Tax tips for SMEs: Super, stocktakes, insurance, and opportunities

The time left until June 30 is dwindling fast, so small and medium enterprises need to take action ASAP to be on top of their tax situation.

Just enough time remains to make the most of tax opportunities and dodge the major traps that could see businesses leave money on the table, or worse, get into the bad books of the ATO. Read on to see how to secure your big tax savings this financial year.

Tax debts

The ATO was lenient for a time. Now that time is over.

“Through the course of the pandemic, we deliberately pulled back from starting new audit activity, but also from actively engaging with our debt book. As we come out of the pandemic, we will be engaging with the debt book,” said acting commissioner of taxation Jeremy Hirschhorn.

The risks of tax debts are serious, explains CPA Australia senior manager of tax policy Elinor Kasapidis.

“As a director you can become personally liable for the debts of your business. If the ATO moves on that you start to end up in more trouble than perhaps you need to be,” Ms Kasapidis said. “The other thing is that if your business has debts with the ATO of more than $100,000 that will be reported to the credit agencies and that can affect your credit rating and access to loans… there are serious consequences.”

The number one message from tax experts and the ATO is not to stick your head in the sand, because you’ll only make things worse.

“If we reach out to you, please don’t ignore us,” said Hirschhorn.

“There are various ways of dealing with us that take into account your individual circumstances, but we can’t do that if you don’t engage.”

Some people take non-engagement to extreme levels, like the WA doctor who failed to lodge income tax returns for the years 2013-2017. He also failed to submit certain business activity statements. The doctor was convicted in 2020 and the magistrates court ordered him to lodge his tax returns. When, by 2022, he still refused to lodge, he was sentenced to seven months jail.

Superannuation

A major expense to tidy up well in advance of June 30 is superannuation obligations to staff. Businesses who fail to get their payments in nice and early will have higher taxable income and a hit to cashflow, explains Ben Johnston, principal of Johnston Advisory.

“If they don’t pay their superannuation for that last quarter before the 30th of June, that defers their ability to claim that deduction until the following financial year. Superannuation is only deductible when it’s paid,” Johnston explains.

“Effectively if you pay it in July instead of June — obviously you don’t miss the deduction — but you’re pushing back the tax benefits that you’re getting by 12 months until you lodge the next financial year’s tax return.”

Businesses with fewer than 20 employees are eligible to use the government’s free superannuation clearing house. A superannuation clearing house is a standardised online system that streamlines super payments, and their use is encouraged by the government to improve record keeping and avoid unpaid super. 

As well as the ATO’s offering, private alternatives exist, run by major super funds and some accounting software. Even if you use a clearing house, it is important to be mindful of time frame issues. Payment to the clearing house is generally not sufficient to deduct superannuation, it is distribution of superannuation to employees that is key, and there can be delays of several days or more. 

It’s worth paying close attention to.

Make sure you pay your own super first

1. Business owner’s guide to maximising your superannuation
2. A guide to managing your own super fund

Insurance

A global pandemic raises a lot of unexpected risks. All the other risks haven’t gone away either! Australia has been buffeted by floods in the last financial year and it is possible your business has had an insurance payout. 

If so, beware. Just as an insurance premium is deductible, so an insurance payout is assessable income, explains Kasapidis. 

“If for example you have got compensation for a loss of business oncome, there are rules around that and in a lot of cases it is assessable, ” she says.

Of course, pre-paying premiums can be a way to bring the deduction forward from the next year, where cash flow permits.

Stocktaking

Simple trading stock rules are in place for small business who see little variation in stock from year to year. But the last year has been anything but simple and predictable, with supply chain crunches in most industries. As Kasapidis says, businesses should be alert.

“If the value has changed by more than $5000 – if your opening balance and your closing balance has changed by more than $5000, for example due to supply chain issues – then you actually have to shift to the general trading stock rules which means it is more detailed, with more record keeping.”

Businesses can end up overpaying tax if stock is overestimated due to redundant stock, dead stock or stolen items that might be turned up by a proper stocktake.

The best advice for businesses doing stocktakes, however, remains to do digital record keeping. It’s a refrain that comes from business advisors, accountants and from the top of the ATO itself. Small business accounts for 15% of the ATO’s income tax collection – a material share. The tax office is laser focussed on getting small businesses compliant, and their number one weapon is effective record keeping.

“We’re playing a really important role in the take-up of e-invoicing because we think it makes the economy better, we think it makes your businesses better and more successful: you can spend less time on billing and more time on your business,” said Hirschhorn.

Traps and opportunities

This tax time be extra careful claiming on business use of assets that might lead a double life. With the collapse between work life and home life, the ATO is looking very closely at where business assets are being used for private activities.

“For example, that brand new ute that has just been purchased and might be eligible for a full deduction this year. If it’s being taken on fishing trips for the weekends, this needs to be accounted for,” said ATO deputy commissioner for small business Deborah Jenkins in a 2021 speech.

The end of the year is a big time for retailers to encourage business to spend. And obviously the instant asset write off is there, tempting you to invest, for example in a big ute. But the best advice for any business is not to incur unnecessary expenses. By all means bring forward any capital purchases slightly. And obviously use the instant asset write off for all eligible capital spending. But remember that the write off only brings forward the tax write off to the current year, moving money around – not increasing the long-run tax deduction.

The financial year of 2022-23 is about to start, and will surely bring its own challenges.

If you dig in now, you can take tax off list of worries for the new year.

Still don’t understand the difference between bad and doubtful debts?

1. Cheat sheet: Bad debts, and how to write them off

This article was first published on June 18, 2021, and has been updated to include information relevant to the current financial year.