Paying tax. No one likes it!
So, the objective is to determine your minimum tax possible. However, that is not so easy in the Australia’s tax environment.
In 2019, Australia ranked second in the world for the highest percentage of personal income tax. On top of this, in 36 of the last 40 years, it has been in the highest three countries in the world for paying personal income tax.
So, clearly, may Australians are tired of this and are trying to implement a tax minimisation strategies.
Is there a secret to paying less tax? What are the tricks to reducing your tax payment?
This is your guide to paying the minimum tax.
Structure
Determining the best structure for your business operation is a vital part of you tax plan. Options include sole trader, partnership, company or trust. Each have unique tax features that make them right in different circumstances, so it’s vital to get professional advice. Correct structure is also important for asset protection
Use Deductions
In Business, you can claim business expenses as a deduction against your business income to reduce your taxable income and this also reduces your tax bill. It’s important to be sure to account for all of your business expenses because every cost helps reduce your tax.
Australian Taxation Office (ATO) confirm that, business expenses can generally be deducted as long as they are directly related to the operation of your business.
Examples of business expenses that can be claimed include:
- Office building lease or rent,
- travel costs associated with your business and can include air, train, or by car. Be sure to keep track of things like airline tickets, hotel bookings, and gas mileage, and check the ATO Substantiation rules.
- wages that you pay employees
It’s very important that you have good accounting records for your business. Make sure that you have the right staff and effective accounting methods to keep good bookkeeping.
Bring Expenses Forward
In Australia, there is a 12-month rule for expenses. This means that, if the payment for a service does not exceed 12 months and ends in the next fiscal year, it is eligible as a business expense for the current year.
These can be anything from service payments to internet service, a phone plan, marketing materials, and more.
Maintenance and Depreciation
Don’t forget building maintenance and depreciation. The ATO allows you to deduct both as business expenses where the building is used for business.
So, let’s say that your pipes needed to be inspected or your office or factory requires re-wiring. This maintenance would normally be a business expense.
Depreciation is a little more complex, but this can be claimed on your tax returns as well. The idea here is that as the building gets older, it is likely to be worth less.
However, depreciation does not only apply to buildings. It’s claimable also on motor vehicles. Be careful, when it comes to writing off depreciation, you can only write off the percentage that you use for business.
For example, say you have a company car and the person driving it uses it 50% for business and 50% for personal use. In this situation, you can only write off 50% of the depreciation.
Industrial relations rules relating to minimum worker age, generally do not apply when you employ your children. The child must actually work the hours paid, so be reasonable.
Children over 12 can often be employed for a few hours to wash the company cars or tidy the office. As they get older, they might help with social media!
Claim Credit Card Interest and Fees
Of course, it is best to never incur Credit Card fees at all. But if you do, and you have business purchases, you should organise your spending so that the interest is deductible.
The best way to do that is to assign one of your cards to business use only and never charge private expenses to it. Interest and fees relating to his business dedicated card can normally be claimed.
Home Office
If you work from home, you may be able to claim costs associated with your home office. Capital Gains tax implications might apply so be sure to ask us for help before making this claim.
The ATO has set some rates per hour that can assist with a home office tax claim. But strict rules apply to these.
Motor Vehicle
If you use your car for work, you may be able to claim a tax deduction for the running costs. Businesses that purchase vehicles are generally able to claim the business use cost. But limits apply and motor vehicles costing over $ 64,741 for 2022/23 cannot claim depreciation on the excess.
Logbooks are required in most cases for sedans and SUVs and Fringe Benefits Tax declarations are required for commercial vehicles owned by a company or trust. The rules here are tedious, so be sure to ask us for help.
Determine Your Minimum Tax
These are just a few things that can help you minimise your tax payments in Australia. The key here is having the right structure, and not forgetting to account for every eligible expense.
It is highly recommended that you speak to a professional specialist business accountant.
At Accountants 2 Business we have an exhaustive checklist that we constantly keep updated as tax laws change. We work through this checklist with every client, every year to ensure that no claims are left on the table. And we charge NO extra fee for this part of our service.
Are you ready to get started? Book a free meeting with us today.
