Seven tax-time tips for businesses in 2023

With the COVID-19 pandemic all but a distant memory, it’s back to business as usual for everyone, including the Australian Taxation Office (ATO). And according to tax experts, that means this year the ATO will be zooming in with an eagle eye on deductions and expenses.
It also means no more leniency and if you have tax debts – you need to pay up, or risk some potentially severe consequences.

According to CPA Australia’s Head of Policy and Advocacy, Elinor Kasapidis, tax policy changes this year are few and far between but one thing is certain – the ATO is keeping a firm eye on tax payers and will be scrutinising every detail, from asset deductions to income declarations to tax debts.

“In the last three years, because of COVID, there has been plenty of tax changes and leniency to help taxpayers, but now we’re back to pre-pandemic conditions,” she said.
“And so the situation has shifted from what’s available to help, to what you need to do to stay out of trouble with the tax office.

“The main message is make sure you’re getting your tax return right. And if you need help, go and see a tax agent.”

Here are some of the key things you need to know and do this tax time.

It perhaps came as no surprise that the Government has wound back its generous temporary full expensing scheme and re-introduced a much smaller instant asset write-off scheme in its place, allowing small business owners (with turnover under $10 million) to immediately deduct assets valued at $20,000 or under.

Business owners have till June 30, 2023, to take advantage of the temporary full expensing scheme, with the caveat that the asset must be delivered and ready for use by June 30.
From July 1, 2024, the new instant asset write-off comes into effect, meaning any assets purchased on or after that date and valued at over $20,000 will need to be deducted over several years instead of in one go.

If you are claiming a range of deductions such as on assets and travel, make sure you keep detailed records and receipts to back up your claim.

According to Kasapidis, the ATO has received plenty of funding from the Government in its latest Budget delivery for compliance activities and will therefore be checking more returns than they have in the past. Hence, it is more important than ever to have all your records on hand and in one place, so you can produce them easily if the ATO comes knocking.
On that note, Kasapidis urges businesses who have yet to go digital to make the transition sooner rather than later.

“Get yourself onto accounting software, keep digital records, make sure you set up your systems right throughout the year so that when it comes to tax time, everything’s in the right place,” she said.

“What you don’t want to be doing is running your business off a spreadsheet or having paper receipts and documents that can disintegrate over time.

“Even just for broader business things like your cash flow management, looking at your debtors, issuing invoices… the improvements and insights that you can gain from going digital are more than just tax related. They will really help the business and give you better control.”

According to Kasapidis, too many businesses owners and individuals alike are not reporting their income correctly or are not reporting all of their income.

“Make sure to include cash you’ve received as well as the value of barter or payments-in-kind as income,” she said.

“The ATO has sophisticated data analytics that check every single return and look out for things that are out of the ordinary, and they also have all these other sources of data that they can match to you and your group.

“And if things don’t look right and they find out you haven’t disclosed income, the penalties and interest can be high.

“If you’re in construction, there’s something called the ‘taxable payments reporting system’ where payments to certain contractors are reportable. Who you work for might actually be reporting your income to the ATO, so if you don’t put it on your tax return, you’ll get caught out.”

If your business is owing the ATO money, don’t keep your head in the sand.

The ATO has ramped up its debt recovery efforts in recent years and is not slowing down anytime soon. So if you have tax debts sitting around, it is imperative that you get in touch with the ATO and work out a plan to pay them off.

“It’s important for businesses to stay on top of cash flow and not let their tax debt slide,” Kasapidis said.

“Make sure you pay your tax and employee entitlements including super on time, as there can be serious consequences for non-reporting or non-payment including director penalty notices.”

If you have a trust, you need to keep all your affairs in order and make your resolutions by June 30.

“The ATO has a close eye on trusts so if you use one, make sure that your resolutions are done by June 30 and that you’re up to date with the rules for distributions,” Kasapidis said.
“In the past, trustees may do it 11 months after the end of income year, but they’re not allowed to do that anymore.”

According to the ATO, if a trustee makes no beneficiary entitled to trust income as at June 30, then the trustee will be assessed on the trust’s taxable income.

“Private use of assets is an ongoing issue, and ATO will be looking at that closely,” Kasapidis said.

As an example, if you are claiming deductions on a ute you bought for your business that you also use privately, you can only claim for the portion of the expenses related to your business and not for the entire vehicle.

Or if your company owns a boat and you lend it to family or friends for their private use from time to time, you cannot claim against that portion of private use either. You will need to work out the portion spent on private use and exclude it from your calculations when filing your tax return.

“Again, the ATO has data matching processes in place, so they’re collecting a lot of information about you, what assets you have and the amount of income that’s coming from those assets,” Kasapidis said.

“They’re looking at debts such as loans that you’ve taken out from the bank for property or for investment purposes, for example. They also check your lifestyle, your income and they match it against your business and use things like benchmarks to determine if you’ve been truthful in your return.”

If you’re unsure about something, or wondering if there are certain items you can claim or if there’s something you need to declare, talk to your tax agent or accountant.

“Tax can be complex and the end of year is a good time to make sure your accounting and tax systems are working correctly,” Kasapidis said.

“Seek advice from a registered tax agent to make sure you’re reporting correctly, maximising your deductions and keeping the right records.”

If you have lodged your tax return and realised you’ve made mistakes or have failed to declare something, correct it right away with the ATO as the organisation can reduce penalties for voluntary disclosures.