We bust the 10 most common tax myths and mistakes that businesses are most likely to fall trap to this Financial Year.
Myth: You can claim deductions for your rental property the whole year round and for maintenance and renovations.
Reality: You can only claim deductions for the periods of time where your property is actively being rented out or is available to rent. Whilst you can claim an amount back on maintenance and renovations, it is not applicable prior to the first time the property was leased.
Get your documentation sorted, and make sure you can easily put your hand on it if the ATO come knocking. Have your evidence, receipts and contracts and have them there ready and waiting.
Myth: You don’t have to pay tax on cryptocurrency.
Reality: Cryptocurrency is considered an asset which therefore may require you to pay Capital Gains Tax. In addition, if you have dealt with a foreign exchange and/or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.
Contact your accountant or financial advisor to understand if you have made any gains through your cryptocurrency and what tax you’re expected to pay on it. We also recommend that you maintain up to date records of all your transactions to supply as evidence of the exchanges.
Home Internet and Phone Bills
Myth: You can claim large percentages of your internet and phone bills if you conduct work from home.
Reality: You can claim deductions for your home internet and phone bills, but only for the proportion you have used for work.
Have documents and evidence of business phone calls, and periods of time in which you may be using the internet for work related purposes. Access work from home log book resources to assist you.
Car Travel Expenses
Myth: You can claim up to 5,000 kilometres.
Reality: You can claim up to 5,000 kilometres for work related trips. These are trips that are for the sole purpose of business relations. It does not include work related trips that are done on the way to or from home or other personal trips.
Log your trips and keep a record. This includes time, destination, purpose and odometer readings. This means that if the ATO come knocking you have evidence to back up your claim.
Business Travel Expenses
Myth: You can claim all of your travel expenses back for a business related trip
Reality: You can claim majority of your travel expenses inclusive of airfares, taxi fares etc. However you cannot claim any personal expenses that you may incur on your business trip.
Log your trip with times, meetings/functions/events etc and the nature of it. Include with whom it took place. Also remember to keep receipts to show the ATO for accurate deductions. Contact your accountant for a travel expenses log book.
Receipt Free Threshold
Myth: You can automatically claim deductions for purchases under $300.
Reality: Once the total cost of items exceeds $300 then proof of purchase is required. The ATO also requires you to show evidence of how you worked out your claim.
Keep your records and receipts of payments and speak to your accountant about the best ways to reduce tax on work related purchases to receive the largest deduction.
Meals and Entertainment
Myth: You can claim large deductions for meals you have at work.
Reality: When business owners start to rack up their entertainment and expenses, and as such attempt to claim them it tends to catch the eye of the ATO. Businesses can only claim the cost for legible business meeting and functions and to the amount of 50%.
Log it. Include information such as who you’re meeting with, the nature of the event, the location and of course, the receipt!
Myth: You can borrow from your own business.
Reality: Many business owners try this tactic in an attempt to reduce tax by paying a lower wage and simply borrowing from the business, however there are strict rules regarding this type of action. If this isn’t managed it can get you into a tricky spot with the ATO and can result in some nasty fines.
Speak to your accountant before you withdraw money, to get the right advice to how to go about it to reduce your tax.
Myth: It doesn’t matter if you don’t lodge your tax return by the deadline.
Reality: If your business’s tax lodgement is late it’s not going to be pretty. It can result in fines, interest and even an earlier deadline for the following tax year. Whilst there is quite a bit of time to get it all organised and lodged many businesses still fail to meet the deadline and are open to receiving penalties.
Get ready and get organised. Have a process that is followed every year and maintain your books throughout the year in preparation for tax time. This will streamline the process and make sure you’re ready come lodgement time.
Myth: You don’t have to pay super for subcontractors.
Reality: Most people are aware of their super obligations as an employer of casual, part time and full time employees, however they may also be liable to make a super contribution to contractors upon meeting specific requirements. Failing to pay said super means that you are then open to receiving penalties such as fines, fees and interest, as well as a loss of the tax deduction.
Contact your accountant. They have the most up to date knowledge and understanding of business requirements. They can assist you to establish if this is a requirement you have to pay depending on the hours worked by the contractor and their pay rate.
Need more advise?
Get in contact with us today!