Myth busters: Before you file a tax return in Australia

As a business owner, one of the common misconceptions you may have is that you’ll be able to claim all your expenses. Unfortunately, this is not the case! You can only claim expenses which have been necessarily incurred in generating your business income. If some expenses have both a business and a private element, you can only claim the business proportion of your expenses - and even then there are certain rules you’ll need to follow.​

Over the past few years, it has become increasingly common to work from home. This has led to many business owners asking whether or not they’ll be able to claim home office expenses when it’s time to file their tax returns.​

The rule of thumb here is you need to prove a connection between your home office being used, and the income you’re generating. The space you use for business at home needs to be ‘separately identifiable’, such as a study or specific area set aside (the couch or kitchen bench doesn’t qualify!). There are 2 ways to claim home office expenses in Australia:​

The ATO has more information on calculating home office expenses.​

Motor vehicle expenses are another expense that business owners frequently claim. There are different rules depending on whether you’re a sole trader or trading through a company. ​

In short, if you’re a sole trader, you can claim the business use percentage of all motor vehicle expenses, or you can claim for the kilometres travelled on business at a set cents per kilometre rate. You’ll need a logbook to track this.​

If you’re a company, generally the company can claim all motor vehicle expenses, but you’ll be required to pay or make adjustments for Fringe Benefit Tax (FBT). The FBT recognises the private benefit you get from having a company vehicle. Our blog on motor vehicle expenses explains this in more detail.​

Entertainment expenses are another tricky one. Once more, you can only claim entertainment expenses if they have helped you generate business income - however, the line between the business and personal elements can be blurry. ​

There are also specific rules applied to different types of entertainment expenses. For example, some expenses are fully deductible, some are 50% deductible and some are fully deductible (but subject to FBT). We have a detailed guide on entertainment expenses. ​

Tax on monthly memberships and subscriptions can be claimed back as long as they were incurred in generating taxable income, or for training which increased your expertise in the area of your business.​

It is important to declare all sources of income, regardless of how small they may seem. This includes your rental income, dividends, and cash sales. As an Australian tax resident, you’ll also need to declare income earned overseas. The method by which you earned your income does not determine your liability to pay tax.​

If you’re unsure, it’s best to double-check with your accountant. It also pays to contact the ATO, as they can still audit those who don’t make any profit or owe tax. ​

As mentioned, you can still face an audit without making a profit or paying tax. The Australian tax system operates on a basis of “self-assessment”, so it’s up to you to make sure you file a return. You could be audited by the ATO for a variety of reasons, regardless of the amount you earn or owe in tax. Some of these reasons include:​

Keep in mind it’s the job of the ATO to perform audits, and they do this to make sure everyone pays their fair share of taxes. Find more information on ATO's audits.​

While accountants can certainly help you prepare your tax return, it is ultimately your responsibility to provide accurate information for filing. In the eyes of the ATO, your accountant is not responsible for any inaccuracies or mistakes, so it’s important to review your tax return thoroughly before submitting it. Treat yourself as an active player in the preparation of your tax return, and a good accountant will make this a smooth process.​

Tax returns can be a complex and detailed process - but they don’t have to be. There are plenty of resources that can help, and hiring an accountant can make this even easier.  There’s lots of simple accounting software (such as Xero) to help you easily track your income and expenses.​

At Beany, we’re here to help business owners manage their accounting with ease. Get in touch with one of our problem solvers today to see how we can take the stress out of your next tax return.​

It’s a legal requirement to pay the taxes you owe, and the responsibility of declaring them to the ATO rests on you. Unfortunately, pleading ignorance with the ATO doesn’t usually work - failing to file a tax return in Australia can mean facing penalties and fines on top of the tax you owe. The ATO has various resources at their disposal to track who owes them tax, even if an individual has not filed a tax return.​

In some cases, the ATO may simply estimate the amount of tax owed based on available information, such as business purchases against profits, and take enforcement action to collect the debt. It’s always best to file a tax return, even if you can’t pay the tax you owe, in order to minimise the risk of additional penalties and fines. In this case, filing a tax return and working with both the ATO and an accountant to resolve any outstanding tax debt is a responsible and proactive approach.​

If you’re in business and derived any form of business income, you will need to file a tax return. If you had any tax withheld from any payments made to you during the income year,  or are an Australian resident with a taxable income more than the tax-free threshold, you will need to lodge a tax return. The ATO explains more on whether you need to file a tax return. ​

If you're unsure about whether you're required to file a tax return, it's a good idea to consult with your accountant or the ATO.​

Deadlines are all too good at sneaking up on us. Mistakes are more likely to happen when under time pressure, which can only complicate matters further. If you file your tax return inaccurately, or late, you run the risk of facing interest and penalty fees.​

It's always best to file your tax return as early as possible and to give yourself plenty of time to gather all of the necessary information. To help with this, we have created a calendar to help you keep these key financial dates in mind. ​

The ATO requires you to keep financial records (such as bank statements, receipts, invoices, and other documents) for at least 5 years from when you lodge your tax return. The ATO may request to see these records at any stage within the 5 years in order to verify the accuracy of the information reported on your tax return.​

You can keep them electronically or as paper copies. Organising them by date and category is a great way to ensure none go missing.​

Keeping on top of your tax returns is a key component when managing any business. It’s important to be well informed on Australian tax laws, and this means steering clear of any misconceptions (and penalty charges!).​

At Beany, we’re here to help cut through the noise. From advice on how to calculate home office expenses to keeping on top of key dates, your own personal accountant will help you make tax returns a formality, rather than a stress. Get started today!​