Small Biz Tax Tips

How much substantiation do I need to provide for travel and vehicle costs?

Substantiation rules may apply to motor vehicles and travel expenses. So log books and odometer readings should be kept, as well as other records itemising travel expenses.

Why should I review my assets?

It’s too easy to carry assets on your books which have no real value, are obsolete or have been scrapped. The only way to get a write-off deduction for them is to review your asset register and take the necessary action before June 30. The asset register is the list you should be keeping of all plant, equipment, furniture, fittings and any other assets, including all items bought, sold and disposed of during the year. Also note, special advantageous depreciation rules apply to a small business which is taxed under the simplified tax system (STS) regime.

Should I elect to be taxed under the STS?

This is the fourth year of the STS, which is a special regime for very small business taxpayers. Key attractions are the $1,000 write-off rules and the accelerated depreciation on business assets. However, the Government is moving to make the regime more attractive by extending it to businesses that do their accounting on an accruals basis, and by reducing the audit review period for such taxpayers from four to two years.

If you are not already in the STS, you may wish to consider if you qualify and whether to elect into the regime. To obtain the STS benefits for 2005, the necessary election must be lodged with the ATO when you lodge the income tax return for your business for the year ended June 30, 2005.

Prepayments

Most business taxpayers must pro-rata the deduction for prepaid expenses over the period to which the expenditure relates. Restrictions also apply to prepayments by investors in certain agro-forestry investments. However, individual non-business and STS taxpayers can pre-pay some expenses up to 12 months in advance.

Does fringe benefits tax apply to my business?

Fringe benefits tax may be applicable to entertainment expenses (from business lunches to tickets for sporting events), company motor vehicles, some directors’ loans, or a host of other benefits received by employees and directors. So details of all such benefits should be recorded.

The grossed-up value of most fringe benefits is also required to be shown on an employee's payment summary.

Superannuation contributions

Employers must ensure they have made sufficient superannuation contributions (currently 9 percent) for all employees on a quarterly basis throughout the financial year to avoid the risk of incurring a penalty under the Superannuation Guarantee Charge (SGC) regime.

Eligible superannuation contributions for the June quarter must be paid by June 30, 2005 to be tax deductible and to avoid penalty. Book entries alone are not enough. Even if you miss the June 30 deadline for deductibility, you must make the payment by July 28, 2005, to avoid SGC penalties.

Annual contributions can be made by self-employed people on their own behalf with a full deduction up to $5,000 and a deduction for 75 percent of the amount above this. As for employees, the maximum deduction available is equal to the taxpayer's age-based limit.