Tax deductions - the claims you may be overlooking

Did you know that your business can get an immediate tax deduction for new or second-hand assets you buy, provided the asset costs no more than $30,000 and your annual business income is less than $50 million? As long as you have your equipment installed by June 30, you’ll get the full tax deduction this year.

PRO TIP: Self-employed individuals such as Uber drivers and social media influencers have full access to this tax concession.

Business owners can get a tax deduction of up to $25,000 for contributions made into their super fund. The deduction can be available to either the business or the individual owner.

PRO TIP: Ensure you make any contributions in plenty of time for them to be received and banked by your super fund by June 30.

Unfortunately most businesses have these, and once a debt is unrecoverable the best you can do is get a tax deduction for the loss. To be deductible, the debt must be self-assessed as “bad”, meaning there is little or no chance of recovery and the amount has been written off in your accounting records. “Doubtful” debts are not tax deductible.

PRO TIP: For GST purposes, you can claim your GST back on any debt that has been overdue for 12 months even if you haven’t written the debt off as bad.

There are numerous concessions to help small business and eligibility hinges on a business turnover test. Concessions include reduced capital gains tax, lower income tax, access to tax offsets, deductions for prepaid costs, simplified depreciation rules, immediate deductions for certain start-up costs, simplified trading stock valuations, and easier accounting and BAS methods.

PRO TIP: The rules that define turnover are complex and can include income from related parties. Always seek advice before relying on small business concessions.

We all wish entertainment was tax deductible, but sadly it’s not. Businesses can achieve great outcomes while entertaining customers, but alas the ATO doesn’t share this view.

You probably know that restaurant meals are considered entertainment but you might not realise that coffee shop meetings with clients, team social functions or cinema tickets as staff Christmas gifts are also deemed to be entertainment costs.

PRO TIP: A light lunch for your staff on premises, airport lounge memberships for employees, and food and drink when travelling are not entertainment and are tax deductible.

Primary producers can access a range of expense concessions including a 10-year write-off of phone lines, immediate or accelerated write-off for horticultural plants and grape vines, immediate deductions for water facility costs, a three-year write-off on fodder storage assets and an immediate deduction for pest, weed and erosion costs.

PRO TIP: Don’t forget when you lodge your BAS you can claim a rebate on diesel fuel costs used in tractors, machinery, heavy vehicles and off-road light vehicles.

Repairs are immediately tax deductible whereas capital improvements usually aren’t. However, the distinction between the two is not always clear.

A repair involves restoring something to its former condition, but it’s more about function than appearance. It typically means replacing a part, but not reconstructing the whole thing. So painting, plumbing and fixing machinery would normally be a tax-deductible expense.

However, expenses that have been held to be improvements include a dilapidated ceiling replacement, insulating a building, landscaping, and replacing a rotten wooden floor with concrete.

PRO TIP: Watch out when making initial repairs to a newly purchased asset as this is often treated as a capital improvement rather than a repair.

This one is only available to companies. Your company can get a tax offset where its annual eligible research and development costs exceed $20,000. The tax offset is either 43.5 per cent or 38.5 per cent of R&D costs, depending on your turnover.

PRO TIP: To be eligible you need to register with AusIndustry by April 30 of the following year.

Commercial buildings that you own, including your business premises, can be depreciated at either 2.5 per cent or 4 per cent of the total construction costs each year. The rate depends on the date the building was erected.

PRO TIP: When you buy property you can ask the previous owner for the building date and costs. If they’re unknown, you can ask a quantity surveyor to provide an estimate to calculate your annual deduction.

This refers to insurance taken out by a business or its owners to protect against the risk of a key person becoming disabled, suffering a trauma, or dying. The proceeds of the insurance might be used for income purposes (for example, to offset reduced profits because of the loss of an important person), or for capital purposes (for example, for a remaining owner to buy out a key person). Premiums are more likely to be tax deductible if they are taken out for income purposes rather than capital purposes.

PRO TIP: Seek advice first and document the purpose of your key person insurance to ensure the tax treatment of the premiums and proceeds are not compromised.

Author:
Mark Douglas,
Managing Partner, Francis A. Jones

As published: Wednesday, 22 May 2019
The West Australian - Tax Toolkit
Read in full: Business Tax Toolkit (PDF)