Can Your Business Claim the Loss Carry Back Tax Offset?

As part of the Federal Budget 2020-21 the government announced a loss carry back measure to encourage new investment and work with the temporary asset expensing measures also announced at the budget.

The new law started on 1 January 2021.

Eligible corporate entities that previously had an income tax liability in a relevant year and have subsequent losses can claim a refundable tax offset up to the amount of their previous liability.

The measure allows significant tax losses which may then be carried back to generate cash refunds for eligible businesses.

Who is Eligible?

  • Your business must be a company, corporate limited partnership or a public trading trust in the income year you want to claim the offset.
  • The business must have had an aggregated turnover of less than $5 billion.
  • The entity had an income tax liability for financial years 2019, 2020 or 2021.
  • The entity subsequently made a loss in financial years 2020, 2021 or 2022.
  • Your business is up to date with tax return lodgement obligations for the last five years.

There are specific guidelines about eligibility, integrity and tax offset calculation. We can talk to you about whether you can use the loss carry back measure to benefit your business.

You can only claim the tax loss once in either the 2021 or 2022 financial year so it’s important to get advice about how and when to apply this measure for your business. To claim the tax offset the ATO must be notified before lodging the company tax return that year.

Update Your ABN Details To Ensure Notifications In An Emergency

Emergency logo in white and red

Did you know that government agencies use Australian Business Number (ABN) details to identify individuals and businesses in communities affected by emergencies or natural disasters?

This can happen any time and any season, so we encourage you to keep your Australian Business Register (ABR) details up-to-date. This enables immediate emergency services assistance and ensures affected businesses are contacted in the event of crisis.

Details to Update

  • Check that your recorded names are correct – If you have legally changed your name, you should update that with the ATO so that the correct legal name is linked to your ABN.
  • Email address – This should be one that you can easily access from your phone or other means during an emergency.
  • ANZSIC code – It’s a good idea to check that this is correct for your business type in case your business services have changed since you registered your ABN.
  • Business address – This is essential to update, so that if an emergency or natural disaster affects your area you are contacted.
  • Telephone number
  • Postal address
  • Additional business locations – You can add multiple locations if your business operates from more than one premises.
  • Authorised contacts for the business – Consider adding more than one contact for the business.

Business, Individual and Company Names

Name changes can’t be updated on the Australian Business Register. If you need to update a business name, a legal individual name or a legal company name talk to us about liaising with the ATO or ASIC on your behalf to update your details.

Update Your ABN Details Now

Changes made to the ABR reflect immediately. It is always important to keep ABN details up to date, but for businesses in disaster prone areas, it is especially crucial as this can make all the difference with getting help quickly. Emergency services can access contact details from the ABR, which means affected businesses can get important updates and assistance from emergency services without delay.

Visit ABR to update your ABN Details or let us submit these details on your behalf.

Report PAYGW Correctly to Claim Tax Deductions

If you don’t meet PAYG withholding obligations for your workers, by not withholding tax from their payments and not reporting it to the ATO, you could lose your tax deduction.

This will apply to income tax returns lodged for the 2020 financial year and beyond.

If you withhold tax from payments to workers, you must withhold the required amount and report correctly to the ATO in order to receive a tax deduction for your business.

PAYG withholding and reporting obligations apply to payments for:

  • Salary, wages and other payments to employees
  • Directors’ fees
  • Religious practitioner payments
  • Labour hire arrangements
  • Voluntary withholding arrangements
  • Payments to contractors with no ABN

Withholding rules still apply to cash payments. Similarly, for non-cash payments such as property or exchange of services, withholding rules still apply even if your worker agrees to receive a non-cash payment in place of money.

The payment of PAYGW to the ATO is a separate issue. The new rules are aimed at getting employers to report correctly and on time. Once you have reported an amount to the ATO, they expect payment of that obligation by the due date.

If you make an honest mistake, such as treating an employee as a contractor, you won’t be penalised. You can correct your mistake by lodging a voluntary disclosure

Book in a call with us to review your PAYGW reporting obligations to ensure you maximise your business tax deductions.

Get Your Business Records Ready for Your Tax Return

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Whilst it is not exactly business as usual right now, you still need to prepare for your business tax return. Organising your documents now will mean you can get your tax return completed earlier and access any refunds due or start planning for tax payments.

Getting your business records up to date and accurate will allow us to work with you proactively to plan for the coming year, which will continue to be unusual (and possibly difficult) for many.

It will also be one less thing to do when your normal business activity resumes later in the year.

What Records do you Need to Have Ready for the Tax Agent?

  • Have you bought or sold assets? If so, you need full details of acquisitions and disposals.
  • Have you taken out a new loan or other finance? You must have details of the finance arrangements and statements of monies owing at 30 June.
  • Check that any bonds or deposits paid or received have been allocated correctly.
  • Have you prepaid for insurance or other large business expenses that need to be apportioned to the following financial year? Make note of the portion applicable to the current financial year.
  • Do you carry stock? If so, you need to perform a full stocktake at 30 June (unless you qualify for the simplified trading stock rules).
  • List any doubtful or bad debts to be written off.
  • Review your debtors and creditors (accounts payable and receivable). Is the list current and correct?
  • Do you have loans with related entities? Reconcile the loans to and from each entity to ensure the same value is reported in the accounts of both entities.
  • Ensure that all payments to company directors have been correctly captured. Talk to us now if you want to make director payments before 30 June.
  • If contact details of business owners and key personnel have changed let us know.

We will let you know if there are other matters to discuss with us before completing your tax return, such as capital gains, vehicle usage, private usage apportionment or superannuation. This year, there may also be new elements to discuss if you have received refunds, credits or deferrals of business expenses and liabilities.Remember you need to keep all your business records for seven years, so store everything securely and where possible electronically for safety and ease.

Once you have all your records for the 2020 financial year, make an appointment with us to schedule in your tax return for prompt lodgement.

Scott Morrison Unveils Additional Stimulus and Support Measures

Money

Prime Minister Scott Morrison has announced an additional stimulus package, taking the value of the total support to $189 billion.

Acknowledging that the coronavirus pandemic may continue for some time and have long lasting impact on the livelihoods of Australians, the PM announced a raft of new support measures.

Details of the new package:

Support for businesses – eligible businesses and not-for-profits, with a turnover of under $50 millions and who are employers, will receive up to $100,000 (with a minimum of $20,000). This is an extension to the ‘boosting cashflow for employers measure’ which aims to keep employees in work. Employers will receive a tax free payment equal to 100% of wages or salary withheld (increased from 50%). This will be available from April 28th.

Temporary relief for financially distressed businesses – by temporarily providing higher thresholds and more time to respond to demands from creditors and providing temporary relief from directors’ personal insolvent trading liability.

Increasing the instant asset write-off – the Government has already announced that they are raising the threshold to $150,000 (from $30,000) — and making more businesses eligible to use it up to a turnover of $500 million.

Backing business investment – by accelerating depreciation deductions.

Supporting apprentices and trainees – through wage assistance to help small businesses.

Coronavirus SME guarantee scheme – a loan guarantee arrangement between the Government and participating banks to assist with the immediate cash flow needs of small businesses.

Increasing the benefit – the Government is temporarily expanding eligibility to income support payments with a new, time-limited coronavirus supplement of $550 per fortnight. The payment will go to existing and new recipients of the JobSeeker Payment, Youth Allowance jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit for the next six months.

Early access to superannuation – eligible individuals and sole traders will be able to access up to $10,000 in 2019-20, and a further $10,000 in 2020-21. Withdrawals will be tax-free. Applications are through the myGov site online by July 1. There will also be a temporary reduction of minimum super drawdown rates.

Support for airlines and airports – up to $715 million relief from a range of taxes and Government charges.

For more on the new package, the Treasury has fact sheets on each measure at https://treasury.gov.au/coronavirus.

Talk to us, we are here to help you and your business.

Common BAS Errors Will Impact Your Business

Most activity statement errors are unintentional – even so, such errors can have a big impact on your Business Activity Statement. Unintentional errors may result in you paying too much GST or not enough. Whether you lodge the BAS yourself or whether you use our services to lodge, it’s useful to understand some of the inadvertent inaccuracies that can happen.

Here are some tips to help avoid the most common mistakes we see on the BAS.

Before preparing the BAS

  • Allocate all transactions in your accounting software to the correct expense or income account.
  • Make sure you reconcile your accounting software to your actual bank balance to ensure you haven’t missed or duplicated transactions.
  • If you use point-of-sale software and clearing accounts, check that you are not declaring the same income twice.
  • Set aside time to prepare the BAS so you have plenty of time to manage cash flow obligations ahead of the BAS payment due date.

Reviewing the BAS

  • The most common errors involve incorrect tax codes. Bank fees, donations, certain registrations, interest and ASIC fees are GST free.
  • Check overseas purchases; many well known online vendors are now registered for GST in Australia, however many of the smaller overseas vendors may not be, so they should still be GST free.
  • Similarly, some payment gateway services have GST on their fees and some don’t; check if you can claim GST.
  • Check that you have included stamp duty on insurance policies; as this is a government duty, no GST is payable.
  • If you have bought a vehicle, check that you have not claimed more than the ATO car limit of GST for this financial year.
  • Make sure you haven’t double claimed GST on both the vehicle purchase and repayments.
  • Don’t include salary, PAYGW or superannuation as a purchase on your BAS. Salary and PAYGW are reported separately on the BAS. Superannuation is not reported on the BAS at all.
  • Do include cash purchases and income. Cash transactions should be recorded in your accounting software.
  • Check the GST registration of any contractors you pay and check that you have not claimed GST if they are not registered.
  • If you transfer money between related entities or bank accounts, check that these transactions do not have GST as they are excluded from BAS reporting.
  • Although your business may purchase goods and services for private use, you may not claim GST on these.
  • Remember, you need a valid tax invoice for every business purchase over $82.50 including GST.

Accurate Activity Statements

There are many more potential issues with BAS reporting, but these are the most common and easily fixed. If your business is growing in complexity, or if the compliance obligations are becoming challenging, we’ll help you make BAS effortless and accurate every time.

Contact our team of professional bookkeepers now.

Cash vs Accrual Accounting – It’s All About Timing

What are the two methods?

Understanding cash and accrual accounting comes down to timing.

  • In a cash-based accounting system you recognise income and expenses when they happen, that is, when the money arrives into or leaves your bank.
  • In an accrual-based accounting system, income is recognised at the date the customer is invoiced and expenses are recognised at the date of any bills received. The timing of income and expense reporting is independent of when the money hits or leaves your bank.

Let’s have a closer look.

Cash accounting – this method does not recognise accounts receivable or accounts payable. Each Business Activity Statement (BAS) is prepared on money received and spent within that BAS period. Whilst you still have to manage cashflow and planning, the financial activity is more aligned with the business activity.

This simple system makes sense to many small business owners as they are generally operating on a short lead time for bills and invoices. This means you get an immediate snapshot of the money you have in your bank accounts, although you still need to be aware of upcoming liabilities. Remember – Not all the money in your bank is profit! Cash-based accounting is available to businesses with less than $10 million turnover.

Cash accounting requires a good understanding of financial reports to get a true picture of the business financial position. There are many small businesses that have their activity statements prepared on a cash basis, while their tax returns are prepared on an accrual basis.

Accrual accounting – this method does recognise accounts receivable and payable and is a more complex system suited to larger businesses. Reports are prepared taking into account GST on invoices issued and bills received, regardless of payment.

This method requires a greater understanding of the balance sheet accounts and cashflow planning. The bookkeeping processes and accounting can be more involved, requiring movements to be made to allocate funds to the relevant accounting period. This method is better suited to businesses that allow for longer payment terms, contracts that are paid over time and have large accounts with suppliers.

Accrual accounting actually shows your true financial position when your accounts receivable and payable and other liabilities are kept up-to-date and accurate. This means you know what people owe you and what you owe others, so you can make well-informed business decisions and plan longer-term.

Here’s an example:

  • Ace Accounting issues a bill to you for services dated 15 June and due to be paid by 15 July.
  • If your business is on a cash BAS and you pay the bill on 15 July, this bill is included in the July BAS (or September quarterly BAS), even if you entered it into your accounts dated 15 June.
  • If your business is on an accrual BAS, this bill is included in the June BAS, regardless of when you pay the bill.

What’s best for your business?

Micro and small businesses are better off with the simpler cash BAS system. However, as a business evolves into a larger more complex entity, even if it has not yet reached the compulsory accrual threshold of $10 million, it can be beneficial to swap to accrual accounting for both BAS and tax returns.

Not sure? We can help you decide whether accrual BAS reporting is right for you, please call the friendly team at Flawless Figures Bookkeeping.

Benefits of using a registered BAS Agent

What is a BAS Agent?

Anyone providing BAS services for a fee, must be registered with the Tax Practitioners Board.  Once a BAS Agent is registered, they are able to perform BAS services such as working out or advising businesses regarding liabilities, obligations and entitlements.

A bookkeeper who is not a registered BAS agent is able to assist with general bookkeeping duties, however, unable to complete and submit a Business Activity Statements, Instalment Activity Statements, PAYG statements etc, on a clients behalf.

Why should I use a registered BAS Agent?

Using a registered BAS Agent provides you with:
• consumer protection through professional indemnity insurance
• extended tax and BAS lodgement due dates
• experienced and qualified agents who comply with a professional code of conduct.

To check if an agent is registered, just enter their details in the www.tpb.gov.au register or look for the registered practitioner symbol.

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