TAX PERKS OF RUNNING YOUR OWN BUSINESS
A common complaint of accountants is that they aren’t sharing enough of the good stuff, the perks, the loopholes that business owners, small businesses in particular, are eligible for. Often business owners hear about these perks from mates at the pub with accountants who are fully legit*. So, with that in mind, I thought it useful to put together a list of some of the common benefits that can be legally obtained as a business owner. Please note that most of this doesn’t relate to sole traders (sorry!).
DOWNLOAD our free eBook on tax basics for small business.
The following are all deductions that most businesses can claim, however not all employees are able to dictate what the boss will and won’t pay for, hence it usually only being the domain of business owners and bankers.
- Phone and internet access – after allowing for private usage.
- Travel – as long as any leisure time is purely incidental most of your travel can be claimed. Think about relevant conferences or research trips you may need to undertake.
- IT equipment – as long as private usage is incidental you can look at notebook computers, tablets, phones, etc.
- Motor vehicle – this is a tricky one, but generally speaking as long as you have evidence of loads of work trips (via a log book) then it can be quite beneficial to have the car owned and paid for by the business.
- Home office – it’s generally quite simple to claim running costs for working from home. Bit trickier to claim mortgage/rent as it’ll need to be an identifiable ‘place of business’.
- Research/reference materials – this could be newspaper and magazine subscriptions, online publications, even cable TV depending on what you do for a living.
The following are concessions available to those operating as small businesses (i.e. turning over under $2 million a year).
- Immediate write off for assets costing up to $20,000 (excluding GST) – this means no need to depreciate assets and claim the cost over multiple years, rather you get a tax deduction straight away. This is great for cash-flow for small businesses as it helps to match the expense with the tax deduction.
- Deduction for prepaid expenses – if you prepay costs for up to 12 months in advance they can be claimed when you pay them (e.g. insurance or rent).
- Two year amendment period – this means the ATO will generally only seek to make changes to your tax return within a two year window of you lodging the return. For larger businesses the time frame is four years.
- CGT concessions – whole books have been devoted to the topic, but suffice to say, if you sell your small business, or an asset connected with it, there are very generous tax concessions available.
Finally, there is the option to salary package benefits which can also result in tax savings if done correctly. Those with arm’s length employers may well be able to take advantage of these too. The idea here is that instead of being paid your full salary, you take part as an allowance or some other benefit and take advantage of any available tax savings. You’ll need to be wary of any possible Fringe Benefits Tax implications.
- Motor vehicle including running costs
- Phone, internet, etc.
- Travel allowances – these can be hugely beneficial as the government set rates are quite generous and can lead to substantial deductions with reduced substantiation (i.e. record keeping) requirements.
- Relocation for work
- Work-related equipment (e.g. phones, computers, etc.)
This article isn’t meant to be an in-depth review of the subject, rather it is a broad overview intended to get you thinking about ways you could structure your remuneration and your business to ensure it is tax effective and supportive of your lifestyle. There are loads of topics I haven’t touched on here such as tax planning and dividend strategies, contributing to superannuation, etc.
The above is not intended as advice and is general in nature only. When preparing the year-end tax work for clients we review their particular situation to ensure they are getting the benefits they are eligible for and those that will support their lifestyle. If there’s anything in particular you’d like to discuss please let us know, we’d be delighted to help.
*It has been my experience that people who say ‘fully legit’ are, in fact, not fully legit.