Every incorporated Australian or International company operating in Australia will be subject to company tax on their net profits. Company tax and accounting are complex therefore it is essential to engage small business accountant Melbourne to assist with the preparation of company accounts and meet the Australian Taxation Office’s GST, PAYG and Superannuation compliance.
Understand Company Tax and Structure
What is a Company? A company is a separate legal entity and must lodge a tax return and pay tax on its taxable income. Unlike individuals, there is no company tax free threshold.
Company Tax Rate: An Australian company tax rate is generally flat at 30% unless they qualify as a base rate entity. Companies with a turnover of less than $25m per annum may qualify as a base rate entity and would currently be taxed at 27.50%.
How is company tax calculated? The company tax is calculated by multiplying the “business taxable income” by the federal tax rate (either 30% or 27.50% if you qualify for the base rate entity). The equation of Taxable Income is Assessable Income less Allowable Deductions. The corporate formula is:
- Taxable Income = Business Assessable Income – Allowable Business Deductions
- Company Tax Payable = (Taxable Income x Corporate Tax Rate)
- Net Company Tax Payable = Tax Payable exceeds the total PAYG Instalments paid for the year.
- Net Company Tax Refund = Total PAYG Instalments paid exceeds Corporate tax payable.
Click here for more answers to company tax frequently asked questions.
14 Tips to Minimise Company Tax by our Small Business Accountant Melbourne
Review your company business structure
Yes, you heard it. Reviewing your company structure will help determine whether it is still beneficial for your company’s present situation. There are four (4) types of business structure in Australia, sole trader, company, partnership and trust. Our small business accountant Melbourne can help you to understand the pros and cons of each structure as it affects your business tax liability, outgoings and asset preservation.
Interests against Business Loans
The interest against business loans often missed tax overlooked. If you have taken a business loan and pay interest you are entitled to claim the interest as a tax deduction. Besides, you can also claim interest on a loan used to acquire a depreciating asset for the company.
Small Business Depreciation
For an eligible business with an aggregated turnover of less $500m and small business entity with an aggregated turnover of less than $10m per annum is eligible to use instant write-off on an asset costing less than $150,000 for eligible assets they start to use or have installed ready to use, and paid for, from 12 March 2020 to 31 December 2020. According to the ATO, the instant write off assets have changed recently and as follows: –
Eligible Business Date range for when asset first used or installed ready for use Threshold Amount ($)
Less than $500 million aggregated turnover for assets purchased from 7.30pm (AEDT) on 02/04/2019 but not first used or installed ready for use until 12/03/2020 to 31/12/2020. $150,000
Less than $50 million aggregated turnover 7.30pm (AEDT) on 02/04/2019 to 11/03/ 2020 $30,000
Less than $10 million aggregated turnover 29/01/2019 to 7.30pm (AEDT) on 02/04/2019 $25,000
Less than $10 million aggregated turnover 01/07/2016 to 28/01/2019 $20,000
Less than $2 million aggregated turnover 7.30pm (AEST) on 12/05/2016 2015 to 30 June 2016 $20,000
Less than $2 million aggregated turnover 01/01/2014 to prior 7:30pm 12/05/2015 $1,000
Less than $2 million aggregated turnover 01/07/2012 to 31/12/2013 $6,500
Less than $2 million aggregated turnover 01/07/2011 to 30/06/2012 $1,000
Claim for employee education or training courses
A company can claim a deduction for education expenses that have a direct connection to an employee to improve their skills or knowledge required for the employee’s job activity or result in an employee’s income increase.
Claim Pre-pay expenses – do not wait till the due date to pay the bills.
Claiming tax-deductible business expenses list in advance will reduce your Taxable Income. The ATO allows a deduction for pre-paid expenses that are $1,000 or less and or meet the prepaid expenses 12 months rule. An example would be pre-paying insurance or interest on a business loan.
Defer Revenue or Invoicing
If you have positive cash flow, our small business accountant Melbourne suggests that you consider delay invoicing until 1 July to avoid paying taxes in the current fiscal year. For this trick to work you need to factor in your tax brackets for both financial years, to ensure you don’t attract a higher rate in the next financial year on the deferred revenue.
Bad Debt Write Off
If you are registered for GST on Accruals, our small business accountant Melbourne advise that you write off business bad debts as a tax deduction and claim GST credit on the next BAS when an amount has been overdue over 12 months; and provided that the business has:
- the overdue debt is included in your assessable income in the current or prior fiscal year.
- your business has tried to collect the debt and has exhausted all avenues for it to be recovered with no reasonable expectation of payment.
- the bad debt is written off in the accounting records before the end of the financial year.
Repairs and Maintenance to Machinery, Tools and Premises
The ATO allows you to claim a deduction for expenses relating to repairs, maintenance or replacement of machinery, tools or premises you use to produce business income, including:
- maintaining plumbing maintenance
- repairing electrical appliances
- mending leaks
- replacing broken parts of fences or broken glass in windows
- repairing tools and machinery.
Repairs and Maintenance to Capital Depreciating Assets
Any expenses incurred to repair and maintain your business investment property can be claimed as an immediate tax deduction in the year of the expense. You cannot claim for:
- the initial repairs immediately after you purchase or acquire the item
- the substantial improvements to an item or property – for example, installing a new substantial; instead, you can claim a depreciation expense over the effective life of the asset.
As a small business, if your turnover threshold for CGT concessions is $2 million, you may be eligible for the four (4) following capital gains tax (CGT) concessions on “active assets” used to conduct your business:
Business Advertising Deductions
CGT 15 Year Exemption
The ATO have a 15 year exemption provision that allows an exemption of Capital Gains Tax (CGT) when small business owners aged 55 or older who retire or become permanently incapacitated, sell an active business asset they have owned for at least 15 years.
Small Business Active Asset Reduction
The ATO defines an active asset to be a tangible or intangible asset that is used or held ready for use in the course of carrying on a business” Small business owners can claim a further 50% active asset reduction on capital gain, in addition to the 50% CGT discount if the asset was owned for 12 months or more.
Active Asset Rollover Relief
If a small business owner disposes of an active asset and buy a replacement asset or improve an existing one, they can apply to defer the capital gain until a later year. The replacement asset can be acquired 1 year before or up to 2 years after the last Capital Gain Tax event in the income year for which they choose the roll-over.
Small Business Retirement Exemption
The ATO provides a CGT exemption on the sale of an active business asset, up to a lifetime limit of $500,000. If you are under 55, you may be entitled to the exemption provided that money from the sale of the active asset must be paid into a complying superannuation fund or a retirement savings account. Amounts from this exemption can be contributed to your super fund without affecting your annual non-concessional contributions limit.
The ability of your small business accountant Melbourne to cut tax costs should not be underestimated. We can advise you of many ways to reduce your tax bill throughout the financial year and even on tax due date Australia.
SAVE TIME & MONEY
We stream-line your business processes and increase productivity by using secure web-based accounting software to automate financial data. Our small business accountant Melbourne also analyse your financial data to eliminate unnecessary costs.
When you enter an agreement that has tax and accounting implications. Our small business accountant Melbourne can analyse the agreement and advise you the accounting and tax impacts it has on you and your business.