Business - Boosting your tax benefits

Business people – including brokers – often don’t know what they can and can’t claim, and they miss out on rebates and incentives to which they could be entitled.

For example, if you work out of a home office and keep unpredictable hours, you should ensure you claim any electricity and other running costs to which you are entitled.  

Running expenses can be claimed when the cost of using facilities within your home increases due to your business activities.

According to the ATO, these expenses can include “the cost of using a room, such as electricity, and gas costs for heating, cooling and lighting; business phone costs; the decline in value of furniture and furnishings, such as curtains, carpets, light fittings; the cost of repairs to furniture and furnishings and cleaning costs”.

There needs to be a clear separation between the expense as it relates to your business and how it relates to private use.

The easiest way to ensure a clear separation and thus maximise your tax benefit is to have a dedicated business space within the house.

The ATO says, “Using your floor area may also be an appropriate way of working out some running expenses. For example, if the floor area of your home office is 10 per cent of the total area of your home, you can claim 10 per cent of heating costs”.

Your accountant is the person best placed to help you navigate the complexities of claiming this kind of deduction.

They can also keep you updated on changes to tax laws which you otherwise might not know about.

For example, the Entrepreneur’s Tax Offset (ETO) is being phased out in 2012/2013. Previously, this offset allowed businesses with a turnover of less than $50,000 to claim a 25 per cent deduction on the income tax payable on their business income.

The ETO has, however, been replaced with a $5,000 tax break for new car purchases.

Brokers should also note that effective from 1 July 2012, businesses with a turnover of less than $2 million will be able to write off eligible business assets costing less than $6,500.

This means about 2.7 million businesses across the country will be able to update office equipment and get an immediate tax deduction.

“When it comes to tax deductions, it depends on your type of income and the timing,” explains Paul Simeoni of Simeoni & Co Accountants. “It should really be a common sense approach in terms of what should and shouldn’t be a tax deduction.

“You should accelerate your deductions where possible though. If cash flow allows, you should pay by June 30 for repairs; consumables, such as office stationery; trade gifts; subscriptions; and donations, and [you should] claim the tax deduction this year.

“There are special rules for small businesses that give them access to higher immediate deductions for prepayments and depreciable assets, so take advantage of what is available to you.”

THE ‘LOSS CARRY BACK’ RULE
BOTH PAUL Simeoni, director of Simeoni & Co, and Munzurul Khan, principal of Keshab Chartered Accountants, noted the importance of the new ‘loss carry back’ rule.

Business owners can now carry back their losses from the current year to the previous year; previously, they could only be rolled forward. That meant that if you made a loss, you had to wait until the following year, when you could then apply those losses to minimise your tax.

Now, you can get some money back to help you more immediately.

“If I had a corporate entity that made $100,000 and I paid $30,000 in tax one year, but the following year I made a loss of $50,000, [under the old rule] I would have had to carry that loss forward to the subsequent year,” Mr Khan explains.

“The Budget now allows you to take that loss back to the prior year and get half of that tax payment back.”

Your profit from last year and your losses from this year can effectively be combined to give you a larger tax refund when you need it most. Mr Khan thinks this will help some businesses that are experiencing losses to bounce back. “It’s actually fantastic,” he says. “It’s very creative.”

The Adviser asked Munzurul Khan, principal of Keshab Chartered Accountants, to answer some of the tax questions most frequently posed by brokers

Q: HOW DO I FIND OUT WHAT GRANTS OR CONCESSIONS I COULD BE ELIGIBLE FOR?
The best advice I can give is to ask a lot of questions. Challenge your accountant. Ask them: ‘Have you considered all the different rebates that I may be eligible for?’ and ‘Do you need any further information from me to see whether other rebates may be available?’

The challenge some accountants face is that the tax law is a moving beast in that its rules are changing on a continuous basis – and the Budget brings in a whole lot of changes as well.

If accountants aren’t up to date with recent changes, then unfortunately the tax payer is disadvantaged

Q: WHAT CAN SMALL BUSINESS OWNERS CLAIM?
We would all like to claim everything that we can! I think the provision here, or the disclaimer, is that we have to be eligible to claim it.

The definition of ‘eligibility’ is that as long as you can substantiate your expenses, and as long as your expenses are related to your business or property or employment, then yes, you can claim it – and you must claim it.

If you don’t have your receipts, then you are asking for trouble by claiming something

Q: THE RECENT BUDGET ISN’T VERY ‘BUSINESS-FRIENDLY’. WHAT CHANGES ARE MOST LIKELY TO IMPACT MY BUSINESS?
There are a whole lot of things that changed with the recent Budget, and they all need to be considered. From an individual perspective, the tax free threshold has increased from $6,000 to $18,200 and the low income rebate has dropped slightly.

There was also a whole lot of change from a depreciation point of view.

Superannuation is an area that is fickle and adjusted every year. Now, higher income earners – those earning over $300,000 – have an additional 15 per cent contribution tax, taking it to 30 per cent. So, you should look at your income. If it’s around $305,000, you need to consider if you’d be better off – if it would be more profitable – to have an income of $295,000 instead, simply because once you cross over that threshold, then you pay additional tax