It’s not just big-ticket tax deductions you should think about at the end of the financial year—there are other more innovative claims that can help the bottom line. By Cameron Cooper
As a business owner, you can claim tax deductions for many things that may not be on your radar.
Aly Garrett, founder and principal of accounting and business advisory firm All In Advisory, says many restaurant and catering business operators neglect tax-minimisation strategies.
“Then they get a big tax bill and cry into their spilt milk,” she says.
At the same time, Garrett warns against purchasing equipment or items simply to try to cut tax. “Purchases have to be aligned to the business’s future goals.”
Before targeting specific tax-reduction measures, she urges owners to check with their accountant or financial adviser to see if they have the most appropriate business structure. Are you a sole trader, a partnership, a trust or a company? Each of these entities may be subject to different tax rules. Once that is confirmed, consider some of the following options.
Take advantage of new superannuation rules
Unfortunately, Garrett says, a lot of restaurateurs and caterers running small businesses do not pay themselves superannuation each year.
However, new super rules offer a smart way to play catch-up and minimise tax, using the carry-forward rule that allows people to access unused concessional cap amounts from previous years. So, for example, you can inject $25,000 into your super this year and benefit from the deduction and then only pay a typical tax rate of 15 per cent in the super fund. In addition, under the carry-forward arrangement, and if you have less than $500,000 in super and you didn’t use last year’s $25,000 cap, you can bring the claim forward to this year.
“In that case you potentially have $50,000 that you can claim this year,” Garrett says.
Be aware, though, that any superannuation contributions must clear your bank account before the end of the financial year to be valid.
Write off costs for your guard dog
Yes, a catering company could write off the costs of using a guard dog, including food and vet bills, to secure its premises as long as it is not your pet. The Australian Taxation Office may object, though, if you try to pass off your little chihuahua as your property protector. The initial cost of purchasing the guard dog is capital in nature and may fit within the immediate write-off rules.
Garrett warns that plant and equipment and other possible deductions such as motor vehicles have to be installed and in use by the end of the financial year to constitute valid claims. “If you don’t have the car yet, you can’t claim it and you can only claim the business-use percentage up to the car cost limit of $59,136.”
Do stocktakes for lost or stolen purchases
Has a diner pinched your prized bottle of Grange Hermitage? Restaurants and caterers that have obsolete stock—or items that are written off because they are lost or stolen—can claim deductions. This means regular stocktakes are crucial.
Garrett reminds business owners that if their turnover is less than $5 billion a year, they are also eligible for instant tax write-offs of all new depreciating assets up to a value of $150,000.
Understand loss carry-back rules
Suppose your eatery made a profit last financial year, but incurred losses this year because of the COVID-19 lockdowns.
Tax rules let you transfer the losses to last year and receive a refund on any tax paid. “So if you’ve had a shocker this year, but you had to pay tax last year, it’s a good opportunity to average out those years,” Garrett says.
She also calls on business owners to check on the status of government grants they have received, such as JobKeeper or any cashflow boosts, to ensure they are being treated properly for tax purposes.
Choose the best option for home-office expenses
With COVID-19 forcing many owners and employees to work from home, be conscious that there are a few ways to claim home-office expenses.
The ATO has introduced a special pandemic shortcut method that lets employees claim 80c an hour for each hour they work from home without the need for keeping detailed records. Be mindful that this rate incorporates phone and internet.
Then there is the fixed-rate method of 52c an hour, but with this rate you can include costs such as business use of phone and internet bills (as they can be claimed separately).
Others may prefer to deduct home-office running expenses such as gas, electricity, the internet and phone based on the space in the home that is used for business. For instance, if your home covers 1000sq m and your office is 150sq m, the office takes up 15 per cent of the space in your home. Therefore, you can deduct 15 per cent of running costs of using your home as a business. Beware of claiming occupancy costs such as insurance and interest on mortgage repayments, though, as you may be saying goodbye to a portion of your main residence capital gains tax exemption when you sell it.
Consider claims for aircon and other fittings
While it is possible to claim tax deductions for fittings such as air conditioners and alarms at your restaurant, Garrett says it pays to check the fine print with capital property improvements.
For instance, if you knock down a wall and turn it into a feature wall this is considered a property improvement and can only be depreciated at 2.5 per cent, whereas a repair or replacement (where there is no improvement) to the wall could be claimed as an immediate write-off.
And some other words of wisdom…
The key point, according to Garrett, is to check on any possible tax deductions with your accountant. Doing so can really make a big difference come tax time.
Garrett’s final advice is to ascertain your business’s five major expenses, make sure you are keeping them in check and keep detailed records. She says record keeping systems such as Xero, Dext (formerly known as Receipt Bank) and Kounta POS can help ensure all financial records are integrated and that any expenses are claimed.
“Keep accurate records and make valid claims so you don’t blush if the ATO comes a knocking.”