a strategy put forward to the government in May 2008 by consulting firm Deloitte Touche Tohmatsu. Under the plan, micro businesses would still operate in a company structure, to give the company and its principles the protection of limited liability a company structure delivers. The plan also includes a proposal to allow family-run businesses to distribute income to individual family members and allow each member to pay tax on the income at their individual margin rate. On top of this, the government has said it is reviewing the Business Activity Statement and GST system to make it easier for small businesses to report their GST obligations. There are a range of different support services provided by the Australian Tax Office to help small businesses. For example, a great initiative is the small business tax calculator that can be accessed through the ATO’s site. The calculator allows small business owners to plan and manage their tax obligations over a 12 month period. It also sends the business owner reminders through Microsoft Outlook when it’s time to calculate or pay tax. It’s a fantastic tool, especially for business owners with more than one business because it allows the business owner to aggregate the tax information for each business. Don’t forget the ATO also provides on-site visits to businesses that are starting out, to show the business owner how to calculate GST and to provide information about how best to comply with tax laws. The ATO also stages a series of tax seminars annually around the country. These seminars cover everything a small business needs to know about tax, including proper record keeping procedures, claiming deductions, how to apportion deductions for motor vehicles and payroll tax. These are only some of the initiatives the ATO has in place for small Australian businesses. There are also a whole host of other great services the ATO provides for small enterprises. For more information go to www.ato.gov.au.
1. Are there any special tax laws for small businesses?
“There are some exceptions for smaller businesses which include the GST registration threshold and state payroll tax registration requirements,” he says.
By way of examples, businesses are not required to be registered for GST until they have an expected revenue of $75,000 per annum.
2. What can small business do to reduce direct taxes and indirect taxes?
3. Anything new in the area of small business tax?
5. What other initiatives does the government have in place to reduce the tax burden on small businesses?
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