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Advice Budgeting Tax

Get a Head Start on Your Tax Planning with these Easy Ideas

14/03/2023

Tax planning is the strategy to minimise the amount of tax you owe on your income, assets, and wealth. Having the right strategy enables you to successfully handle your tax liabilities by making use of tax credits and deductions that are available to you. Tax planning is not tax avoidance; which is the illegal practice of not reporting income in order to not pay taxes. Tax planning is making sure you are not paying more tax then you are obligated to.

What is the importance of tax planning?

There are many reasons to consider tax planning as an integral part of your overall business cashflow and financial plan. These can include saving money, preventing the overpayment of taxes, seeing your return on investment and enabling future financial growth. Although not a one-size-fits-all approach, the ultimate goal is to reduce your taxable income to minimise the tax that you need to pay and to maximise the amount of money you have in your pocket.

Who needs tax planning?

  • Tax planning for individuals gives you the power to take charge of your financial situation by making intelligent decisions to avoid unnecessary debt. Usually individuals with investment assets or who have received a lump-sum during the financial year will consider tax planning strategies.
  • For businesses, tax planning is a technique to ensure that the company is in the best possible position to make future decisions. Having a long-term plan to both lower your taxes and maintain commercial efficiency is a winning combination.

Here are some quick and easy strategies to help both businesses and individuals to plan for tax time. It’s best to chat to your Accountant or Financial Planner now to find out what other tax incentives are applicable to your personal circumstances.

1.      Plan your cash flow

The ebb and flow of cash flow is a common challenge for many businesses, as bills have to be paid on time while employees are compensated and accounts receivables come in. Unfortunately, these large tax payments can take away from the resources needed elsewhere in both business operations and personal finances. By proactively forecasting your cash flow needs and planning out when taxes need to be paid, you’ll be able to sidestep any unexpected expenses or lack of funds.

2.      Plan for payment dates

It’s important to remember that missing tax payments can cause serious issues, like fines and end up straining your cash flow.  By carefully planning for your tax payments, you can avoid these unnecessary expenses.  Scheduling ahead of time and budgeting well in advance, not only reduces anxiety but positions you for continuing success.

3.      Pay Superannuation Liabilities

To minimise your tax bill, consider using your superannuation as a tax strategy. By making an early payment on your superannuation liabilities, you’ll be able to get the deduction a year earlier. This future projection gives you greater flexibility with both your budget and cash flow.

4.      Bring Forward Other Expenses

Tax planning doesn’t have to be complicated. Like other strategies, you can reduce your current tax obligations by bringing forward other expenses. This way, you will get a deduction this year that would otherwise not be available until next year.

5.      Be prepared for your tax instalments

By putting money aside every week or month, even in a secondary account so that when that tax bill comes in, you have the funds ready to cover your tax obligations.  This strategy helps smooth out any rough patches with your cash flow that was not yours from earlier throughout the year and puts control back into your hands.

6.      Make Additional Superannuation Contributions

As an individual, if you can afford to make additional superannuation contributions, this is a great strategy for reducing your taxes at the same time.  With some minor adjustments, you’ll find that it’s easy to afford additional super contributions. You may miss the extra money at first, but as time progresses and your superannuation balance continues to rise, you won’t regret making this decision!

Taking charge of your finances and setting yourself up for success requires an annual tax planning meeting. This does not need to be hard; however, it should involve a balanced approach that evaluates your overall tax strategy in order to make the most of every dollar saved on taxes.

Click here to book an appointment with Amanda to find out more about tax planning.

Advice Budgeting Business Strategy Tax

Profit & Loss Statements Explained

02/02/2023

Keeping track of your finances is essential if you’re a small business owner. But what is a profit and loss statement, and why do you need one?

A profit and loss statement is a document that shows your business’ income and expenses over a specific period of time. It can help determine whether your business is making a profit or not. You usually complete a profit and loss statement every month, quarter and financial year. In this article, we will explain what a Profit and Loss Statement is and how to create one for your small business.

How to create a profit and loss statement

Reviewing the financial state of your business regularly will help ensure your success and catch any areas of concern before they snowball. Creating a profit and loss statement is relatively easy, if you use an accounting platform such as Xero or Myob, you can create your reports with a click of a button under the reporting section.

If you are not using accounting software, there are many free templates available online to get you started. If you’re unsure about which template to use, search for one that is specific to small businesses to gain the most benefit from the information it provides. Completing these manually can be time-consuming and key information can get missed. When deciding whether to invest in accounting software, consider how much time you spend compiling reports instead of working in other areas of your business.

As your business grows, we recommend investing in an accounting platform so you can stay on top of your financial position across the entire year.

What information should be included in a profit and loss statement?

A profit and loss statement contains actual and sometimes forecasted figures related to sales, expenses, and profits. This statement provides a comprehensive overview of the business’s financial performance over a certain period.

Your line items will typically include the following:

  • Total revenue gained from sales
  • Any associated expenses to deliver those sales (cost of goods)
  • Expenses such as wages and taxes

It allows you to gain insight into the net profit produced and understand your expenses. Reviewing this information is key for small business owners so that you can remain aware of your current financial standing, where you are making a profit, what products or services are not profitable, and that you have a return on your expenses. At the end of the day, knowing your position means you can make informed decisions when planning for the future.

How often are profit and loss statements calculated?

An accurate and timely profit and loss statement is one of the most important financial components of any small business. We recommend that you review your income and expenses monthly, quarterly, and yearly.

Many small businesses calculate their profit or loss monthly, which is good for showing a snapshot of the details for each month. However, it is also beneficial to establish a quarterly review as staff illness or seasonal factors can affect your monthly numbers, where a quarterly review helps to take a step back and make sure that your numbers are improving, even if you have a slow month.

An annual review is typically undertaken at the beginning of the calendar year or financial year and helps to set your business goals and budgets as part of your yearly business plan.

Reviewing regularly allows you to compare over time and better plan for the future. With accurate monthly, quarterly, and annual statements, you can ensure that your business remains profitable long-term.

Tips for making the most of your profit and loss statement

To make sure you’re making the most of your profit and loss statement, it’s important to keep accurate records and review regularly to identify potential trends, check prices frequently against competitors, and plan for upcoming seasonal fluctuations and peak times. Additionally, be sure to identify expenditures that are necessary to the long-term success of your business. By taking proactive steps such as these, small business owners can learn how to manage their finances more effectively and ensure their overall success for years to come.

Creating a profit and loss statement can seem daunting for small business owners if you are starting out or haven’t done one before. But having this information at your fingertips (and understanding the report) is invaluable. By understanding how to create a statement, what information should be included, and updating it regularly, you can use it to make informed financial decisions. If you have any queries regarding Profit & Loss Statements or setting up an accounting platform, we are here to help. Just click here to book an appointment with Amanda.

Business Tax

Quick Guide to getting your Invoicing right

31/01/2023

Invoicing clients is an essential component of being a support worker in the NDIS industry. As the demand for services continues to grow and become more complex, so do the requirements placed on you when it comes to invoicing your clients. With this guide, we’ll walk through some best practices and tips for ensuring you get your invoicing process right every time with minimal stress.

What is an invoice

An invoice is a request for payment for goods or services. When providing services through the National Disability Insurance Scheme (NDIS), support workers generate invoices to ensure that all pre-approved costs are accounted for and paid on the agreed upon date. Invoices document the transaction clearly, showing both parties exactly what was exchanged in return for payment. They also provide documentation in case of any disputes or discrepancies that may arise down the line. Invoicing is an important part of doing business, so it pays to get it right from the start.

How to correctly fill out an invoice

When it comes to invoicing knowing how to correctly fill out an invoice is essential. To get your invoicing right every time, bear in mind that you must include your NDIS business name, your ABN, the participant’s name and NDIS number, the support item number, the dates of service, and the total invoice amount. By including these components, payment will be smooth and efficient. Utilising this knowledge to accurately complete an invoice can save you time and satisfy auditing requirements.

When should you send your invoices

Sending your invoices on time is very important! It’s recommended to issue an invoice after each service, so that the client can easily track their usage and progress. Aim to submit your invoices as soon as possible after each visit, but no later than 7 days after the completion of the service. This way you are more likely to get paid on time, and will also avoid any discrepancies or disputes. Remember that if you have a payment plan agreement in place, then you should follow the terms within that agreement. Knowing when to send your invoices is a key part of staying organised and on top of your finances.

The difference between an invoice and wage

Understanding the difference between an invoice and a wage is important for NDIS support workers. Invoices are usually only sent out when goods have been sold or services have been rendered, and they should include the details of any items that were purchased or services that were offered on a particular date. A wage, on the other hand, is a sum of money given to a person as compensation for labour done as part of an employment agreement. Wages by law have to be paid on a specific day whereas a business can be more sporadic due to time of submission, cut-off times, NDIS downtime, or public holidays.  As an NDIS support worker, you may be getting paid in either one of these ways depending on your individual contract – don’t forget to check, so that you can ensure you’re getting the remuneration you deserve for your work!

Importance of Terms and conditions on contracts or quotes

The next step is getting the right invoicing processes in place to ensure proper remuneration for the services you provide. Part of this involves making sure that any contract or quote given has complete and appropriate terms and conditions included. Not only must these be clearly defined, but they should be tailored specifically to your particular services offered and agreed upon by all parties involved. Having a thorough understanding of the terms and conditions of any contract or quote can prevent potential disputes in the future, so it’s important to take some time to review them before signing anything.

Creating an invoice may seem daunting but this guide has hopefully given you a better understanding of invoicing vs a pay cheque and how to correctly fill one out. Remember that getting your invoice right means you get paid on time, so know your legal requirements and remember to book a chat with Amanda at tax time.

Advice Tax

Are you eligible for the Small Business Technology Investment Boost?

28/12/2022

The new Small Business Technology Investment and Skills Boost announced in last year’s Budget is set to benefit small businesses by offering them tax incentives. This legislation has yet to be passed, but here are some facts you need to know about these proposed incentives before they come into effect!

What is a tax deduction?

To understand how these new tax offsets can benefit your business, you must first understand how tax deductions work. A tax deduction is a business expense you have incurred during the operation of your business, which you can then claim as part of your tax return to reduce your taxable income (the amount of tax you have to pay at the end of the financial year). There are many types of business expenses, with a number of guidelines on what you can and cannot claim. Some expense claims can be complicated to work out (such as determining what percentage of your computer is used for work or personal use) while many expenses are 100% tax deductible – meaning you can claim the full cost incurred on tax.

Small Business Technology Investment Boost

Under the new scheme, businesses will be able to claim a total deduction of 120% on digital assets and services such as portable payment devices, cyber security systems, or subscriptions to cloud-based services. These assets are the examples that have been announced by the government so far, but once the law has passed, we will have more details on exactly what you can and cannot claim under this incentive.

The boost will apply to expenses incurred from 29 March 2022 – 30 June 2023, and is capped at $100,000 in expenditure. In most instances, businesses will still be able to claim expenditures over $100,000 as they normally would, the boost incentive will not apply once the threshold is reached.

How to Claim the Technology Investment Boost

For any eligible digital expenditure incurred between 7:30 pm AEDT 29 March 2022 and 30 June 2022 businesses can:

  • claim the expense as per usual in your 2021–22 tax return, and
  • claim the extra 20% bonus deduction for this period in your 2022–23 tax return.

For any eligible digital expenditure incurred from 1 July 2022 until 30 June 2023:

  • the entire 120% can be claimed as a deduction your 2022–23 tax return.

Small Business Skills and Training Boost

The Small Business Skills and Training boost allows businesses with an aggregated annual turnover of less than $50 million to claim a further 20% tax deduction on expenditure incurred on eligible training courses provided to employees.

The training must be provided by a registered business within Australia and it must be an external organisation.

Therefore, it doesn’t apply to in-house or on-the-job training. The Small Business Skills and Training boost will apply for eligible expenditure from 29 March 2022 – 30 June 2024.

How to claim the skills and training boost

For any eligible expenditure incurred between 7:30 pm AEDT 29 March 2022 until 30 June 2022:

  • claim the expense as usual in your 2021–22 tax return, and
  • claim the extra 20% bonus tax deduction for this period in your 2022–23 tax return.

For eligible expenditures incurred from 1 July 2022 until 30 June 2023:

  • the entire 120% can be claimed as a deduction on your 2022–23 tax return.

For eligible expenditures incurred from 1 July 2023 until 30 June 2024:

  • the entire 120% can be claimed as a deduction on your 2023–24 tax return.

Tracking Your Business Expenses

If you aren’t already tracking your expenses, we recommend doing so and making note of any expenditures that may be eligible for either of these new tax offsets. For any tax deductions you wish to claim, you must keep records such as receipts or invoices in either paper or electronic form. It is recommended to keep these records for five years from the date you lodge your tax return. Implementing accounting software is also an easy way to help manage your business expenses by helping to store your records and categorise your expenses correctly.

Ultimately, the goal is to ensure you are not paying more tax than you need to. Knowing what you are eligible to claim as a tax deduction can be confusing, and it can often be hard to know what to look for and if you are taking advantage of every possible incentive. If you’re unsure or would like any assistance with your tax, please book an appointment with me. I offer a free initial consultation, where we can discuss your tax needs and how I can best assist you and save you money at tax time.

NDIS

Getting the most out of your NDIS Plan

30/11/2022

This blog post will look at some tips to manage and get the most out of your NDIS Plan. Using a plan manager is an effective way to make sure that all aspects of managing an NDIS plan run smoothly, allowing peace of mind that your funds are being managed responsibly and efficiently by experienced professionals.

Let’s break down what a plan manager is, the benefits of having one, and how to find the right one for you.

What Does A Plan Manager Do?

A plan manager is a registered NDIS provider who helps manage the funding in your NDIS plan. They will pay any providers for the support you purchase as part of your plan, keep track of your funds and do financial reporting for you. This way, you don’t need to worry about paying bills on time or making sure all paperwork is up to date – your plan manager will handle it all.

We not only help you keep your payments on track because we can help you to budget your funds and understand any service caps where you may have out-of-pocket expenses and the supports and budget available under your plan.

Benefits Of Having A Plan Manager

Having a plan manager means that you will save time and energy from managing your own finances. You won’t need to worry about taking care of financial paperwork and making sure everything is up to date – your plan manager will take care of it for you.

It also means that if there are any discrepancies with payments or invoices, these issues can be dealt with quickly by someone experienced in NDIS issues.

Finding The Right Plan Manager For You

When choosing a provider, always check their registration status and consider asking for personal recommendations first – this way, you can be sure that you’re getting the best service available.

Finally, chat with your Plan Manager to make sure they are the right fit. You can even prepare some questions like their turnaround time for processing accounts. Your Plan Manager helps you with the day-to-day management of your plan, so it is important that they understand what you want to achieve and can support you to get there.

Your Plan and What You Want to Achieve

The first step in creating your NDIS plan is setting up a planning conversation. To get the most out of your NDIS Plan, you need to clearly understand what you want to achieve. Without clear goals, measuring your progress and understanding where the funding can be used to support you best is difficult.

Goals and objectives help you stay on track. When you meet with the NDIS to determine your funding, you will likely set goals around what you want to achieve. These can always be updated in your review.

Your goals can be big or small, short-term or long-term, simple or complex. They don’t need to be about anything in particular – they can be about anything you want to work towards.

For example, some of the things that you may want to work towards include becoming more independent, getting or keeping a job, learning new skills, enrolling in education, becoming more active in your community, or improving relationships and making friends

By setting goals during the planning conversation, your NDIS plan and subsequent funding can be better tailored to your needs. It is important to remember that any goal is valid.

How Can These Goals Help You?

Think about the things that make you happy – what do you like doing? Is there something that you want to change or try? Having an understanding of these things helps to establish what kind of goals would be most suitable for you as an individual

Your goals must reflect what is important to you, so your funding is tailored towards getting you the support that suits you. By setting clear objectives from the outset, you are laying the foundations to pave the way for success.

You can invite friends, family members or advocates to join our planning conversation; having another person with you that you trust could be helpful.

Considering Needs & Eligibility Criteria

You will be assessed to see if any NDIS-funded supports are necessary for you. These must meet the NDIS funding criteria to move forward with your plan. This assessment determines if an item or service meets yours and the NDIS requirements, considering reasonable and necessary supports, making sure that the price of an item is in line with the market rate, etc.

Developing & Approving Your Plan

Once all this information has been gathered and considered, your plan will be developed and approved by the NDIS. Then it will be sent to you so you can start using it immediately.

Remember that you don’t have to go through this process alone – if needed, other people such as friends, family or an advocate are welcome to join the conversation.  

It is essential to know that we can only pay for support that you buy after your plan starts – any expenses incurred before this will not be covered by the NDIS

Check-Ins and Reassessments

During your NDIS plan, you will have periodic check-ins with NDIS to ensure that everything is going smoothly and that your plan is working as intended for you. As circumstances change over time, so may your NDIS needs and goals. This is an opportunity to make sure that you are getting the funding to reach your goals.

Your plan ends when a new one is created (your plan comes up for renewal or if you have had a review completed) or when you leave the NDIS.

Plan Management & Your Goals

To get the most out of your NDIS plan, your funding should provide solid foundations to achieve your goals. As your Plan Manager, we walk with you along with your service providers to move forward towards those goals.

A clear understanding of what is important to you means we can help you budget your plan and check that services and service providers are approved under your plan. If you would like to chat about our approach to Plan Management, book a chat with Amanda.

Advice Budgeting Business Strategy Tax

Business Tax: A Quick Guide For Support Workers

14/10/2022

As an independent support worker, managing your tax can sometimes be confusing. That’s why we’ve prepared this simple guide to help you understand your GST obligations, work allowances and the expenses you can claim as deductions, so you are not paying more tax than you need to.

If you’re a participant or nominated representative under the National Disability Insurance Scheme (NDIS), your NDIS payments are tax-free. Any expenses you incur cannot be claimed as deductions if you are not required to pay tax.

Do I need to register for GST?

You don’t need to be registered for GST because you are a support worker. However, you will likely be required to register for GST if you earn over $75,000 per annum.

You are not permitted to charge GST unless you are registered for GST. Once you register, you will need to include 10% GST on applicable services.

You must also submit a quarterly BAS (Business Activity Statement).

Under the NDIS scheme, certain supports and services provided to NDIS participants are exempt from GST, which means that you do not need to collect the additional 10% GST for specific services.

It can be a little confusing, so to make sure you are meeting your tax obligations and correctly collecting GST, it is best to have a chat to help you get started.

You can also find more information about GST requirements under the NDIS on the Australian Taxation Office website.

Work Allowances for Independent Support Workers

When preparing your tax return, you must include all the income earned in the financial year. This includes your salary and any allowances your employer has paid you.

Allowances may include payments for car expenses, clothing and laundry. You may also receive travel or overtime meal allowances received under industrial law, award or agreement, which can be seen on your payslip.

If you are a Sole Trader, you must keep records of any expenses, such as travel you undertake as part of your services.

Expenses You Can Claim

Firstly, to claim tax deductions as an independent support worker, you must:

  • If you are an employee, ensure your employer didn’t reimburse you for the expense
  • Keep a record of any expenses you want to claim. E.g. receipts or invoices
    • The ATO has a free app to help you keep track of your records
    • If you are a Sole Trader, platforms such as Xero and MYOB can help you keep track of your expenses
  • If you are using personal items, such as a phone, for your job, you can only claim the work-related part of your expense
    • For mobile phone usage, you cannot include personal time spent on your phone

The following expenses may be claimed as tax deductions for independent support workers:

Work Clothing

If you have clothing that is solely used for work purposes, you may be able to claim deductions on the following:

  • Protective clothing such as gloves, shoes, scrubs and masks
  • Compulsory uniforms that are specified in your employer’s uniform policy

Work Equipment

If you rely on various equipment in your work as a disability support worker, these tax deductions may apply:

  • Buying and repairing equipment you use at work (including medical equipment, computers, and mobile phones)
  • Any materials or supplies that you buy for use at work, e.g. art equipment, sunscreen, face masks and hand sanitiser, learning equipment such as sensory toys
  • Stationery, including diaries, work bags or briefcases

Training and Education

If you pay for any courses or training to help increase your knowledge or skills, these tax deductions may apply:

  • Short training courses such as First Aid & CPR certifications
  • Tertiary-level courses such as a Nursing degree or Certificate IV in Community Services, Disability or Aged Care (not including HECS/HELP)
  • The cost of books, stationery, equipment, internet and travel required for your course or training
  • Any accommodation you have to pay for to complete a course, e.g. if you live in a regional area and have to stay overnight

Travel

The cost of travelling between your home and place of employment is usually considered private and cannot be claimed as a deduction. However, you may be able to claim the following travel expenses:

  • The transport of clients during your shift, e.g. to doctors’ appointments or client activities such as the shopping centre or cinema
  • Any parking, tolls or public transport you pay for during this time
  • Travelling from one workplace to another, e.g. from one client to another or a second job
  • Travelling from your home to an alternative workplace, e.g. attending a training course or meeting at a different location than your typical workplace

Meals and Entertainment

In the course of your work, you make need to purchase food and drink or other non-cash entertainment such as movie tickets for you and/or your client.

This is categorised as entertainment for tax purposes. Entertainment expenses are a complex area of your tax return, especially for sole traders who typically don’t have an allowance or expense account for such purchases.

It’s important to understand that the provision of entertainment is a benefit subject to Fringe Benefits Tax (FBT).

Some entertainment costs are not tax-deductible, and GST input tax credits cannot be claimed, depending on how the business values these benefits.

It is always a good idea to discuss with us what you can claim as entertainment, so you know what is and is not a claimable expense.

Other Work-Related Expenses Disability Support Workers May Claim:

  • The cost of annual memberships or union fees
  • The cost of work-related telephone calls and internet connection fees
  • The cost of work related to books, magazines and journals
  • The cost of any checks you may need, such as a National Police Check, NDIS Worker Screening Check and Working with Children Checks

 

Lastly, did you know your tax agent fees are also 100% claimable as a deduction? As Tax Accountants and NDIS Plan Managers, we understand the challenges of managing your expenses as a support worker and offer expert advice to minimise your tax bill and maximise your refund.

Book your appointment today so you can relax and get back to providing care to your clients, knowing that you won’t be paying more than you need to at tax time.

Advice Budgeting Business Strategy Tax

What Small Business Expenses Are Tax Deductible?

27/09/2022

We have all heard the saying that you have to spend money to make money. Simply put, there are costs involved in running a business, and these costs are called your business expenses. You can claim these work-related expenses as a tax deduction.

Like with a personal tax return, what you claim lowers your taxable income. It isn’t a refund of the money you have spent on your business.

The ATO has guidelines about what can be claimed as a business expense. So it is essential to understand what you can and can’t claim to make sure you are not paying more tax than you need to.

Some business expenses are straightforward, such as the rent on your commercial space. But some expenses aren’t quite as simple to calculate; for instance if you rent a 2-bedroom apartment and the second room is a dedicated work-from-home office, can you claim your rent as a business expense?

Types of Business Expenses

Let’s start by understanding the various business expenses you may incur. To take full advantage of these tax offsets and lower your tax liability, you must account for all the business expenses incurred by your business.

To support small businesses, there are other incentives that can also help you to lower your taxable income. Some of these can be short-term such as the Small Business Technology Investment Boost applies to expenditure incurred between 29 March 2022 until 30 June 2023. This boost allows you to claim 120% “of the cost incurred on business expenses that support their digital adoption”. That is, if you spend $10,000 on eligible portable payment devices, cyber security systems or subscriptions to cloud-based services, the boost allows you to claim $12,000 on your 22/23 tax return.

We often discuss expenses in the context of cash flow, income, profit and loss. However, understanding your expenses and accurately recording them for your tax can not only save time and headaches when it comes to your tax return. It can directly influence your bottom line if you are not correctly claiming the tax offsets for which you are eligible.

Start-up Expenses

Depending on your business type, you may have an initial outlay (capital) you need to spend to get started. For example, you may require equipment, tools, a new computer or even a website.

These start-up expenses are typically upfront costs. You may be able to claim a deduction for the costs associated with setting up a business or raising finance, such as:

  • Establishing a company or other business structure
  • Converting your business structure to a different structure
  • Raising equity for your business
  • Defending your business against a takeover
  • Unsuccessfully attempting a takeover

For the expenses in the above list, you can claim a deduction amortised over a five-year period (that is, 20% in the year you incur them and in each of the following four years).

It can be costly to start a business, and it is recommended to have a business plan in place so you have a clear idea of when you will incur a profit from your company. These initial expenses are all tax deductible, but they are still expenses you incur.

If you are considering starting a business, you can book a review with me to look at the best strategy to minimise your tax obligations and the incentives you may be eligible for.

Operating Expenses

Your ongoing operating costs, including stationery, IT and other software you use for business purposes and marketing, such as your website and Newsletters, can all be claimed as taxable expenses.

If you have taken out a business loan, you may be able to claim interest expenses as tax deductions. On the other hand, if you have a business account that accrues interest, you may have to declare the interest as a taxable income.

With much of the workforce working from home or having a flexible work option, the line between a business and personal expense can become blurred, especially if you are running your business from home.

If you need to pay utilities such as electricity and gas for commercial premises, these are tax deductible expenses. However, personal expenses are not tax deductible. If you work from home and use your internet for both personal and business, you will need to determine how much of the shared resources are used for business and how much for personal. If 50% of internet usage is estimated to be business, 50% of your internet bill could be claimed as a business expense. However, if you claim the work-from-home allowance as a Sole Trader, there may be other considerations.

If you are renting an apartment with an extra room specifically for your home office, then perhaps 30% of the floor area is exclusively for business purposes. You may be entitled to claim 30% of your rent as a business expense. Where you are unsure what you can claim, it is worth chatting to us to ensure that you are not paying more tax than you need to but are not making any errors that could result in a bill from the tax office.

In some instances, there are different methods for calculating your tax offset, and we can work out which way is the best for your business.

Capital Expenses

Finally, you are allowed to claim depreciation on certain capital expenses and capital works. Capital works used to produce income, including buildings and structural improvements, are written off over a more extended period than other depreciating assets.

A depreciating asset has a limited effective life and can reasonably be expected to decline in value over the time it’s used. For example, a machine purchased to upgrade your output or services would likely be a depreciating asset.

How Do Business Expenses Impact or Reduce Taxes?

Tax deductions reduce taxable income, which is the balance of your income minus expenses.

For example, you are a Sole Trader and your income for the financial year is $100,000. Your tax bracket for the 22/23 financial year would mean your tax rate is 32.5%. The tax on your income is $22,967.

However, you have had a number of expenses, such as tools you needed to purchase as you started your business this year. Once you account for your expenses, your taxable income is $45,000.

This not only brings down the portion of the income you can be taxed on, but it also changes your tax bracket to 19.0%. The tax on your taxable income in this example is $5,092.

Knowing what you can deduct and making sure you are keeping sufficient records to make your tax claims is crucial in minimising your taxable income.

Records you need to keep for deductions

You must keep receipts and invoices for any tax deductions you claim. Records are written evidence of your income or expenses in paper or electronic form. In most cases, you must keep records for five years from the date you lodge your tax return.

If you claim a deduction, you must have records to show how you work out your claims. Records are usually a receipt from the supplier of the goods or services. A receipt must show the following:

  • Name of the supplier
  • Amount of the expense
  • Nature of the goods or services
  • Date the cost was paid
  • Date of the document

Tracking Business Expenses With Software

There are several different software options to help you track your business expenses and income. When set up correctly, they can help streamline your business so that you have a comprehensive understanding of your actual cash position, as well as your profit and loss.

They can also help you make sure you don’t miss any important deductions, store your records appropriately, and categorise your expenses correctly, so you are not paying more tax than you are required to.

What Are Business Expense Categories?

Businesses generate a range of expenses that can be challenging without consistent bookkeeping. Most software solutions will allow you to categorise the costs, so you can easily see the areas you spend money. By understanding your expenses, you ensure you are not paying for expenses you don’t need.

Having expense categories can:

  • Provide insight into what, where, and why money is spent
  • Enable data-driven decisions around budgeting and cost optimisations
  • Provide a bird’s eye view of spending across different expense categories

Another reason you need to organise your business expenses is to determine your tax deductions. Knowing which class each expense falls into lets you take advantage of applicable deductions.

Please book an appointment with me if you would like any assistance with your tax, setting up your software, or training to get the most out of your bookkeeping software.

Advice Budgeting Business Education Strategy Tax

Contractors, Employees and Your Cash Flow

17/08/2022

As a small business owner, getting the support you need can be hard work. Understanding what tasks can be outsourced, the time required to interview and bring on new staff, not to mention the time needed to train and hand over processes.

All whilst you are trying to get the actual work done! Once you find the time to map out what support you need and what tasks can be outsourced, understanding the finances around expanding your team is an entirely new labyrinth to navigate, especially for those transitioning from a Sole Trader to engaging your first team member.

Know Your Finances

You may have the workload to bring someone on board, but do you have the budget? Having an accounting program set up and used correctly can help you understand your actual financial position.

We can help set you up with a suitable system to track your finances.

Streamline and Stay On Track

Accounting Software can save you headaches by streamlining tasks such as tracking Super and Payroll tax obligations automatically.

They often can be integrated with online timesheet options or, better yet, have the functionality built-in to streamline tracking your staff time.

For those who work on client projects, you can even set them up to review the cash flow on each project, so you have real-time clarity around:

  • How much are you paying staff and suppliers vs how much are your clients paying you for a project
  • If you are keeping to your budget
  • Which types of jobs consistently go over?

The software can help you understand what is working and what is not, all in real-time, which gives you certainty about where you can afford to bring on help and where it might not be feasible.

Contractor vs Employee: Payment, taxation and benefits

There are key differences between contractors and employees, which is important to understand so you can hire the correct type of support for your business. The ATO has a decision tool to help you understand which is the right fit for your business.

What is an employee?

An employee is generally someone you engage to work within your business. All employees in Australia are covered by Fair Work, and as an Employer, you are responsible for understanding your legal obligations when offering someone employment. When you hire an Employee, you may be required to withhold PAYG and pay Super and Payroll Tax. You will most likely need WorkCover as well.

What is an independent contractor?

Contractors you engage directly will generally have a specified task or project to complete. This gives parameters around the timeframe and cost before starting.

They are typically project-based or task-based work.

In some cases, you may need to pay independent contractors Super; however, as they are not employees, you typically would not be required to pay PAYG or Payroll Tax.

If you hire contractors via an outsourcing company, their role may be like an in-house employee, but you pay the organisation and not the staff directly.

Extra Fees When You Grow

You may also incur other fees when you bring on new staff or independent contractors, it could be as simple as hosting a new email address, or a new staff member could require a significant investment in vehicles and tools.

Don’t Get Caught In a Bidding Frenzy

When the market becomes competitive for acquiring new staff, having a strategy behind what assistance you need and what you can afford can make all the difference. If not, then you might find your business model isn’t viable.

Understanding what you can outsource and your financial position can help you to evaluate the feasibility of your options to acquire staff.

Offer More Than Just A Pay Check

Many small businesses that can’t compete with the salaries of bigger organisations may have a competitive edge in offering flexibility and other non-monetary incentives to staff. These could range from RDOs, work-from-home options, and upskilling programs. These types of incentives for employees may help to capture your quality long-term staff.

If you are thinking it is time to grow your business, book a chat with our team. We can review your finances and help you walk through your cash flow so you can understand the feasibility of growing your team.

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