Tax Time Terrors: How to Keep Your Business Safe
At the end of the financial year, the ATO checks businesses and individuals to ensure they are following tax laws. This is done to verify compliance with tax regulations. The ATO conducts these checks more frequently during this time.
Knowing what the ATO is focusing on and how to maximise tax deductions while reducing tax risks is key to keeping your finances healthy and avoiding penalties. This blog explains the ATO's main focus areas and gives practical tips for improving your tax strategy.
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ATO's Current Focus Areas
1. Misuse of Company Funds
The ATO is cracking down on business owners who use company resources for personal purposes. This misuse is often covered by Division 7A of the tax law. This division focuses on cases where private companies give benefits to shareholders or their associates without paying taxes.
Common Problems:
Incorrect accounting for the use of company assets.
Loans made without complying loan agreements.
Reborrowing from the company to make repayments on Division 7A loans.
Incorrect interest rates applied to Division 7A loans.
To avoid penalties, make sure any loans are properly documented with compliant agreements and keep accurate records of all transactions involving trusts, shareholders, and associates.
Proper documentation and following Division 7A rules prevent benefits from being reclassified as unfranked dividends, which are taxed at the recipient’s higher marginal rate and can result in significant penalties.
Keep business and personal expenses separate to avoid triggering Division 7A. Business owners should have clear boundaries between personal and company finances.
Ensure that all loans to shareholders or their associates are accompanied by a written loan agreement that complies with ATO guidelines. This includes minimum annual repayments at the benchmark interest rate. Utilise accounting software to track and manage these agreements.
Maintain comprehensive records of all transactions involving company assets, trusts, and shareholders. This helps in accurate reporting and prevents inadvertent breaches of tax laws. Regular audits and reviews can ensure that records are kept up-to-date and compliant.
For personalised help in managing and preventing the misuse of company funds, contact Cordner Advisory in Broadbeach. They offer comprehensive business tax advice and corporate accounting services. Their experienced business accountants will ensure your financial practices comply with Division 7A regulations and help you keep accurate records.
2. Early Access to SMSF Funds
Illegal early access to self-managed superannuation funds (SMSFs) is under strict scrutiny. The ATO is particularly vigilant about trustees accessing superannuation funds for personal use before retirement or without meeting specific conditions like severe financial hardship.
Common Problems:
Trustees using SMSF funds for short-term loans during financial distress.
Falling for schemes that promote illegal early access to superannuation.
Ensure compliance by accessing SMSF funds only under legitimate conditions such as retirement or severe financial hardship. Keep accurate records and ensure timely lodgement of SMSF annual returns.
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Illegally accessing SMSF funds can lead to severe penalties and interest charges, jeopardise the trustee's role, damage the fund's integrity, and potentially result in disqualification and loss of retirement savings.
Familiarise yourself with the conditions under which you can legally access your SMSF funds, such as retirement, reaching the age of 65, terminal illness, or severe financial hardship. The ATO website provides detailed guidelines on these conditions.
Be cautious of schemes that promise early access to superannuation funds without meeting the legal requirements. Always seek professional advice before making any decisions. If an offer seems too good to be true, it probably is.
Ensure all SMSF transactions are properly documented, and annual returns are lodged on time. This includes keeping detailed records of fund activities and seeking regular audits to confirm compliance. Regular consultations with a financial advisor can help manage and plan your SMSF activities effectively.
For expert SMSF compliance guidance and to avoid illegal early access issues, consult Cordner Advisory in Broadbeach. They provide specialised accounting services and business tax advice to help you navigate the complex regulations surrounding SMSF management.
3. Trust Distributions
The ATO is closely examining how trusts distribute income. Trustees must ensure distributions comply with the trust deed and tax laws, especially regarding beneficiary entitlements and income streaming.
Common Problems:
Distributing income without considering the trust deed.
Incorrect entitlements to income and capital under the trust deed.
Improper streaming of income.
Regularly review and update the trust deed, ensure distributions align with the deed, and maintain detailed records of all trust transactions and resolutions.
Properly managed trust distributions ensure tax compliance with tax laws, prevent invalid distributions, and avoid significant tax ramifications and potential penalties.
Conduct a thorough review of your trust deed and any amendments to ensure it accurately reflects the current distribution practices and complies with tax laws. Use legal experts to ensure the deed meets all necessary legal requirements.
Verify that distributions are made in accordance with the trust deed and beneficiaries’ entitlements. Pay special attention to the timing and requirements for trustee resolutions. Use checklists and compliance tools to track and manage these requirements.
If you plan to stream capital gains or franked distributions to specific beneficiaries, ensure the trust deed allows this and that all streaming requirements are met. Consult with tax advisors to structure distributions optimally.
Keep detailed records of all trust transactions, resolutions, and beneficiary entitlements to support tax compliance and accurate reporting. Implementing a robust record-keeping system can streamline this process.
Ensure your trust distributions are compliant and optimised with the help of Cordner Advisory in Broadbeach. Their corporate accounting services include detailed trust deed reviews and tax-efficient income streaming strategies to help you meet ATO regulations.
Need help navigating tax laws? Cordner Advisory is your trusted partner in corporate accounting. Connect with us now for expert, tailored advice.
Maximising Deductions and Minimising Tax Risks
1. Prepay Deductible Expenses
Prepaying deductible expenses before the end of the financial year can significantly reduce your taxable income for that year. This strategic move allows you to bring forward deductions that would otherwise be claimed in future years.
Identify expenses that qualify for tax deductions and consider prepaying them. Common expenses that can be prepaid include rent, insurance, professional subscriptions, and utility bills.
Steps to Implement:
Work with your accountant to list all expenses that can be prepaid. These might include:
Rent for your business premises
Insurance premiums for business-related insurance
Subscriptions to professional journals or associations
Utility bills related to business operations
Verify that these expenses meet the ATO’s guidelines for prepaid expenses. Typically, the prepayment must not be for a period exceeding 12 months.
Maintain thorough documentation of all prepaid expenses. This includes invoices, receipts, and any agreements related to the prepayments. Proper documentation ensures you can substantiate your claims if audited.
Before making any prepayments, consult with your accountant to understand the impact on your cash flow and to ensure that the prepayment strategy aligns with your overall financial plan.
Maximise your tax deductions and streamline your financial planning with the assistance of Cordner Advisory. Located in Broadbeach, they offer tailored accounting services and strategic business tax advice to help you effectively manage prepaying deductible expenses.
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2. Superannuation Contributions
Contributing to your superannuation fund not only enhances your retirement savings but also provides substantial tax deductions. Superannuation contributions are generally tax-deductible, reducing your taxable income.
Maximise your superannuation contributions by ensuring you have not exceeded your concessional contributions cap. Additionally, if you have a superannuation balance below $500,000, you can utilise unused concessional cap amounts from the previous five years.
Steps to Implement:
Check your superannuation statements to determine your current contribution levels and remaining cap space. For the 2023-24 financial year, the concessional contributions cap is $27,500.
If you have unused cap amounts, consider making additional contributions. These contributions can be salary-sacrificed or made as personal contributions, which you then claim as a tax deduction.
Utilise Carry-Forward Contributions: If your superannuation balance is below $500,000, review your unused concessional cap amounts from the last five years. Contribute these amounts to boost your super and claim tax deductions.
Consult a Financial Advisor: Regularly review your superannuation strategy with a financial advisor to ensure you are maximising your contributions and staying within the ATO’s limits.
Boost your retirement savings and get significant tax deductions with Cordner Advisory's superannuation contribution strategies. Their business accountants in Broadbeach offer personalised tax compliance support to help you maximise your superannuation contributions within ATO guidelines.
3. Charitable Donations
Donating to registered deductible gift recipients (DGRs) provides tax deductions and supports charitable causes. Charitable contributions can be a strategic way to reduce taxable income while contributing to the community.
Ensure your donations are to registered DGRs and are above $2. Consider setting up a structured giving plan to manage and track your charitable contributions throughout the year.
Steps to Implement:
Ensure that the organisation you are donating to is registered as a deductible gift recipient. This information can usually be found on the organisation’s website or by checking the ATO’s register of DGRs.
Keep receipts and documentation for all donations. This includes the date of the donation, the amount, and the organisation’s details.
Establish a philanthropic plan that outlines your giving strategy for the year. This can include regular monthly donations or larger annual contributions.
Explore options such as public ancillary funds or private ancillary funds. These funds manage and distribute your donations over time, potentially offering immediate tax deductions.
Optimise your charitable contributions for maximum tax deductions with the expert assistance of Cordner Advisory. Based in Broadbeach, they offer comprehensive accounting services and business tax advice to help you manage and document your philanthropic giving.
Seeking reliable financial advice? Cordner Advisory specialises in corporate accounting. Reach out today for customised support from our dedicated experts.
4. Depreciation on Investment Properties
Claiming depreciation on investment properties helps offset rental income and reduce taxable income. Depreciation deductions account for the wear and tear on the property and its fixtures over time.
Obtain a depreciation schedule from a qualified quantity surveyor. This schedule will detail the depreciation deductions you can claim each year for your investment property.
Steps to Implement:
Engage a qualified quantity surveyor to prepare a depreciation schedule for your investment property. This professional assessment ensures you capture all possible deductions.
Maintain records of all costs related to the property, including purchase price, construction costs, and expenses for any renovations or improvements.
Use the depreciation schedule to claim annual deductions for the depreciation of the property’s structure and fittings. Include these deductions in your tax return each year.
Periodically review and update the depreciation schedule to reflect any changes or additional improvements made to the property.
For detailed and accurate depreciation schedules on your investment properties, rely on Cordner Advisory in Broadbeach. Their corporate accounting services will help you maximise tax deductions and ensure tax compliance with all ATO guidelines.
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5. Work from Home Expenses
With many employees and business owners working from home, there are additional expenses incurred that can be claimed as tax deductions. These expenses include utilities, internet, phone, and office supplies.
Use the ATO’s short-cut method or claim actual expenses incurred. The short-cut method allows you to claim a fixed rate of 67c per hour worked from home, covering energy, internet, phone, and stationery expenses. Alternatively, claim actual expenses with detailed records.
Steps to Implement:
Decide whether to use the ATO’s short-cut method or to claim actual expenses. The short-cut method is simpler but may result in a lower deduction compared to actual expenses.
Keep a detailed log of hours worked from home. This log will support your claim and is required if using the short-cut method.
If claiming actual expenses, keep receipts and invoices for all related expenses, such as utility bills, internet costs, and office supplies.
For actual expense claims, maintain a diary for at least four continuous weeks to demonstrate your typical work pattern and substantiate your claim.
Claim your work-from-home expenses accurately and maximise your tax deductions with the help of Cordner Advisory. Located in Broadbeach, they provide expert accounting services and business tax advice to ensure you comply with ATO regulations and benefit from all eligible deductions.
Staying informed about ATO crackdowns and implementing effective tax strategies is essential for businesses and individuals. By understanding the areas of focus, complying with regulations, and optimising tax deductions, you can minimise tax risks and enhance your financial stability. Always seek professional advice to navigate the complexities of tax laws and ensure compliance.
This comprehensive guide aims to provide the knowledge and tools necessary to stay compliant and maximise tax benefits. By following these strategies and keeping abreast of ATO regulations, you can confidently manage your tax obligations and secure your financial future.
Want to secure your financial future? Cordner Advisory offers expert guidance in corporate accounting. Contact us today for personalised support from our professional team.
FAQ | Tax Time Terror
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Division 7A prevents private companies from providing tax-free benefits to shareholders or their associates. It is crucial to comply with Division 7A to avoid penalties and ensure proper tax treatment of company funds.
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You can access your SMSF funds upon retirement, reaching the age of 65, or under specific conditions like terminal illness or severe financial hardship. Always ensure compliance with ATO regulations.
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Regularly review and update your trust deed to ensure it aligns with current tax laws and accurately reflects the distribution practices. Consult a professional to assist with the review process.
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Prepay deductible expenses, make superannuation contributions, and utilise available deductions for investment properties. Maintain accurate records and seek professional advice to optimise your tax strategy.
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Non-compliance can lead to penalties, interest charges, audits, and reputational damage. It is essential to adhere to ATO guidelines and seek professional assistance when needed.
