Small business: Anthony O’Brien
If a four-legged friend guards your business, even the pet food may be a write-off
The late Kerry Packer famously told a House of Representatives select committee in 1991: “I don’t know anybody that doesn’t minimise their tax.” He added: “Of course I’m minimising my tax. And if anybody in this country doesn’t minimise their tax they want their head read. As a government, I can tell you you’re not spending it that well that we should be donating extra.”
It is one of the best and most inclusive political sledges ever, and Packer’s frustrations with our political masters are still shared by many of us 26 years later. Nonetheless, Packer knew there are sensible and legitimate strategies for minimising the taxes we pay on our business profits.
That’s not to say the political class has given up on seducing small business. In May the current government announced an extension to the 2015-16 budget measure providing an instant asset write-off for small businesses. They can immediately deduct the business portion of most assets if they cost less than $20,000 and were purchased between May 12, 2015 and June 30, 2018, according to the tax office. The only proviso is that the SME must have a turnover of less than $10 million, which was increased from $2 million.
Innovative thinking
This deduction can be used for new or second-hand assets and is a tax break that small business owners would do well to consider. Indeed, MYOB’s June SME Snapshot found business owners have been following government policy changes closely, resulting in 43% of SMEs planning to use the write-off this financial year. “The asset tax write-off is such an important policy for business wanting to kickstart their growth. We’re seeing a real buzz around this policy in the small business community,” says Tim Reed, CEO of MYOB.
As an example of an innovative use of the write-off, if you travel to remote locations to work for extended periods you may be able to claim the expense of buying a caravan or Winnebago, says James Solomons, head of accounting at Xero. “Full-time builders sometimes spend weeks or months on a job site and run their operations out of a Jayco. It’s no different to renting a hotel room. If you use the caravan for holidays that portion won’t be tax deductible but the rest will be. Take advantage of the $20,000 instant write-off, or depreciate the cost of the vehicle over time. Don’t forget to claim maintenance expenses too.”
Moreover, if you have a dog that safeguards your small business site you can claim food, vet bills and the cost of buying the animal, says Solomon. If you carry your work laptop in a designer handbag it’s effectively a laptop bag – and that’s tax deductible. “You should use the bag primarily for work, and its cost should be a reasonable proportion of your business revenue,” says Solomons. “While there are no ATO thresholds, claiming a $3000 Prada on yearly turnover of $100,000 might look unreasonable. But a $200 handbag would likely be fine.”
Travel deductions
Most business owners recognise petrol costs are tax deductible but don’t forget to claim the ever-increasing number of motorway and highway tolls when travelling to a client’s workplace, as well as the costs of parking once you get there. Train, bus or taxi fares are deductible if they are incurred in meeting a client. “If you travel via Uber, create a business profile in the app and track your work trips easily,” says Solomons.
Stay up to date
Education and training are tax deductible, even if they’re seemingly independent of your nominated profession or trade. “Independent lawyers can take acting classes to improve their courtroom performances and claim the cost of tuition,” says Solomons. “A plumber can take a TAFE course in marketing to learn about expanding his business. If the training will help run the business better, you can likely claim the cost.”
Home office
If you’re running your business from home, you can claim some of your electricity, water and gas bills and even your insurance, provided the policy covers business use. The amount claimed is often based on floor space of the home office, says Solomons. It is possible to deduct some of your council rates and mortgage interest. However, this can have capital gains tax implications when you sell the property.
Look for deductions even if you don’t work from home. Many self-employed tradies store their trucks and tools in a garage at night. If those take up 10% of the home’s floor space, you may be able to claim a similar percentage of the home’s running and occupancy costs, such as a mortgage or rent, while being mindful of the potential capital gains implications if you are the homeowner, says Solomons.
Finally, don’t forget that your accountant’s fees are tax deductible, as are the costs incurred travelling to meet them. Likewise, you can deduct the subscriptions of any accounting software packages such as Xero, Reckon or MYOB.