Tax Time ATO Focus Areas and Toolkit for Small Businesses

Income

Andrew Watson, Assistant Commissioner to the Treasury, reminded small businesses that all income should be included, even earnings from side hustles.

Nearly half of the 1.9million sole traders also earn non-business income. This means that you need to double-check that non-business income has been included.

All income for small businesses must be included in the income tax return. This includes cash, coupons and EFTPOS transactions.

The ATO reminded all small businesses, including sole traders, that payment information must be submitted to the ATO via the taxable payments reporting program.

Many government payments and financial support received under COVID-19 must be included in taxable income. However, some are exempted. A COVID-19 support payment treatment option list is available on the ATO website.

Deductions

Watson reminded small businesses that they can only claim the benefits to which they are entitled and that their business structure impacts their rights and obligations.

The ATO has three rules that guide what business deductions are valid:

• The expense must have been incurred for business use and not private.
• If the expense was for business and personal use, you could only claim the amount used for business purposes.
• To prove their identity, the taxpayer must keep records.
  • Eligible businesses may be eligible to claim an instant deduction under temporary full expensing rules. This applies to the business portion of an asset’s cost in the year it was first used or installed.
  • Individuals who have their primary business location at home (e.g., If they moved from an office due to COVID-19, may be eligible for deductions for home office expenses.

The small business toolkit

Small businesses dominate our economy. In 2019-20, 4.3 million small businesses contributed more than $422 billion to the economy and provided approximately six million jobs. We know how difficult it has been for small-business owners over the years, and we appreciate their efforts to keep on top of matters as they adapt their operating methods to the impact of COVID or natural disasters. We are also grateful for the contribution of tax professionals to small businesses during this difficult time.

We want to continue supporting small businesses throughout the year and at tax time. We do this through the small business tax toolkit. Each year, we update it to ensure that the fact sheets reflect the needs of small businesses.

This toolkit contains:

• A list of useful links will help small businesses locate information, tools, calculators and learning resources.
• Guides for small businesses — include:
  • Home-based business expenses
  • Motor vehicle expenses
  • Travel expenses
  • digital product expenses
  • Business money and assets
  • Permanent closing of your business or pausing

Information on the following topics is not included in the toolkit, but links are available on this toolkit directory website.

• COVID-19 fringe benefits tax
• Primary producers (new for 2021-22)

What information is included in the toolkit factsheets?

The Home-based Business Expenses Fact Sheet will assist small business owners in claiming deductions for the cost of using their homes to run their businesses. It explains:

• How the business structure can impact the taxpayer’s deductions of home-based business expenses
• How to calculate the deductions for running expenses and depreciation.
• Implications of CGT

This Motor vehicle expenses factsheet explains:

• How the business structure can impact the deductions of motor vehicle expenses by the taxpayer
• How to calculate a claim using the cents per km method or the logbook method
• Other considerations that depend on vehicle ownership
• How to claim depreciation on a motor vehicle

This Travel expenses factsheet helps small business owners claim a deduction for expenses they incur while traveling for business.

• The different types of travel expenses
• How to claim expenses
• Employee travel expenses
• travel diaries.

The Digital product expense factsheet (new for 2021-22) explains.

• Operating expenses vs. capital expenses
• Software expenses
• How to calculate an expense claim, including apportionment.

If the taxpayer is involved with the operation of a business through a trust or company and receives financial or other benefits from the business, the Using Business Money and Assets factsheet (expanded to 2021-22) will assist. This document explains how to report business money and assets.

• Director’s fees, salary, and wages
• FBT
• Distribution of income and profits — Dividends, trust distributions
• Lending company, trust money, or assets