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Business Tax Tips – Can I claim Home Office Expenses?

Business Tax Tips - Can I claim Home Office Expenses?

Business Tax Tips – Can I claim Home Office Expenses?

Many clients ask “Can I claim Home Office Expenses?” There is great information on the ATO website, and links for more info and a cool expense calculator, as part-reproduced here –

If you are a sole trader and your home is also your place of business you can claim tax deductions for a portion of the costs of owning, maintaining and using your home for this purpose. When you sell your home you may be liable for capital gains tax.

If you operate a business at or from your home, you may be able to claim a deduction for some of the expenses relating to the area you use for business purposes.

These expenses can be divided into two broad categories:

  • Occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums);
  • Running expenses (such as gas and electricity, phone, decline in value of plant and equipment, decline in value and cost of repairs to furniture and furnishings, cleaning).

As for motor vehicles, if you are carrying on a home-based business you can claim the cost of trips between your home and other places if the travel is for business purposes.

Generally, you can ignore a capital gain or loss you make when you sell your home, unless you have used any part of it for business purposes.

Next step:

Home office expenses calculator

Disclaimer:

  •  All outcomes provided by this calculator are based on the information you provide and the deduction rates available at the time of calculation. You should use the outcomes as an estimate and for guidance purposes only;
  • You need to self-assess your eligibility and entitlement to a deduction for home office expenses before using this calculator.

Warning – Capital Gains Tax on Sale of Home

Be aware that if you claim home expenses for business, then Capital Gains Tax may apply if you sell the home.

The ATO explains further (and gives examples there)  –

Generally, you can ignore a capital gain or loss you make when you sell your home. However, you may have to pay CGT when you sell your home if you have used any part of it for business purposes.

CGT will not apply if any of the following apply:

  • You operate your business from a rented home;
  • You do not have an area specifically set aside for your business activities;
  • You operate your business through a company or trust.

In most cases, the portion of any capital gain on your home that is taxable is the same as the portion for which you could claim a deduction for interest. Generally, this is based on the floor area of your home you have set aside for business, for example 10%.

You do not have to pay CGT for those periods you did not use your home for your business.

If you have a capital gain because you use your home for business purposes, you may be able to apply one or more of the small business CGT concessions to reduce your capital gain.

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Email info@accountkeepingplus.com.au or call 0407 361 596 Australia

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Business Finance 101 – What is the Balance Sheet – Example and Definition

Business Finance 101 – What is the Balance Sheet – Example and Definition

What is the Balance Sheet – Example and Definition

An important part of helping our clients at Account Keeping Plus, is to educate and help businesses and bookkeepers to understand what is the Balance Sheet (also known as the Financial Position) and here we give an example and definition.

Definition

The Balance sheet presents a look at a point in time (eg end of month or year) of the assets and liabilities of the business. In other words, it is a picture or summary of what the business has and how it is funded.

There are three areas in the Balance Sheet – Assets Liabilities and Equity –

Assets include bank accounts, petty cash, inventory, debtors or accounts payable, which are also grouped as Current Assets because they turn over in less than 12 months. Long Term Assets show Plant & Equipment and Motor Vehicles.

Liabilities include credit cards and short term loans, creditors or accounts payable, GST, payroll withholding tax, PAYG and super accounts, which are grouped as Current Liabilities as they also turn over in less than 12 months. Long Term Liabilities show business loans and overdrafts, car loans/finance.

Equity is the difference of assets less liabilities. Sometimes known as net worth  or Shareholder Equity.

Example

The Balance Sheet can be likened to a house with a loan. The house has a value (Asset), say $450,000 and if there is a loan (Liability) say of $250,000 there would be a net of $200,000 which is also called Equity or net worth.

Bal Sht like house

In a similar way, a business reports these as the Balance Sheet Assets, less its Liabilities, leaves Equity (Shareholder’s Equity)

Bal Sht summary

Look for future Posts where we will look at important ratios that can be calculated from parts of the Balance Sheet.

What are your thoughts? Call for FREE 30min advice / strategy session today!

0407 361 596 Aust

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Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Cashflow Tips – A cool tool to see what affect changes make on Cashflow

Many run by gut or the bank balance early in running a business – but understanding your cash flow is critical to your business success, and a handy tool that bank NAB have created is an online cash flow improvement tool. Whether using MYOB, Reckon/Quickbooks or Xero for bookkeeping, Try it and see what you think! (Click icon to go to the page)

Cash Flow Imp CalcLet us know how you went…

For other NAB cool tools see Calculators and tools

Also see Cashflow Tips – 5 Ways to Keep Cash Flowing

Or Cashflow Tips – To Discount or ADD VALUE?

DOWNLOAD a Free “Bookkeeping Quarter Checklist” to get organised! CLICK HERE

Need help? Not sure? Call for FREE 30min advice / strategy session today!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Business Tips – Borrow or loan? Pay cash or finance / loan for stock or equipment?

Business Tips – Borrow or loan? Pay cash or finance / loan for stock or equipment?

Borrow or loan? Pay cash or finance / loan for stock or equipment?

At a local Meet-Up (www.meetup.com), we had an interesting discussion about mistakes we’ve made in business. For example: Whether to pay outright or borrow for stock/equipment.

The example one business gave was paying outright for equipment that would be sign-written to advertise another business (he organized advertising for businesses). The issue was that spending $10,000 on the equipment took all the spare money the business owner had, while the payment for the advert was monthly over a multi-year contract.

Hindsight showed that it would have been better to get a loan for the equipment, then add his mark-up for the advert and service on top of the monthly re-payments, and he would still have his $10,000 to use for cashflow and marketing.

Have you had a similar experience?

What Better Business Decisions can you share?

DOWNLOAD a FREE “Bookkeeping Quarter Checklist” to get organised! CLICK HERE

Need help? Not sure? Call for FREE 30min advice / strategy session today!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Business Tax Tips – Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Business Tax Tips – Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Beware of your liability as a small business owner for tax credits you have claimed, or not knowing what your bookkeeper/wife is reporting in your BAS and tax returns – ignorance is not an excuse with the ATO! As Terry Hayes relates in Smart Company about a carpenter in a recent Dispute with the ATO –

While it’s often said that lawyers and accountants are their own worst clients, or doctors are their own worst patients, taxpayers too can be their own worst clients when they represent themselves in disputes with the Tax Office.

This happened recently with a carpenter who represented himself before the Administrative Appeals Tribunal in a GST dispute with the Tax Commissioner.

In that case, the AAT upheld the Tax Commissioner’s decision to impose on the taxpayer a 50% administrative penalty on the basis of “recklessness” because he had over-claimed GST credits.

The taxpayer is a carpenter by trade, a sub-contractor in the building industry. He is a sole trader and has no employees. The Commissioner audited his Business Activity Statements for the period 1 January 2007 to 30 June 2010 and found he had over-claimed input tax credits. The BASs showed that claims for ITCs exceeded his GST payable in all but six out of the 42 BASs lodged in the relevant period. The tax shortfall amount was around $130,000 and the penalty imposed was some $65,000 based on 50% of the shortfall amount.

The taxpayer said that his wife prepared and lodged his BASs and that he never reviewed them or any of the supporting documents, including the invoices that he kept in a box in the linen closet which, as it transpired, did not substantiate his ITC claims. He also did not keep vehicle log books. Nor did he ever check any of his bank statements and so he was unaware that he was receiving GST refunds from the Commissioner over a lengthy period of time in the joint bank account that he had with his wife.

The taxpayer did not dispute the tax shortfall but argued he was not responsible for the penalty maintaining that it was the Commissioner who was mostly responsible for it. He alleged that Tax Officers had represented to his wife that he was entitled to claim ITCs for the purchase of his family home because he maintained a home office (although the AAT noted the settlement statement for the purchase of the home did not show any GST having been charged by the vendor to the taxpayer and his wife as the purchasers). Additionally, the taxpayer claimed it was the Commissioner that allowed the situation to go on for so long without him being audited.

The taxpayer also alleged that a car salesman had represented to him that he could claim back the GST on the purchase of two vehicles, but he accepted before the AAT that he was given wrong information by the salesman.

The taxpayer also stated that he had lost a lot of information about his purchases when his old computer died and that many other receipts that he had stored had faded and were illegible. The taxpayer contended that the mistakes in his BASs “were not made intentionally by his wife and that he had always been honest with the Commissioner”.

The taxpayer was self-represented. The AAT did not accept what the taxpayer said his wife was told by the Tax Officers or what the taxpayer said he was told by the car salesman. It agreed with the Commissioner’s contention that the taxpayer had over-claimed ITCs “for a lengthy period of time in circumstances where he knew or should have known that he was not entitled to claim the ITCs”. The AAT said the taxpayer had conceded he was “indifferent as to whether the BASs were accurate”. It also noted the taxpayer “never checked any of the BASs or whether he had the supporting documentation for the ITC claims because he thought everything was fine”. The AAT was of the view that the taxpayer “chose to leave the preparation of his BASs in the hands of his wife who had no taxation expertise”.

In the Tribunal’s view, the taxpayer’s conduct amounted to recklessness because there were foreseeable risks as to a tax shortfall where his BASs included claims for ITCs to which he was not entitled. The AAT said a reasonable person in the taxpayer’s position should have known about those risks. The Tribunal said the taxpayer “displayed complete indifference to the high risk of non-compliance in his GST affairs”. Game, set and match to the Tax Office on this occasion.

The AAT held the taxpayer had failed to discharge the onus of proving that the penalty was excessive. It held the decision to impose an administrative penalty of 50% was correct and that it should not be remitted in the circumstances.

Taxpayers must exercise care in their taxation affairs. They have that responsibility, and while they may claim they have no intention of making mistakes, that does not unfortunately stack up. Leaving the preparation of BASs to a family member (even if they are well versed in this), be it a wife or someone else, does not absolve the taxpayer from his or her responsibilities.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

DOWNLOAD a FREE “Bookkeeping Quarter Checklist” to get organised! CLICK HERE

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Business Finance 101 – What is a Profit & Loss Statement and what it tells us

Business Finance 101 – What is a Profit & Loss Statement and what it tells us

What is a Profit & Loss Statement and what it tells us

Want to know what is a Profit and Loss Statement? It is one of the main business reports we use, and what it tells us is how the business is going financially (whether you are making a profit or loss for a period) – it is the Profit & Loss Statement or Income Statement or Trading Statement. The statement shows all the sales for a period less the cost of goods (if you sell product) which leaves Gross Profit, then from that all the Expenses (operating or overheads like rent, wages etc) leaves  the Operating Profit (not always reported), then from that less any non-regular income and expenses, gives us the final Net Profit.

bus-profit-loss-diagram

In summary, there are three main levels of profit or profit margins

  • Gross profit (after cost of sales deducted from sales/revenue),
  • Operating profit (sometimes given = after expenses deducted) also known as Pretax profit (before tax and other non-regular items) and
  • Net profit (Final, after tax and other non-regular expenses and income).

Note that “profit”, “earnings” and even “income” are all used interchangeably, and mean the same thing.

When the term “margin” is stated, it can apply to the dollar number for a given profit level and/or the number as a percentage of sales/revenues.

The absolute amount, the dollar amount, is on the Profit & Loss Statement. The net profit margin commonly uses the percentage calculation to provide a measure of a company’s profitability on a historical basis (3-5 years) and in comparison to peer companies and industry benchmarks. The margin is the amount of profit (at the gross, operating, pretax or net level) as a percent of the sales generated.

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Cashflow Tips – Improving cashflow in small business – Tip – Invoice Promptly!

Cashflow Tips - Improving cashflow in small business – Tip – Invoice Promptly!

Cashflow Tips – Improving cashflow in small business – Tip – Invoice Promptly!

Small business owners are often uncomfortable about asking to be paid, yet the top way to improving your cashflow is by invoicing PROMPTLY!. When you run a business, (especially for service businesses) if you don’t invoice promptly as well as collect payment promptly (which causes a cash crisis in the first place), then consider the following consequences –

Consequences for your cashflow:

  1. Clients can quickly forget what they owe you;
  2. They are less likely to remember how much they loved your work and pay you promptly;
  3. They may conclude that you do not expect quick payment and will take their time in sending in their money.

Some ACTION steps:

  1. Where possible, issue invoices at the time services are delivered;
  2. Send your invoice by email to speed the process;
  3. If you can’t issue immediately, be sure to issue your invoices weekly, or at least twice per month on designated days, such as on the 15th and the last day of each month;
  4. Do it like clockwork – it will help to even out your cashflow.

Take-away message and case studyCreate the habit – invoice quickly and often!

Part of our service is assistance with cashflow budgets, debtor collection and reviewing supplier costs and terms. One of our clients said the business finance is now in the BEST shape it has ever been – for our 4-5 hrs work weekly involves managing the invoices, payment follow up unique method and now supplier payments! The owner now can catch up on quoting jobs and finalizing the sale to grow the business.

Could this assist you in your business and let you focus on your best skills and on running the business?

If you would like to speak with these clients, email me and I’ll supply contact details!

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia