Five common business tax mistakes and how to avoid them
By Emily Chantiri
Avoid these common business tax mistakes and you'll not only get your tax return faster, you'll also keep the auditors at bay.
As we inch our way towards the middle of the year, it's time to once again start planning for your business tax return. These tips will help streamline the tax lodgment process, provide a greater chance of getting your tax return back quickly and decrease the likelihood of a business audit.
Susan Wahhab, practice manager for accountancy firm Winner Partnership, asserts that the five main business tax mistakes are:
1. Not setting aside funds to cover the business tax obligations
The biggest tax revenue a business collects on behalf of the federal government is GST. It is not business income or expense; it's a consumption tax some businesses are required to collect from its customers on behalf of the federal government. The business must then report the net GST collected and paid to the ATO. PAYG withholding tax (tax on employees' wages) and PAYG income tax (business tax) can take a back seat in the minds of business owners as they fight for cash flow and dig into the taxes kitty to pay for more pressing business expenses.
Wahhab recommends that businesses open an interest-bearing business account and call it 'tax account'. Make a habit of transferring the net GST plus taxes from the business trading account to this tax account.
2. Not keeping track of payroll obligations/not paying on time
Payroll tax is a state tax calculated on wages paid and applies in all Australian states. Businesses and employers are required to self-assess their liability on a monthly basis. Wahhab suggest you monitor payroll tax every month when you review your monthly accounts. Ask your accountant for help as payroll tax can get complicated.
3. Not completing the business car logbook every five years (for a consecutive 12-week period)
People tend to do it once and then forget about renewing the logbook every five years. Set the date in advance in your calendar as a reminder, and reset the reminder once the log is completed.
4. Not keeping a separate credit card for the business
This is more common for small businesses that mix private and business expenses under one card. It's important to separate business from personal and ensure personal expenses are not inadvertently claimed under the business. It's not worth the risk.
5. Not accounting for business expenses such as fringe benefits
Fringe benefits tax (FBT) paid by the employer on expenses such as entertainment, private use of the company car, cheap loans to employees, gym memberships and school fees, must ensure they fulfill FBT obligations. Enlist a good accountant to help you report and pay FBT.
These are just a few tips to avoid tax mistakes. Do you have a tip to share on how you manage your business tax?