Preparing your business for tax time? Here are some potential tax deductions to keep in mind when preparing to submit your tax return.
1. Claiming the increased instant business asset write-off
This is a rule that may allow you to claim eligible business assets, like vehicles, machinery and equipment in the year of expenditure.
If your business turns over less than $500 million, you may be able to claim asset purchases up to the value of $150,000 each in your tax return for 2020. This is provided they are first used or installed and ready for use between 12 March and 30 June 2020.
The Government recently extended the scheme to 31 December 2020. So there may be time to make purchases for your business and claim the eligible amount against the income you earn in that year. Not every purchase or expenditure may qualify, so you’ll need to seek your own independent taxation advice before buying the asset.
For more information, visit the ATO website.
2. Claiming depreciation of business assets
When businesses buy fixed assets, tax deductions are generally not available immediately (except in special conditions like the instant asset write-off – see above.) Rather, the cost of the asset is claimed over time, reflecting its decline in value. This is commonly referred to as tax depreciation. Tax depreciation is complex and different rules can apply, depending on the type of asset and its use. In addition, certain small business entities may also elect to use the simplified depreciation rules to work out their tax depreciation claim.
For more information, please seek advice from a suitably qualified tax advisor. Information is also available on the ATO website.
3. Prepaid expenses
Running your own business can be expensive, but you may be able to claim some running expenses as tax deductions – including ones you pay for ahead of time.
Prepaying some expenses before 30 June can increase your allowable deductions for the financial year in which they are paid. Eligible expenses include those that have a service period of 12 months or less, for example, annual policies, utility bills or professional subscriptions. Keep in mind that if you claim them this year, you won’t be able to claim them next year meaning you may have more tax to pay next year.
4. Business account and loan expenses
You should also consider whether you can claim the fees and interest from your business accounts and loans around tax time.
5. Deductions for personal super contributions
For the 2019/20 financial year, if you’re aged under 75 you may be able to claim a tax deduction for personal super contributions made to an eligible super fund. Those aged between 65 and 74 need to meet the work test to contribute, which means you need to be employed for at least 40 hours over 30 consecutive days during the financial year.
However, from 1 July 2019, if you are aged 65 to 74 (measured at the time of the contribution) you may be able to continue making voluntary contributions for a further 12 months from the end of the financial year in which you last met the required work test, due to the work test exemption. To qualify to make contributions under the work test exemption, your total superannuation balance (just prior to the financial year of contribution) must be less than $300,000. Once you have used the work test exemption for a financial year, it cannot be used again in the future.
When claiming a personal superannuation deduction for the 2019/20 financial year, it’s important to remember that the combined total of your superannuation guarantee payments, salary sacrificed amounts and your personal tax-deductible contributions can’t exceed $25,000 in a financial year or extra tax will apply.
To make a personal tax-deductible contribution, you need to submit a valid ‘Notice of intent to claim or vary a deduction for personal super contributions’ form to your super fund within time limits, and receive an acknowledgment for a valid notice from fund in writing. If you intend to claim a tax deduction for personal contributions, refer to the ATO website.
6. Other deductions
If you have you been recently working at home due to the coronavirus, you may be entitled to claim tax deductions for expenses related to generating your income. There are a number of criteria to consider before claiming an amount in your tax return, for instance, you should consider whether you can claim the temporary ATO approved “shortcut method” (of 80 cents per hour for all additional running expenses) for the period 1 March 2020 until 30 June 2020. Other calculation methods may also be acceptable and more appropriate to your circumstances. You should consider which method is best for you and the criteria required to claim a deduction. Further information is available at the ATO website.
There are many other expenses you pay to keep your business running or help you earn business income, which may be tax deductible. You can find more information about claimable deductions on the ATO website or by speaking to an accountant or tax adviser.
Things you should know
- This article takes into account the tax law and announcements as at May 2020
- The Australian income year ends on 30 June. You have from 1 July to 31 October to lodge your tax return for the previous income year. If you use a registered tax agent to prepare and lodge your tax return, you may be able to lodge later than 31 October.
- Tax law is subject to change. For the latest information, check the ATO website or your accountant or financial advisor.
- This information provided is of a general nature and doesn’t take into account your personal financial situation – we suggest you seek independent taxation and financial advice.
 The contribution must be made on or before the day that is 28 days after the end of the month in which you turn 75.