Australian governments are highly supportive of small to medium enterprises which account for around 80% of the economy. As such, owning a small business with a turnover of less than $2 million can come with a huge range of tax benefits.
Dealing with business tax and understanding how you can minimise it is vital to running a small business. This article provides a broad overview of how you can personally benefit by reducing tax, namely by maximising tax deductions and claiming relevant concessions.
Most businesses can claim some of the following deductions to help reduce their costs. It’s important to mention that not all of these will be relevant to your small business. Get some expert advice on whether you can take advantage of the following deductions.
- Phone and internet access
You can make deductions for the cost of using your phone and internet in the workplace. These can, of course, also be used for private and individual purposes.
- Technological equipment
This includes laptops, desktop computers, tablets and phones that are relevant to the operation of your small business. As long as the personal use is incidental, you can make a claim.
Having a car owned and paid for by the business can have huge benefits. You can make deductions on your car as long as it is used for business purposes and you can provide evidence of work trips through a log book.
- Research materials
This can cover a lot of things including, books, online publications, newspaper and magazine subscriptions, and cable TV. As long as it is relevant to the operation of your business, you can claim it.
- Home office
If you run your business from home you can make claims on running costs. This can even extend to your mortgage or rent as long as your home is an identifiable place of business.
This is another area ripe with huge opportunities for savings, from purchasing assets to other long-term expenses related to your business.
- Asset write-offs
You can immediately write off assets that cost up to $20,000 excluding tax. This allows you to have an immediate tax deduction, rather than claiming the cost of depreciating assets over a number of years. This is the big one when it comes to helping the cash flow of your small business, allowing you to match an expense with a deduction.
- Prepaid expenses
You claim expenses like rent and insurance if you prepay the costs less than 12 months in advance.
- Capital gains tax concessions
This is a huge area for savings if you are selling your business. There are three main exemptions you can claim. The first is the 50% active asset reduction, which allows you to reduce the capital gains tax on an active asset. You can claim an additional 50% off if you’ve owned it for longer than a year.
Secondly, if your business has continuously owned an active asset for 15 years and you’re over the age of 55 and are retiring or permanently incapacitated, you are exempt from paying any tax on the selling of that asset.
Capital gains tax from the sale of an active asset is exempt up to a lifetime limit of $500,000. If you’re under 55, this must be paid into a super fund or retirement savings account.
Once again, this is a general overview to try and get you thinking about the perks you can access as a small business owner. There are other ways of accessing tax savings such as using salary package benefits, superannuation contributions, tax planning, and dividend strategies. It is an extensive and complex area which requires experience and expertise to navigate.
Saver6 is a small business support platform with 25 years of experience providing business models and supporting small businesses. We can provide a range of services including marketing, website development, training, as well as bookkeeping and accounting. For more information about reducing tax through business ownership, get in touch with our team.