Beaconsfield (03) 9707 0555
Cranbourne (03) 5995 2700
Pakenham (03) 5940 4555
Warragul (03) 5622 1793
Lodging your business’s annual income tax return
Tax time is when all the efforts you have made over the financial year to keep the right records pays off. Lodging your annual income tax return starts by gathering all the information you will need to give us – incoming amounts, outgoings, evidence of claimable expenses, documents to back up offsets and rebates, and so on.
But remember; the assessable income of your business is more than just what passed through the cash register – that is, money made in the ordinary course of carrying on a business, such as selling trading stock or providing services. The ATO will also want to know about amounts your business has received from other sources.
So, your “income” can also include:
What else is “income”, and what’s not?
If you took some trading stock for your own use or gave it away for non-business reasons, then the market selling value of that stock is to be included in your assessable income as well. Any excess of the value of stock on hand at year end over the value of stock on hand at the start of the year is assessable income too (to offset the upfront deductions available for purchasing that stock during the year).
And just in case you made some sort of “barter” arrangement over the year, and swapped goods or services that you deal in for other goods or services from another business, the market value of that swap is also viewed by the ATO as assessable income.
But make sure you include gross earnings or proceeds, not just your profit. This is because the costs incurred in earning that gross income are dealt with separately in considering deductions. There are exceptions to this general rule, such as depreciating assets or CGT assets.
So that’s quite a list of what to include when totalling your assessable income. But there is another list (a much shorter one) of items that are not included — that is, what is not considered to be “income”. These can include:
Whether you operate as a sole trader or through a partnership, company or trust, it is advisable to have a separate bank account for all your business transactions to keep your business income separate from your personal income.
When thinking about what we will need to be able to lodge your annual tax return, don’t forget that you are likely to be able to claim most expenses you incur in running your business as deductions to reduce your taxable income. The main proviso is that any expense claimed needs to be directly related to earning assessable income before it will qualify as a deduction. We can help guide you through allowable deductions.
However, if the business expenditure is considered to be “capital” in nature, chances are that you won’t be able to claim the full amount in the year of the expenditure, but you will often be able to claim a portion per year over a number of years (to depreciate it).
With trading stock, if your situation is the reverse of that mentioned above (and the value of stock on hand at year end is less than at the start), that value is deductible.
You may also be able to reduce the tax you have to pay by using tax credits or offsets, such as the foreign income tax offset or remote area offset. Ask this office for guidance.
If you operate your business as a sole trader, your business income and deductions is mixed in with your personal tax affairs when lodging your return. What you include in your individual tax return includes:
If you operate through a partnership, the business lodges a partnership tax return to show its net income. This includes the partnership’s income less expenses and deductions.
However, the partnership itself does not pay any tax – each partner pays the tax on their respective share of the net income. So, as one of the partners, you must also report the following on your individual tax return:
If you operate your business through a trust, it lodges a trust tax return to show its net income or loss. This is the trust’s income less expenses and deductions. Any beneficiary of the trust who receives a distribution (which may include you and/or your family members) from the trust must report the following on their personal income tax return:
The trustee pays tax on any taxable income that it does not distribute.
If you operate a business through a company, remember that the company’s income is separate from your personal income. The company must lodge a company tax return showing taxable income and the amount of tax it is liable to pay on that income by:
Offsets and rebates may be available as well.
The forms we will use to report your business’s taxable income and claim your deductions depends on the way you operate your business. Also note that by using the services of this office, you will generally ensure a much later deadline for lodging your tax return than if you were to do so off your own bat.
DISCLAIMER:All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication (including Taxpayers Australia Incorporated, each of its directors, councilors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The Copyright is owned exclusively by Taxpayers Australia Inc (ABN 96 075 950 284).