Over the last few years, thousands of Australians have changed the way they work, starting their own business either to boost the income they make from their “day job” or to step outside the employment rat-race altogether to enjoy the freedom of being their own boss.
The problem is that far too many people who’ve made the transition haven’t given any thought to the tax implications. To help ease the stress, I’ve prepared some tax tips that all new business owners should know:
Declare your income
First and foremost, income you receive from your business is taxable and must be declared on your tax return. You might think your side-hustle is just a hobby but the ATO will disagree!
Claim what you’re entitled to
You can claim deductions for any expenses you incur as part of running your business.
Remember, if you offer your services through a sharing economy platform, they generally take a fee or a commission out of the price you charge your customer for the service. That fee or commission is tax deductible.
If you run the admin side of your business from home, don’t forget to claim the appropriate proportion of home-office expenses, such as internet fees, landline or mobile phone bills, costs of office furniture, etc.
Finally, where expenses relate to a mixture of business use and private/domestic use, make sure you only claim the business related element.
Incurring costs before the business starts
It’s quite common to incur costs relating to a proposed business even before you start trading. Certain costs that you incur can be claimed even before the business starts.
These can be claimed by whoever incurs them, even if the business ends up in a different entity (you incur a cost personally but end up running the business through a company).
Examples of what could be claimable include:
- Payments to accountants and lawyers for structuring advice, setting up entities, due diligence and business plans (deductible even if the business doesn’t go ahead)
- Government fees and charges relating to setting up an entity (eg stamp duty)
Incurring costs when the business is under way
As a general rule, any cost that you incur in earning income in your business can be deducted for tax purposes. This includes everything from the cost of the materials you use, the staff you hire, the rent on your premises and the money you spend on marketing.
Particularly if you’re coming out of a paid job, you’re probably used to getting your taxes deducted straight from your pay packet by your employer. But now you’re in business on your own account, you need to proactively manage your cash flow to set money aside for future tax bills. This might seem obvious but unfortunately failing to set money aside to pay tax is one of the most common pitfalls that new businesses fall into.
You might also need to register for GST. For most businesses, you only need to register for GST if your turnover from your business (combined with any other business you run) exceeds $75,000.
You can also claim back GST incurred on business purchases. You will need to report your GST sales and purchases at least quarterly by lodging a Business Activity Statement (BAS) with the ATO.
So, running your own business comes with extra tax obligations. You’ll need to look after your own taxes (and potentially your own super). But running your own business also comes with some tax perks. For instance, you have access to all the tax concessions available to small businesses, including the full-expensing of capital assets, which is available until 30 June 2023. That means you can immediately deduct the cost of any plant, tools or equipment you use in your business, including items such as computers and even most motor vehicles.
Stay out of trouble with the ATO
My tip for keeping taxes stress free is to get an accountant. Most people find it far less stressful to simply pass on all their information to a tax agent and leave it to the agent to complete their BAS and tax return, safe in the knowledge that the work done will be accurate and complete.
An experienced agent will usually be good at sniffing out those obscure tax deductions you didn’t know you could claim so they can often pay for themselves several times over. Best of all, the tax agent’s fee is also tax deductible!
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Margarett Ramage
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