Tax season can be a daunting time for small business owners in Australia. Amidst the maze of tax laws and regulations, it can be challenging to know which deductions to claim, how to calculate the previous income year, or what qualifies as a depreciable asset. To make things easier, we have compiled a list of five essential tax tips that can help you maximize your tax return for 2023.
From allowable deductions and running expenses to immediately deducting business purchases, we will cover everything you need to know to stay on top of your tax obligations. Whether you are a sole trader, small business entity or own a super fund, our tips can help you navigate the complexities of the Australian tax law and make the most of the available tax concessions. To make sure you don’t miss out on any potential tax deductions for your business, take a look at Shoebox Books and tax services. Let’s get started!
1. Do You Know How Much Money a Small Business Needs to Earn Before Paying Tax Deductions?
One of the most important tax tips for small businesses is to understand how much money they need to earn before paying tax deductions. In Australia, the current threshold for paying tax if you are operating as a sole trader is $18,200 as of 2023.
Taxes on companies are charged at a full 30% rate. Different rates apply depending on whether the company is a base rate entity. A “base rate entity” is a company with a lower tax rate. To qualify, the company must have a total income below a certain amount and must earn most of its income from its main business activities rather than from investments. Any business earning more than this amount must pay tax on their assessable income.
2. Know What a Small Business in Australia Can Claim Tax On
Another crucial tax tip for small businesses is understanding what they can claim tax deductions on. Tax deductions can be claimed for expenses related to running a business, such as rent, salaries, and office supplies.
They can even be applied to a lot of those larger expenses like travel fares, marketing and company cars. However, keeping all receipts and invoices to support your claims is essential.
3. Do You Know How Much the Instant Assets Write-off is in 2023?
The instant asset write-off is a tax deduction that allows small businesses to claim the cost of assets immediately instead of depreciating them over time. It can also be used to immediately deduct the cost of eligible new or second-hand depreciating assets. In 2023, the instant asset write-off limit for small businesses with a turnover of less than $10 million will be increased to $150,000.
Keep in mind that as a small business, in order to claim an instant asset write-off, you need to apply the simplified depreciation rules. In addition, it cannot be used for assets that are excluded from those rules.A number of changes have been made to the instant asset write-off eligibility criteria and threshold over time. So be sure to refer to the Australian Tax Office’s resources about assets that are eligible and the relevant use periods that apply.
4. Take Advantage of the Small Business Technology Investment Boost and Small Business Skills and Training Boost
The Australian Government is providing two new initiatives in 2023 to help small businesses invest in technology and improve their skills and training. The Small Business Technology Investment Boost will provide a tax incentive for small businesses to invest in new technology. The Small Business Skills and Training Boost will provide funding for small businesses to upskill their employees.
Definitely keep an eye on this news, as the legislation has yet to be passed. It is anticipated special rules will apply when the bonus deduction can be claimed in tax returns depending on a business’s balancing date. When the legislation is implemented, businesses can claim deductions of up to 20% of the costs associated with digitising a business and depreciating assets, such as portable payment devices, cyber security systems, and subscriptions to cloud services that are incurred for upgrading its digital operations.
5. Is Your Business Eligible for a Lower Company Tax Rate? – Base Rate Entities
Small businesses that are classified as base rate entities are eligible for a lower company tax rate. In 2023, the base rate entity tax rate will be 25%, which is lower than the full company tax rate of 30%. To be eligible, businesses must have an aggregated turnover of less than $50 million and pass certain tests.
This means small businesses across Australia can now minimise the losses that often result from a tax deduction, giving you access to more assessable income during the financial year.
In conclusion, understanding tax laws and regulations are essential for small business owners in Australia. By following these five tax tips, small businesses can reduce their tax liability, claim tax deductions, and take advantage of tax incentives. As always, it’s essential to consult with a registered tax agent or accountant like the Shoebox Books Team to ensure you are meeting all of your tax obligations. Get in touch today to get tax ready!