Are you a company director or business owner looking to withdraw funds from your company? You might be considering loans, dividends, or even using your company to minimise tax — but watch out! Failing to comply with Division 7A loan rules under the Income Tax Assessment Act could result in hefty penalties, unfranked dividends, and a tax bill that’s much higher than expected.
This guide breaks down the most common Division 7A trasp you should avoid to stay compliant and protect your finances.
In this guide, we’ll walk you through the top 5 critical Division 7A loan traps that every business owner must avoid. Whether you’re a director borrowing from your company or a trustee managing investment company funds, Division 7A affects how you structure loans, withdrawals, and distributions. And if you’re unsure about the rules, the consequences can be costly.
Before diving into the details, we recommend watching this videoHow to Pay Yourself From Your Company, which explains why taking loans from your company without ensuring Division 7A compliance can lead to unintended tax consequences, such as unfranked dividends.
This video explains how taking funds from your company without a Division 7A complying loan agreement can lead to unfranked dividends and ATO penalties.
Also, if you’re thinking about using a company solely for tax minimisation purposes, you might want to rethink your strategy. Watch this quick videoBeware of the Company Tax Saving Fallacy to understand the risks and why a company structure isn’t always your best bet for saving taxes.
Why You Should Care About Division 7A Compliance
Division 7A is designed to prevent tax avoidance by restricting how funds are withdrawn from a private company. When business owners take loans from their companies, they must be compliant with the rules surrounding these withdrawals. Non-compliance can result in unfranked dividends, meaning you won’t receive the benefit of any taxes already paid by the company, and you could face a higher personal tax bill.
To help ensure your business remains compliant and avoids costly mistakes, it’s essential to engage in proper tax planning. Business Tax Planning Essentials outlines key strategies to effectively manage your business’s tax obligations and ensure you’re operating within the law.
Trap #1: Ignoring the Distributable Surplus Rule
What Is Distributable Surplus? Distributable surplus refers to the amount of a company’s profit that can be distributed to shareholders or loaned out to directors without triggering tax implications. Division 7A rules only allow loans if a company has sufficient distributable surplus to cover the loan amount.
Why It Matters If your company has not accumulated enough distributable surplus, any loan you take may be treated as a dividend, with the corresponding tax consequences. For instance, if your company has $100,000 in profits and a retained surplus of $30,000, the maximum loan the company can give you under Division 7A is $30,000. Any amount beyond that could lead to a deemed dividend.
Trap #2: Failing to Create a Written Loan Agreement On Time
The Importance of Written Loan Agreements Under Division 7A, any Division 7A loan taken from your company must be supported by a Division 7A complying loan agreement that outlines key terms such as interest and repayment schedule. This loan agreement must be signed by the due date for the company’s tax return. If you don’t have a loan agreement in place, the Australian Taxation Office (ATO) will deem the loan as an unfranked dividend.
Again, working with a tax advisor to create a tailored plan can help mitigate the risk of non-compliance. Consider Business Tax Planning Essentials as a starting point to help you understand the broader tax strategies that can help your business thrive.
Risks of Non-Compliance Without a written loan agreement, you risk having your loan treated as a dividend, which means you’ll lose out on the tax benefits of franking credits. This can result in a much higher tax bill.
Trap #3: Missing or Underpaying Minimum Annual Repayments (MAPs)
What Are Minimum Annual Repayments (MAPs)? Division 7A loans are subject to minimum annual repayments (MAPs), which must be paid every year. The loan repayment terms must be set according to a 7-year repayment period, or 25 years if secured.
Consequences of Underpayment or Missing MAPs If you miss a MAP or don’t pay the full required amount, the unpaid portion is considered an unfranked dividend, which will be added to your income for the year and taxed accordingly. This can lead to significant tax penalties.
Trap #4: Poor Structuring of Trust Distributions to Bucket Companies
Why Trust-to-Company Distributions Are Risky A bucket company is often used within a family trust for legitimate commercial reasons, such as asset protection and wealth accumulation. While its primary role is often to protect assets by keeping them separate from the trading entity, it can also serve broader financial strategies, including supporting lending arrangements and providing flexibility for future investments.
However, as with any strategy, it’s essential that these distributions and transactions are structured correctly. If the family trust has a UPE owed to the bucket company, but an individual (such as a director or shareholder) takes funds directly from the trust, this could trigger Division 7A issues if not handled appropriately.
Scenario: Family Trust Owes UPE to Bucket Company, but Individual Takes Funds In this case, the family trust has a UPE to the bucket company, but if the individual withdraws the funds from the trust (instead of the company), it may create a situation where Division 7A applies. If no formal loan agreement is put in place between the bucket company and the family trust, the transaction could be treated as a deemed loan, resulting in unfranked dividends.
How Division 7A Comes Into Play Without the proper loan agreement, any withdrawal by the individual from the trust can be considered a loan under Division 7A. This can result in the funds being treated as unfranked dividends, subjecting the individual to higher taxes.
How to Avoid This Trap To avoid triggering Division 7A:
Ensure a formal loan agreement exists between the bucket company and the family trust, outlining terms, interest rates, and repayment schedules.
Document all UPE transactions properly and ensure they comply with Division 7A.
Consult with an accountant to ensure proper handling of funds withdrawn by an individual from the family trust.
By structuring these transactions correctly, you can benefit from a bucket company‘s commercial advantages, such as asset protection and wealth growth, without the risk of tax penalties. To learn more about how a bucket company can benefit your overall tax and asset management strategy, check out our upcoming post on the benefits of using a bucket company for wealth creation, tax minimisation, and asset protection.
Trap #5: Assuming Division 7A Doesn’t Apply to Investment Companies
Division 7A Compliance in Investment Companies Many business owners mistakenly believe that investment companies—which don’t engage in active trading—are exempt from Division 7A. However, Division 7A applies to all private companies, including investment entities — especially where Division 7A loans are made to shareholders or associates. If a loan is made to a shareholder or associate from an investment company, it must still comply with Division 7A rules.
Example of Division 7A in an Investment Company For instance, if an investment company loans $50,000 to a director, and the loan is not properly documented, it will be treated as a deemed unfranked dividend, subject to personal tax at the director’s marginal tax rate.
Conclusion
Understanding and complying with Division 7A is essential for anyone involved in managing a company. The traps outlined in this blog are just the tip of the iceberg, and non-compliance can lead to significant financial consequences. To avoid hefty penalties, ensure that you are following the rules when it comes to loans, distributions, and repayments.Make sure every Division 7A loan your business makes is backed by the correct structure and documentation to avoid tax consequences
What is a Division 7A loan?
A Division 7A loan is a loan made by a private company to a shareholder or their associate, which is treated as a deemed dividend unless it meets specific requirements. To avoid this, a Division 7A complying loan agreement must be in place with set terms and annual repayments.
What is the 7A loan program?
The 7A loan program refers to the rules under Division 7A of the Income Tax Assessment Act 1936 that aim to prevent private companies from distributing profits to shareholders tax-free by disguising them as loans.
What is the interest rate for Div 7A?
The Division 7A loan interest rate is set annually by the ATO. For the 2023–24 financial year, the benchmark interest rate is 8.27%. This rate must be applied to Division 7A complying loan agreements to remain compliant.
What is the concept of Division 7A?
Division 7A is a set of tax rules designed to prevent private companies from avoiding tax by making payments, loans, or forgiving debts to shareholders or their associates instead of issuing dividends.
If you’re unsure whether your business practices comply with Division 7A, reach out to us today for tailored advice. Don’t wait until it’s too late — getting the right structure in place now could save you from significant future tax liabilities.
As 2025 approaches, effective business tax planning is more important than ever for business owners looking to minimise tax liabilities and maximise financial opportunities. With frequent changes to tax laws and regulations, it’s essential to stay proactive and make strategic decisions that benefit your business in both the short and long term.
In this guide to business tax planning for 2025, we’ll cover crucial strategies that every business owner should consider. From maximising deductions and strategically timing capital gains to structuring your business for tax efficiency, we’ll help you navigate the complex tax landscape. Whether you’re taking advantage of the Instant Asset Write-Off or looking to optimise your superannuation contributions, this article will provide the key insights you need to make informed decisions for your business’s financial health.
Maximising Tax Deductions with Instant Asset Write-Off and Pre-Paying Expenses
One of the most effective strategies in business tax planning for 2025 is taking full advantage of the Instant Asset Write-Off. This incentive allows businesses to claim immediate deductions for assets purchased and used in the business, up to a certain threshold. For 2025, it’s important to ensure that you’re aware of any changes to the limits and what types of assets qualify. Whether it’s equipment, machinery, or vehicles, the Instant Asset Write-Off can significantly reduce your taxable income in the current financial year.
Motor Vehicle Costs and the Instant Asset Write-Off
Motor vehicle expenses are often one of the largest costs for business owners, and under the Instant Asset Write-Off scheme, these costs are deductible. However, the cost limits for motor vehicles need to be considered carefully. In 2025, you can claim up to a set amount for the purchase of a motor vehicle, and keeping a detailed motor vehicle logbook is crucial if you’re looking to claim a portion of the vehicle’s costs based on business use.
If you’re unsure about how to claim motor vehicle expenses, be sure to check out this comprehensive guide from Pinnacle Accounting Advisory: Claim Motor Vehicle Expenses for Tax, which explains the process in detail.
Pre-Paying Expenses to Reduce Taxable Income
Another key business tax planning strategy is pre-paying certain business expenses before 30 June 2025. Pre-paying items like insurance premiums, software subscriptions, and rent can help reduce your taxable income for the current year. It’s a smart move, especially if you’re looking to lower your overall tax liability before the end of the financial year. Be sure to review which expenses are eligible for pre-payment and make these arrangements before the deadline.
By combining these tactics, you can make substantial progress in reducing your tax liability for 2025 while ensuring your business remains well-equipped for the year ahead.
Capital Gains Tax (CGT): Timing and Small Business CGT Concessions
In business tax planning for 2025, timing is critical—particularly when it comes to Capital Gains Tax (CGT). Selling business assets such as property, shares, or goodwill has significant tax implications. By strategically timing the sale of assets and taking advantage of available CGT concessions, small business owners can reduce their overall tax liability.
Timing Capital Gains to Minimise Tax Liability
The timing of when you realise a capital gain is crucial. If you expect a lower income in the next financial year, deferring the sale of assets until after 30 June 2025 may help lower your current tax liability by pushing the CGT obligation to the following year, when your income may be less.
Small Business CGT Concessions
Australia provides several CGT concessions for small businesses to help reduce the tax on asset sales. These include:
The 15-year exemption: If you’ve owned a business asset for more than 15 years and are aged 55 or older, you may be eligible to sell the asset without paying CGT.
The retirement exemption: You can reduce your capital gains by up to $500,000 if you’re retiring and meet specific conditions. This exemption is per individual, so it can be beneficial for business partners or co-owners.
The rollover concession: If you sell an asset and reinvest the proceeds in a replacement asset, you may be able to defer your CGT liability under this concession. This allows you to delay the CGT payment until you sell the replacement asset.
The Active Asset Reduction: If the asset is an active asset (i.e., it’s used in the day-to-day operation of your business), you may qualify for the 50% Active Asset Reduction. This concession allows small business owners to reduce the capital gain on the sale of the asset by 50%, effectively halving the taxable gain. This concession is available for individuals who meet specific criteria, including the use of the asset for business purposes for at least half of its life. The maximum reduction is $500,000 per individual.
By carefully timing asset sales and strategically using these CGT concessions, you can significantly reduce the tax payable on business asset sales, freeing up more funds for reinvestment or other business needs.
Optimising Business Structures: Tax Savings and Asset Protection
When it comes to business tax planning for 2025, one of the most important decisions you’ll make is choosing the right structure for your business. The structure you choose affects how much tax you pay, your personal liability, and your ability to grow your business effectively. It’s essential to ensure that your business structure is optimised for both tax efficiency and asset protection.
Choosing the Right Business Structure
There are several types of business structures in Australia, each with its own set of tax implications and benefits. The most common structures include:
Sole Trader: This is the simplest structure, where the business is owned and operated by one person. While it’s easy to set up, a sole trader is personally liable for the business’s debts, and profits are taxed at the individual tax rate.
Partnership: A partnership involves two or more people who share the profits and liabilities of the business. The income is distributed among partners, and each partner is personally liable for the debts of the business.
Company: A company is a separate legal entity from its owners, providing personal liability protection. Companies are taxed at the company tax rate, which is generally lower than the individual tax rate. This structure can be beneficial for businesses looking to scale and reinvest profits, as it also allows for dividends and franking credits.
Trust: A trust is a legal arrangement where a trustee manages the business assets on behalf of beneficiaries. Trusts can offer flexibility in distributing income and profits to beneficiaries, which can provide significant tax benefits. However, the setup and administration can be more complex.
Private Company Loans (“Div 7A”)
Business owners who have borrowed funds from their company must be aware of Division 7A rules, which regulate loans from private companies to shareholders or their associates, including directors. These loans need to be carefully managed to avoid unexpected tax consequences.
Loans to Directors: If a loan is made directly to a director, it must either be repaid by 30 June 2025, or a complying loan agreement must be put in place. This loan agreement must adhere to ATO guidelines, including a written agreement with an interest rate that meets minimum benchmark rates and a set repayment schedule. If these conditions are not met, the loan may be treated as an unfranked dividend, which would then be taxable to the director personally.
Loans Between a Family Trust and a Corporate Beneficiary: In cases where a family trust has loaned funds to a corporate beneficiary, the loan must either be repaid by 30 June 2026, or a complying loan agreement must be established before the lodgement of the company’s tax return for the 2025-2026 financial year. Similar to loans to directors, these agreements need to meet specific ATO requirements, including appropriate interest rates and repayment terms.
Trustee Resolutions for Family Trusts
If your business operates under a Discretionary Trust (often known as a Family Trust), ensure that Trustee Resolutions are prepared and signed before 30 June 2025. These resolutions are necessary for allocating trust income to beneficiaries, and failing to have them in place can lead to tax complications. Recent ATO rulings have impacted trust distributions to adult children, so it’s essential to consult with your accountant or tax advisor to ensure compliance.
By selecting the right business structure and ensuring that any associated loans or trust resolutions are properly managed, you can optimise your tax position and protect your personal assets.
Maximising Superannuation Contributions, Depreciation, and Franking Credits
Smart business tax planning in 2025 involves more than just managing income and expenses — it also includes forward-thinking strategies like boosting superannuation contributions, claiming depreciation, and using franking credits effectively. These tactics not only reduce taxable income but can also help improve long-term financial outcomes for both the business and its owners.
Maximising Superannuation Contributions
One of the most effective tools in business tax planning is contributing to superannuation. For the 2024–25 financial year, the concessional contributions cap is $30,000 (increased from $27,500 in previous years). Concessional contributions include employer contributions and salary sacrifice amounts, and they are typically taxed at 15% within the fund — usually lower than most individual marginal tax rates.
For business owners with irregular income or strong profits in 2025, there’s an opportunity to boost tax savings using the carry-forward rule. If your total superannuation balance was under $500,000 on 30 June 2024, and you haven’t used the full concessional cap in the last five years (starting from 2018–19), you may be eligible to carry forward unused portions of your concessional caps. This allows you to make larger deductible contributions in 2025 — potentially reducing a significant amount of taxable income in a high-earning year.
It’s important to ensure all contributions are received by your super fund before 30 June 2025 to be counted in this financial year, and to avoid breaching the cap to prevent excess contribution tax.
Claiming Property Depreciation
If your business owns a commercial or income-producing property — or you operate your business from one — you may be entitled to claim depreciation deductions. These deductions can be significant and typically fall into two categories:
Capital works deductions (e.g., for the building structure, renovations, etc.)
Plant and equipment depreciation (e.g., carpets, air conditioning units, furniture)
To claim the maximum allowable deductions, it’s often worth investing in a tax depreciation schedule prepared by a qualified quantity surveyor.
📺 Watch: Rental Property Depreciation – The hidden deduction For a detailed walkthrough, watch our short video below on how rental property depreciation works and how it can benefit your tax position.
📽 Watch: Rental Property Depreciation – The hidden deduction For a detailed walkthrough, watch our short video below on how rental property depreciation works and how it can benefit your tax position.
📺 Watch: The Complete Guide to Depreciation Tax Deductions Want a deeper dive? This video provides a comprehensive overview of what depreciation deductions are and how to use them effectively:
Utilising Franking Credits
Utilising Franking Credits
If your business operates through a company structure, issuing dividends with franking credits can be a strategic way to distribute profits to shareholders while reducing overall tax liability. Franking credits represent tax already paid at the company level and can be used by shareholders to offset their own tax when lodging individual returns.
When planning dividend payments, business owners should consider:
The available franking credits in the company’s franking account
The timing of dividend declarations to ensure credits are applied efficiently
The structure of the wider group, especially where a bucket company or corporate beneficiary is used
If your structure includes a bucket company, it’s important to understand its purpose. While it is commonly used to cap the tax rate on trust distributions by directing income to an entity taxed at the corporate rate, its role goes beyond just tax efficiency. A bucket company can also serve as a legitimate asset protection strategy, helping to shield retained profits from potential claims, creditors, or litigation by distancing those funds from the day-to-day trading entity.
However, care must be taken to ensure all transactions involving franking credits and dividend flows comply with tax law and do not trigger anti-avoidance provisions. In particular, the ATO scrutinises arrangements where franking credits are manipulated without a clear commercial purpose.
Also, be aware of the risk of incurring Franking Deficit Tax (FDT). This tax applies if your company issues more franking credits than it has in its franking account, often due to poor timing or inaccurate tracking of prior tax payments. The company will be liable for the shortfall, and penalties may also apply.
Given the complexity, dividend and franking credit strategies should always be reviewed with your accountant or tax advisor to ensure full compliance and optimal use of credits across the business structure.
If you’re concerned about compliance or want peace of mind that your business is ATO-ready, check out our guide on ATO Audit Support for Businesses for practical tips and professional support options.
Conclusion: Prepare Early, Plan Smart
Effective business tax planning isn’t just about reducing your tax bill — it’s about making smart, forward-thinking decisions that support your business’s growth and financial security. As 30 June 2025 approaches, there’s still time to implement practical strategies that can minimise your tax liability and protect your assets.
From leveraging the Instant Asset Write-Off and prepaying expenses to structuring your business properly, managing Division 7A loans, and maximising super contributions, every decision you make now can have a meaningful impact on your bottom line.
At Pinnacle Accounting & Advisory, we specialise in working with business owners to develop tailored tax planning strategies that go beyond the basics. Our team can help you review your current structure, identify savings opportunities, and ensure you’re fully compliant with the latest ATO requirements.
✅ Now is the time to act. Don’t leave tax planning to the last minute. 📞 Contact us today to schedule your tax planning review and set your business up for a strong finish to the financial year.
Discover essential tax deductions for NDIS support workers, a crucial aspect to enhance your financial well-being while helping Australians with disabilities.
Working as NDIS disability support workers is more than just a job — it’s a vital role that helps improve the lives of Australians living with disabilities. But while you’re busy caring for others, who’s looking after your finances? When tax time rolls around, knowing exactly what you can claim as a deduction could mean the difference between a modest and generous refund.
Whether you’re employed, self-employed, or a sole trader under the NDIS scheme, understanding your entitlements can help you keep more of your hard-earned money. In this guide, we break down the essential tax write-offs NDIS workers often overlook — and how to make sure you’re claiming everything you’re legally entitled to.
Understanding Your Role as a Disability Support Worker
Before you start listing deductions, it’s crucial to understand how your role fits within the tax system. The Australian Taxation Office (ATO) categorises NDIS workers under several employment types — and each can influence what you’re eligible to claim.
✅ Who is an NDIS Worker?
NDIS (National Disability Insurance Scheme) workers include support workers, carers, allied health professionals, plan managers, and even those in admin roles. Whether you’re employed by a provider or operating as an independent contractor, you may be eligible for a range of support worker tax deductions — but the type and amount will depend on how you work.
🧾 Employee vs. Contractor: Know the Difference
If you’re an employee (on payroll with tax withheld), your deductible expenses may be more limited and tied directly to your employment conditions. But if you’re a sole trader or contractor, you can often claim a broader range of business-related expenses — as long as they’re directly tied to earning your income.
Understanding your classification is the first step in confidently claiming what’s yours.
The NDIS provider guidelines clearly define the scope of roles under the scheme, helping you understand where you fit — whether as a sole trader, contractor, or employee.
If you’re working as an independent support worker under the NDIS, you may have different tax obligations than employees
🛠️ Why Tax Deductions Matter
Every dollar you spend out-of-pocket for work-related purposes — from uniforms to fuel — can add up over a year. If those expenses aren’t claimed, you’re essentially leaving money on the table. By getting clear on your role and responsibilities, you’ll be in a stronger position to track your eligible costs and prepare for tax time more efficiently.
💬 Pro Tip:
Keep a work diary (even a simple app log) if you’re unsure which tasks or costs qualify as tax-deductible. This will be your best friend when it comes time to sort receipts or defend a claim during an ATO audit.
Common Tax Deductions for NDIS Support Workers You Can Claim
As an NDIS worker, your job likely involves a mix of physical work, admin, and travel — and each of these areas can come with tax-deductible expenses. Knowing what’s deductible (and what’s not) is key to maximising your return.
Here’s a breakdown of common deductions many NDIS workers can claim:
👕 1. Work-Related Clothing & Laundry
You can claim:
Branded uniforms
Protective clothing (like non-slip shoes or gloves)
Laundry costs for these items (if you wash them yourself)
Note: You can’t claim for everyday clothing, even if you wear it to work.
📚 2. Training & Education
Claimable expenses include:
Short courses or certifications related to your role (e.g., First Aid, Manual Handling)
Seminars or online training related to disability care or support work
These costs must directly relate to your current job, not a new profession.
📞 3. Phone & Internet Usage
If you use your personal phone or internet for work (like contacting clients, using NDIS portals, or rostering apps), you can claim a portion of:
Mobile phone bills
Internet bills
Keep a usage diary for a month to justify your work-use percentage.
🧰 4. Supplies, Tools and Equipment
You might be able to claim:
Assistive tools used in care, such as mobility aids, specialized equipment, or devices purchased specifically for work-related tasks.
Work-related equipment like laptops, phones, or other tools necessary for providing NDIS support.
Protective gear required for maintaining safety, such as gloves or face shields, especially when providing hands-on care.
🧾 5. Expenses for Support Workers Consumables
Consumables for client care: Items like gloves, sanitizers, and other personal protective equipment (PPE) used to maintain hygiene and safety.
Office supplies: Items such as pens, paper, printer ink, or diaries used for documenting and organizing client information.
Cleaning supplies: Cleaning products (like disinfectants) used to sanitise work areas or equipment, especially in healthcare settings.
🚘 6. Travel Between Jobs (More on This in the Next Section)
If you visit multiple clients in a day, you may be eligible to claim those trips. We’ll dig into this in the next section — stay tuned!
💡 Tip:
Always keep receipts or digital records. The ATO loves documentation — and having it on hand can make or break your claim if audited.
Vehicle and Travel Expenses for Support Workers Explained
If you’re regularly on the road visiting clients, travel could be one of your biggest (and most overlooked) tax deductions. But when it comes to claiming vehicle and travel expenses, the ATO has very specific rules — and getting it right can seriously boost your tax return.
🚗 When Can You Claim Travel?
You can claim travel between:
Multiple client homes or job sites during your shift
Your workplace and training events
Your office and supply stores (to purchase work-related items)
You cannot claim:
Travel from home to your first job of the day, or from your last job back home (this is considered “private travel”)
✍️ Claiming Car Expenses for support workers: Two Main Methods
Cents Per Kilometre Method
Claim up to 5,000 km per year
No need for receipts, but you must be able to show how you calculated the distance
Rate for FY24–25: 85 cents per km (Confirm with the ATO for the most up-to-date rate)
Logbook Method
Keep a logbook for 12 weeks showing work vs personal use
Claim a percentage of total car expenses (fuel, rego, insurance, servicing, depreciation)
Ideal if you use your car heavily for work
Support Workers Other Travel Expenses
🚌 What About Public Transport or Rideshares?
If you use buses, trains, taxis, or rideshares like Uber to travel between clients or to training, these are deductible — just make sure to keep your receipts or digital records.
🧾 Travel Diaries & Record Keeping
Keep a digital or written log of:
Dates
Start/end locations
Reason for the trip
Kilometres travelled (if driving)
A spreadsheet, mileage app, or even a good old notebook can do the trick — as long as it’s consistent and clear.
💡 Bonus Tip:
Use apps like ATO myDeductions or Stride to automatically track trips. It makes life 10x easier at tax time.
Home Office and Admin Costs
Even if you’re out and about most of the day, many NDIS workers spend time doing admin, planning, or logging case notes from home. If that sounds like you, there are legitimate home office deductions you should be taking advantage of.
🏠 What Qualifies as a Home Office?
If you perform work-related tasks at home — such as:
Completing care plans
Communicating with clients or coordinators
Writing up reports or case notes
Organising appointments or schedules
— then congratulations, your home workspace likely qualifies for deductions.
💸 What Can You Claim?
Here’s what’s commonly deductible:
Electricity & Gas (Work Portion Only)
Use the fixed rate method (e.g. 67 cents/hour from 1 July 2022 onwards)
No need to calculate individual utility bills — just track your work hours
Office Equipment & Furniture
Items like desks, chairs, laptops, and monitors
You can either depreciate large items over time or claim small purchases outright (if under the threshold)
Internet & Phone
Claim a portion of your home internet bill, based on work usage
Similar to your mobile — only the work-related % is claimable
Stationery & Admin Supplies
Notebooks, pens, diaries, folders, printer ink, etc. used for client-related tasks
📅 Method Matters: Fixed Rate vs Actual Cost
Fixed Rate Method: Easier, less paperwork — just track your hours.
Actual Cost Method: More effort but might result in a bigger claim (if you have lots of expenses).
Tip: Use whichever method gives you the higher deduction, and keep good records either way.
🧠 Pro Tip:
You don’t need a separate home office room to make a claim — just a regular space where you consistently do work tasks.
Record Keeping and ATO Compliance Tips
Even if you’re eligible to claim a range of deductions, it means little without proper documentation. The ATO takes record keeping seriously — and as an NDIS worker, so should you.
Depending on your employment status and award, the Fair Work Ombudsman’s disability services guide can help clarify what obligations and reimbursements you may already be entitled to — which impacts what’s deductible
📁 What Records Do You Need?
To support your deductions, you should keep:
Receipts or invoices for all work-related purchases
Bank statements showing relevant transactions
Logbooks or diaries for car travel and home office hours
Phone/internet usage records to back up percentage claims
Training certificates or course confirmations
Digital or physical copies are fine — just make sure they’re legible, complete, and stored securely.
🕒 How Long Should You Keep Records?
According to the Australian Taxation Office, you must keep tax-related documents for at least five years after you lodge your return. That includes receipts, logs, and correspondence.
📱 Use Tech to Your Advantage
Apps and tools can make record-keeping easy:
Xero (if you’re a sole trader, company or need accounting tools)
Back up your records on cloud storage (Google Drive, Dropbox, etc.) to avoid losing them.
⚠️ What If You’re Audited?
If you claim something without proof — even if it was legit — the ATO can deny it. In some cases, you might even face penalties. So treat your documentation like gold.
✅ ATO’s Golden Rule: “You must have spent the money, and it must relate directly to earning your income.”
If you follow that guideline and keep clean records, you’re in a great position to claim confidently.
Mastering how to claim motor vehicle expenses for tax is essential for maximising your tax deductions. Whether you’re self-employed or an employee, understanding the rules around how to claim motor vehicle expenses for tax can significantly enhance your tax return. This guide will cover various methods, focusing on the logbook method, to help you get the most out of your deductions while staying compliant with the ATO.
Understanding Motor Vehicle Expenses for Tax Deductions
Understanding how to claim motor vehicle expenses for tax is crucial for maximising your deductions and ensuring compliance with tax regulations.
If you use your vehicle for work or business purposes in Australia, you may be eligible to claim a deduction for certain motor vehicle expenses. The key is ensuring that only the business-related portion of your usage is claimed, and that you maintain the correct records to satisfy the Australian Taxation Office (ATO).
What you can claim
Motor vehicle expenses you can typically claim include:
Fuel and oil costs
Registration fees
Insurance premiums
Repairs and servicing
Interest on a car loan (if applicable)
Depreciation on the vehicle’s value, subject to the car limit set by the ATO (for the 2024–25 financial year, the limit is $69,674)
To claim these expenses, your vehicle usage must be related to income-earning activities. For example, attending client meetings, travelling between work sites, or making business deliveries would all be considered legitimate work-related travel.
However, personal trips — such as commuting from home to your regular workplace — are generally classified as private travel and cannot be claimed, even if you perform minor work tasks during your commute.
There are two primary methods for calculating your claim: the logbook method and the cents per kilometre method. Choosing the right method — and applying it correctly — can significantly impact the size of your deduction. We’ll explore both methods in detail shortly, but first, let’s dive deeper into how the logbook method works and why it’s often the most beneficial.
Example of a work-related vehicle expense
Calculating how to claim motor vehicle expenses for tax effectively involves keeping thorough records, which can greatly assist during tax season.
The Logbook Method Explained: How to Track Your Vehicle Usage
When it comes to claiming motor vehicle expenses for tax purposes in Australia, the logbook method is often the most accurate — and most rewarding — way to do so. While it does involve some extra record-keeping, the potential increase in your tax deduction can be well worth the effort.
How the Logbook Method Works
When exploring how to claim motor vehicle expenses for tax, it’s important to recognise the distinction between legitimate work-related travel and personal trips.
The logbook method allows you to calculate the exact business-use percentage of your motor vehicle expenses. This method can be used by individuals, sole traders, and even companies and trusts where a motor vehicle is involved in earning income.
Step 1: Keep a 12-Week Logbook
You must maintain a logbook for 12 consecutive weeks that reflects your regular driving habits. Avoid holiday periods or times when your driving patterns are abnormal.
Step 2: Record Every Trip Correctly
For each trip, your logbook must show:
The start and end dates
Odometer readings at the start and end
Distance travelled
The purpose of the trip (e.g., client meeting, worksite visit)
The logbook method is particularly useful when considering how to claim motor vehicle expenses for tax, as it provides a structured way to document your business usage accurately.
By learning how to claim motor vehicle expenses for tax, you can ensure that you take advantage of all available deductions. This knowledge is key to maximising your financial outcomes.
Step 3: Calculate Your Business Percentage
Once the logbook period ends, divide your total business kilometres by the total kilometres travelled. This gives you your business-use percentage to apply to your total vehicle costs.
Step 4: Keep Supporting Evidence
Besides maintaining a logbook, keep copies of receipts, invoices, and records for all your vehicle-related expenses. The ATO may request evidence if you are audited.
When claiming motor vehicle expenses for tax in Australia, you have two main methods to choose from: the logbook method and the cents per kilometre method. Understanding the differences between the two will help you select the option that gives you the best tax outcome.
Key Differences Between the Two Methods
Each method has its own set of rules and is suited to different circumstances.
The Logbook Method
Requires keeping a detailed logbook for 12 consecutive weeks.
Allows you to claim the actual business-use percentage of all running costs.
Expenses you can claim include fuel, registration, insurance, maintenance, loan interest, and depreciation (up to the ATO car cost limit).
Typically results in higher deductions if you have a high percentage of business use.
Best for those who use their car extensively for business purposes.
Example: A business owner who uses their car 80% for work can claim 80% of all eligible expenses.
The Cents Per Kilometre Method
Simplified method with no need for a logbook.
You simply multiply your business kilometres (up to 5,000 km per year) by the ATO’s set rate (88 cents per km for the 2024–25 year).
Covers all vehicle running expenses (fuel, maintenance, depreciation, etc.) without needing receipts.
Easier but often results in lower deductions, especially if you drive heavily for business.
Example: An employee driving 4,000 km for work could claim 4,000 x 88c = $3,520 using this method.
ATO audit support for businesses is critical when facing a tax review. With proactive accounting systems and expert advisory, your business can navigate ATO audits with confidence.
Whether you’re a sole trader, a growing SME, or managing multiple entities, understanding ATO audit support for businesses is a critical part of financial risk management.
In this article, we’ll break down what triggers an ATO audit, what the process looks like, and how business owners can reduce their risk with strong accounting practices and strategic business advice.
🔍 ATO Audit Support for Businesses: What It Is and Why It Matters
An ATO audit is a formal review of your tax affairs conducted by the Australian Taxation Office to verify that you’re complying with your tax obligations. This could involve your business activity statements (BAS), income tax returns, superannuation payments, payroll, and more.
Audits are often triggered by anomalies or data mismatches, but they’re not always a sign of wrongdoing. Having clean books, clear documentation, and ATO audit support for businesses from professionals makes navigating the process smoother and far less stressful
🚩 ATO Audit Support for Businesses: What Triggers an Audit?
The ATO uses advanced data-matching tools and industry benchmarks to identify businesses or individuals that fall outside normal parameters. Common audit triggers include:
Inconsistencies between your tax return and third-party data (e.g. banks, employers, real estate)
Large or unusual GST refunds
Excessive work-related deductions or claims
Regular late lodgements or incomplete records
Performance significantly outside industry norms
Operating in high-risk industries such as hospitality, construction or cash-heavy businesses
Complex structures or multiple entities with interlinked finances
As business accountants, we often see that these issues stem from poor recordkeeping or DIY tax strategies. That’s where partnering with a proactive advisor can save you from trouble down the line.
⚠️ ATO Audit Support for Businesses: ATO Audit Penalties: What’s at Stake?
If the ATO uncovers discrepancies or non-compliance, the consequences may include:
Interest on unpaid taxes
Penalties ranging from 25% to 75% of the tax shortfall
Shortfall penalties for under-reported income
Revised tax assessments
Legal action in serious cases involving tax evasion
Having an experienced accountant on your side can help reduce penalties and present your case effectively. But prevention is always better than cure—which is why proactive audit readiness is key.
🧾 How to Prepare for an ATO Audit
Here’s how we help clients across Melbourne and Australia stay audit-ready:
1️⃣ Maintain Clear and Accurate Records
Ensure your records are complete, well-organised, and easily accessible:
Receipts and invoices for business expenses
Payroll, PAYG, and super records
Bank statements and reconciliations
Tax returns and BAS lodgements
Asset and depreciation schedules
2️⃣ Conduct Internal Reviews
Our business advisory services focus on:
Analysing your pricing models, margins, and KPIs
Reviewing internal systems and financial controls
Identifying potential risks in your operations or structure
Ensuring compliance with the latest tax rules and changes
3️⃣ Understand Your Tax Obligations
Stay on top of:
BAS and income tax due dates
Superannuation and payroll compliance
PAYG instalments and withholding
GST, FBT, and record retention requirements
We provide clients with ongoing reminders and reviews to help ensure nothing slips through the cracks.
4️⃣ Seek Professional Representation
If you’re selected for an audit, having trusted accountants and advisors like Pinnacle Accounting & Advisory means:
Quicker access to records
Clear communication and negotiation with the ATO
Less disruption to your day-to-day operations
Strategic advice to avoid future risks
📅 How Far Back Can the ATO Audit?
In most cases:
Individuals and small businesses – up to 2 years from the notice of assessment
Larger entities – up to 4 years
No time limit – if fraud or tax evasion is suspected
This is why good documentation and systemised recordkeeping is essential beyond just the statutory minimum.
🛡 Why the ATO Conducts Audits
ATO audits are part of its broader compliance program to:
Enforce tax and superannuation obligations
Deter fraud and tax evasion
Encourage voluntary compliance
Improve taxpayer education and awareness
At Pinnacle Accounting & Advisory, we see audits as an opportunity for our clients to sharpen their systems, improve transparency, and reinforce long-term business resilience.
✅ Final Thoughts on ATO Audit Support for Businesses
An audit doesn’t have to be a crisis. With the right support, your business can be confident, compliant, and ready for anything the ATO might throw your way.
We Help You:
Set up audit-ready recordkeeping systems
Ensure strategic structuring and compliance
Liaise with the ATO on your behalf
Provide long-term advisory support to reduce risk
Need help with audit readiness or navigating an ATO review?
We work with clients across Melbourne and Australia to deliver clarity, strategy, and peace of mind.
📞 Book a confidential consultation today. 📍 Based in Melbourne, serving clients Australia-wide.
Starting a business can be an exciting and rewarding endeavor, but it’s important to set up your company properly to ensure its success. In this blog post, we will cover the key factors to consider when setting up your company.
Before diving into the details, it’s important to understand why setting up your company properly is crucial. By properly structuring your company, you can protect yourself and your shareholders from personal liability, ensure a clear understanding of how the organization is run, and set the foundation for long-term growth and success.
Company Structure
When starting a business, one of the most important decisions you need to make is the structure of your company. This decision will determine your liability, funding options, and the responsibilities of the individuals or roles that make up your company. In this blog, we’ll be discussing these three key aspects of company structure.
Limited Liability
One of the primary benefits of incorporating a company is limited liability. This means that the company is considered a separate legal entity, and its liability is limited to the assets held by the company. Creditors cannot seize the personal assets of the directors or shareholders unless there has been illegal activity, such as insolvent trading or fraud.
However, it’s important to note that the courts may potentially “tear the veil of incorporation” and grab the assets of the members or directors if there has been an illegal activity that they were personally responsible for or should have known about. So while limited liability is a valuable protection, it’s not a license to engage in illegal or unethical behavior.
Appropriateness Of Structure
When choosing a structure for your business, you have several options available to you. You can operate as a company, a family trust (also known as a discretionary trust), a sole trader, or even under a trust under a superannuation-type entity. Each of these structures has its own benefits and drawbacks, so it’s important to consider your specific needs and circumstances when making this decision.
For example, a family trust may be appropriate if you’re looking to protect your assets and minimize your tax obligations. A sole trader structure may be simpler and less expensive to set up and manage, but it also exposes you to unlimited personal liability. Ultimately, the structure you choose will depend on a variety of factors, including your goals, the nature of your business, and your risk tolerance.
Responsibilities
Finally, it’s important to consider the responsibilities of the various individuals or roles that make up your company. Directors, for example, have a fiduciary duty to act in the best interests of the company and its shareholders. Shareholders have the right to vote on important decisions, such as appointing directors and approving major transactions. Employees have legal rights and protections, including the right to a safe and fair workplace.
By clearly defining the roles and responsibilities of everyone involved in your company, you can help ensure that everyone is working towards the same goals and that the company is operating in a legal and ethical manner.
Funding
Finally, funding is a critical aspect of any business, and the structure you choose will have an impact on your options. Issuing shares is one of the most common ways for a company to generate equity and finance its operations. You can also obtain loans from financial institutions or other lenders.
When seeking funding, it’s important to understand the terms and conditions of the funding source and to ensure that you’re comfortable with the associated risks and obligations.
Rules That Operate The Organization
The rules that govern the operations of the organization are fundamentally established in the Constitution. This essential document outlines the specific procedures for conducting voting, determining when voting is to take place, the election of directors, their duties and obligations, and the financing aspects, including the types of shares and the methods for obtaining funding.
Name Of The Organization
While it is possible to have a company name that differs from the business name, careful consideration should be given to selecting an appropriate company name. Certain words or phrases may be unsuitable, such as those that are inappropriate or reference government institutions that cannot be used during incorporation or registration.
It is crucial to keep in mind the market in which the organization will operate, the services it will provide, and how memorable the company name should be to clients and the wider community.
The Directors Operating The Company
Directors are essential individuals required to establish and manage a company. Generally, two types of directors exist: executive and non-executive. Executive directors manage the company’s day-to-day operations, while non-executive directors are not involved in making executive decisions. It is crucial to have non-executive directors on the board of directors because they offer a fresh perspective, uninhibited by prior executive decisions. They can make decisions without being restrained by ego or prior decisions, which can benefit the company in the long term.
The Shareholders
Shareholders play a crucial role in financing the company and may possess unique experiences that can influence voting decisions.
For instance, investors may have extensive knowledge of the industry and therefore select directors with suitable backgrounds to lead the organization. Shareholders can consist of family members or individuals approached directly, depending on whether the company is publicly listed on the Australian Stock Exchange or privately held. Private companies cannot solicit the general public as they have not undergone the process of listing publicly.
Company’s Place Of Business
This location serves as the hub of operations, such as the factory. The Registered Office, on the other hand, is where the company may conduct administrative tasks, like managing communications or holding important meetings. For instance, a company may choose to establish an office in the central business district to facilitate these activities.
Share Structure
Moving on to the share structure, it is crucial to understand the different ways in which a company can generate funding. One common method is through ordinary shares, which provide voting rights to the shareholder. Another type is preferred shares, which do not offer voting rights but are given priority when it comes to receiving dividends. Additionally, companies can issue options, which give shareholders the choice of obtaining more shares in the future, albeit with an expiry date.
Necessary Registrations For Conducting Business Operations
This pertains to the necessary registrations for conducting business operations, which include GST (Goods and Services Tax), Pay As You Go (PAYG) withholding, Pay As You Go installments, superannuation, registering for an ABN (Australian Business Number) to issue tax invoices with GST, and obtaining tax file numbers to complete the tax return at the end of the financial year.
Business Plan
Finally, the ninth point to consider is the development of a comprehensive business plan. A well-structured business plan is crucial in establishing a clear direction and understanding the potential risks and opportunities associated with your venture. While some may choose to operate without a business plan, having one in place can provide a valuable roadmap for decision-making during challenging times. It can include contingency plans for unforeseen issues and outline strategies for addressing competitive pressures, legal concerns, and other potential obstacles.
Additionally, seeking guidance from a business coach or consulting with professional advisors such as accountants or legal experts can be an effective way to refine and strengthen your business plan.
Takeaway
In summary, starting a business requires careful planning and attention to detail. Before launching your venture, it’s important to consider various aspects of the business such as legal structure, company name, directors, shareholders, place of business, share structure, registrations, and a business plan. By taking the time to address each of these components, you can set your business up for success and avoid potential issues down the road. Remember, a well-thought-out plan can be a valuable tool in navigating challenges and achieving your business goals.
If you’re looking for expert accounting and tax advice for your business, don’t hesitate to get in touch with Mina at Pinnacle Accounting Advisory. With his extensive experience working with businesses of all sizes and industries, he can provide you with valuable insights and help you optimize your financial strategy.
You can reach Mina at +61431413530 or via email at mina@pinnacleaccountingadvisory.com.au. Take the first step towards financial success and contact Mina today.
In this blog, we will cover three very important things your small business accountant could be doing right now to save you money and help you grow your business. Understanding how to maximize your financial potential with a small business accountant is crucial in today’s competitive market. Let’s dive deeper into these strategies that can not only save money but also propel your business to new heights.
Firstly, we’ll cover the importance of tax planning. Secondly, we will discuss how a robust business strategy can grow your business. Lastly, we will delve into the importance of having a trusted network of professionals to support you on your business journey. These elements are interconnected and can significantly influence your business’s success.
Utilizing a small business accountant effectively can significantly enhance your financial strategies.
Your small business accountant can guide you through the complexities of tax regulations.
Tax Planning with Your Small Business Accountant
Partnering with a small business accountant enhances your understanding and management of financial matters.
Small business accountants possess an in-depth understanding of how to utilize different trading structures. Your small business accountant will ask tailored questions to determine the best structure for your unique situation. For instance, whether a sole proprietorship, partnership, or corporation fits your long-term goals can significantly impact your tax obligations and overall financial health.
A small business accountant can help identify where reinvestment can lead to increased business efficiency.
Engaging a small business accountant allows for customized strategies that fit your business needs.
Consult your small business accountant today to explore how proactive planning can benefit your financial future.
Your accountant will also have comprehensive knowledge of the various tax rates applicable to different trading entities. This expertise allows them to explain the implications of these rates in the context of your business, ensuring you are fully informed about your obligations and opportunities.
With insights from your small business accountant, your business strategy can reach new heights.
This process, known as Tax Planning with your small business accountant, can save you a significant amount of money. By applying legal avenues to minimize your tax liability, you can reinvest these funds into the business, enhancing growth potential. For example, reallocating saved tax funds into strategic marketing campaigns can elevate your brand’s visibility.
Your small business accountant can provide effective recommendations tailored to your objectives.
With these savings, you can reinvest in your business through advertising, purchasing new manufacturing equipment, or expanding your product line. This reinvestment can lead to increased revenue, which will, in turn, boost your overall business profit. Consider the long-term benefits of each investment decision and how they contribute to your growth trajectory.
As Chartered Tax Advisors, we have cutting-edge tax and business knowledge. Our proficiency allows us to cut through the complexities of tax regulations and provide you with clear, actionable advice. We understand that every business is unique, and we tailor our strategies to fit your specific circumstances.
As a result, we are able to save you money on tax and help you grow your business. Our clients have seen firsthand the benefits of proactive tax planning. Why wait? Call us today for a confidential, obligation-free initial consultation. Take the first step towards financial empowerment.
Business Strategy with Your Small Business Accountant
A CPA brings a wealth of commercial understanding of the market. This extensive knowledge is not just theoretical; it translates into practical advice that can help steer your business in the right direction. A good accountant will analyze your current position and help you navigate potential challenges.
This understanding of the market can be broken down into the following seven key areas where the accountant can assist you:
Establishing your why
Market Analysis
S.W.O.T Analysis
Marketing Plan
Unique Selling Proposition
Best trading Structure
Connecting you with other professionals
Trusted Network
Establishing your why: Understanding your purpose can guide every decision you make.
Market Analysis: Your accountant can help identify trends and opportunities in the market, ensuring you stay ahead of competitors.
S.W.O.T Analysis: This framework allows you to evaluate your business’s strengths, weaknesses, opportunities, and threats, creating a strategic plan for success.
Marketing Plan: A well-defined marketing strategy is essential for attracting and retaining customers.
Unique Selling Proposition: Clearly defining what sets you apart from competitors can enhance your appeal to customers.
Best Trading Structure: Choosing the optimal trading structure can maximize tax benefits and protect your assets.
Connecting You with Other Professionals: Building a network of support can lead to new opportunities and insights.
Having a small business accountant in your corner helps you navigate through market complexities.
Your small business accountant works with a diverse range of professionals. Thus, they can connect you with experts in various fields, enhancing your business’s support system. This network can provide invaluable insights and resources.
Commercial Lawyers
Family Lawyers
Marketing professionals
Conveyancers
Financial advisors
Auditors
Finance Brokers
Mortgage Brokers
Bookkeepers
Above all, your accountant can connect you with the right professionals who match your unique needs and personality type. This personalized approach to networking can lead to stronger business relationships and more significant opportunities for growth.
Commercial Lawyers: Essential for navigating contracts and legal frameworks.
Family Lawyers: Important for personal legal matters that can impact your business.
Marketing Professionals: Experts who can help you design and implement effective marketing strategies.
Conveyancers: Vital for any property transactions related to your business.
Financial Advisors: They can provide insights on managing investments and pensions.
Auditors: Important for ensuring compliance and accuracy in your financial practices.
Finance Brokers: They can assist in finding the right funding options for your business.
Your small business accountant facilitates connections that are vital for your business’s growth.
Mortgage Brokers: Helpful for acquiring property to grow your business.
Bookkeepers: Crucial for maintaining accurate financial records.
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A partnership needs to complete a tax return. With that said, the partnership does not itself pay tax. In addition, the partners pay tax if applicable. In other words, if the partner is an individual then they will pay tax. Whereas, if the partner is a trust then the trustee or the beneficiary of that trust is likely to pay the tax.
Company Tax Rates
The company is the most used business entity.
As a result, the rate for a trading company, which is a based rate entity, in the 2022 financial year is 25%. However, if the company is not trading and is not a base rate entity, then the rate is generally 30%.
Subsequently, To learn more about establishing a business click here.
Also, you can check the company rates now by going to the ATO website which speaks more about Changes to company rates.
Discretionary Trust/Family Trust
This entity is not taxed if the beneficiaries are entitled to all the income of the trust. Consequently, If this is not the case, the trustee will be taxed at the highest individual marginal rates.
In addition, the trustee will pay the MLS.
Unit Trust
The ATO does not assess this type of entity. Therefore, unit holders may have to pay tax depending on the type of entity they are. That is to say, the unit holder may be a discretionary trust with one individual beneficiary. As a result, the individual beneficiary will be taxed but not the discretionary trust.
Likewise, a partnership unit holder will not pay tax either but the partner’s will pay tax if they are a company, self managed superannuation fund or individual.
Self Managed Superannuation Fund/SMSF Tax Rates
An SMSF pays tax at 15%. For this to happen, it must be a complying fund.
Further, a complying fund receives a capital gains discount of one third when it holds property for at least 12 months. This amount is then added to the assessable income on which it pays 15% income tax.
Joint Venture
The tax authorities don’t tax joint ventures. Further, members must avoid receiving income jointly for this to take place. For example, receiving income jointly is raising an invoice as the joint venture.
Speak with us now
Understanding various tax rates and how the array of entities work together to reduce tax is complex.
Contact us if you require assistance. We offer you a free initial discovery session to see how we can support your big vision.
This article is designed to articulate a high-level general overview of some of the most important tax considerations for those in business and entrepreneurship. The article is not comprehensive in nature and professional advice should be sought to ensure correct application of issues mentioned where required.
Topics Covered
Hobby or Business
GST Threshold
Motor Vehicle Cost limit
GST on Motor Vehicles
Payroll Tax
Superannuation
Award Rates
Fringe Benefits Tax (FBT)
Single Touch Payroll (STP)
Division 7A
1. Hobby or Business
A hobby can be considered a business where a profit-making intention can be established, where profit has been made or the acts of a person show there is intent to operate as a business.
The following factors may indicate that a profit-making intention and business exist:
Registration of a business name
Obtaining an Australia Business Number (ABN)
You make a profit
Repetition of business activities
The size or scale of the activity is parallel with the activities of other businesses in your industry
The activity is planned, organised and executed in business like fashion.
The indicators that an activity is planned, organised and executed in business like fashion may include:
Keeping business records and account books;
Having a separate business bank account;
Operation from business premises; and
In possession of licences and qualifications.
Worth noting is that an activity can begin its life as a hobby and morph into a business. An example is where an individual acquires an SLR Digital camera and proceeds to take photos at events and posts such photos on social media. Such photos receive praise from their viewers and the individual realises they have a natural flare and affinity for photography. They are encouraged to start a business. The individual decides to do just that and begins to plan. From this instant, it could be established the individual has left the territory of photography being a hobby to the pursuit of photography as a business.
Where the hobby has become a business and the activity is generating a loss, you may be able to offset the business loss against your salary and wage income for tax purposes subject to meeting the non-commercial business loss tests. The non-commercial business loss tests are complex and discussion thereof is outside the bounds of this article. You should seek the advice of a qualified tax agent in this regard before applying such tests.
2. GST Threshold
The Goods and Service Tax (GST) is a tax payable by the end consumer (other than businesses not registered for GST). Businesses with turnover in excess of $75,000 must register for GST.
Not for profit organisations which provide products or services must charge GST where their turnover is greater than $150,000.
Some businesses are GST exempt, such as those providing medical services and do not need to register for GST. This means they do not include GST in the fees they charge their patients.
However, registering for GST allows such businesses to claim GST credits on items and services they use to conduct their business.
3. Motor Vehicle Cost Limit
As per the Australian Taxation Office’s definition, a motor vehicle means a motor-powered road vehicle and does not include a road vehicle where the following apply:
The main function of the vehicle is not related to public road use; and
The vehicle’s ability to travel on a public road is secondary to its main functions.
Examples of vehicles meeting the above definition include but are not limited to:
Trucks, tractors and earth moving equipment.
Vehicles purchased are subject to a Motor Vehicle cost limit of $57,581 for the 2019/2020 financial year. This means vehicles purchased above this limit will have deductions, which may cover numerous years, limited to the above-mentioned figure.
This figure is regularly indexed and should be checked each year by referring to ATO guidelines.
4. GST on Motor Vehicle Cost Limit
If your business is registered for GST, you may be eligible to claim GST credits equal to one eleventh of the Motor Vehicle cost limit.
This usually translates to $5,234.
Other business assets are not subject to this limit and therefore the full GST credits applicable can be claimed.
5. Payroll Tax
Payroll tax is payable by employers where their payroll exceeds either a monthly or annual threshold provided by each Australian state and territory.
The website below mentions the payroll tax thresholds and percentage rates applicable for each state and territory.
Superannuation is required to be paid for each employee where that employee earns $450 or more per calendar month.
The minimum superannuation payable is an additional 10.00% of the wage or salary paid. This should be stipulated in the contract with the employee. Generally, employers combine the salary, wages and superannuation as a total remuneration package offered to their employees.
See link below for table of rates and years to which they apply.
Certain employee pay is subject to minimum pay rates prescribed by Fair Work Australia. Paying employees in industries such as the hospitality industry below these rates is illegal. To determine the applicable rates for your employees based on the industry in which you operate, navigate to the below mentioned link and search for your industry.
Fringe benefits tax is payable at a rate of 47% by employers on benefits provided to employees or the employees associates. This is the case even if the benefit is being provided by an external provider under an agreement with the employer.
These benefits could be the ability to use a company car for the employee’s private purposes or paying for an employee’s holiday. FBT is a complex area of tax and professional advice should be though if you are considering providing benefits to your employees.
9. Single Touch Payroll (STP)
STP is a new way to report employees’ tax and superannuation information to the ATO. This information is now reported every time a business runs its payroll. This is a standalone process to preparing the Monthly Pay As You Go Withholding statements and the monthly Business Activity Statements where applicable.
As of 30 September 2019, all businesses which employ staff must be registered for STP and report the information to the ATO.
You can navigate to the ATO website using the link below to check out the no cost or low cost platforms available to satisfy the STP reporting obligations.
When considering which provider to choose, it is important to determine if such programs integrate with other business systems to ensure a streamlined no fuss solution is implemented.
10. Division 7A
Where using a company structure in your business then you need to be cognisant of Division 7A of the 1997 Income Tax Assessment Act.
A company is a separate legal entity and stands alone from its directors and shareholders. As such, any income generated by the entity must be provided to shareholders and directors via declaration of a dividend.
Where profits in the form of drawings are taken out of the company without a dividend being declared, Division 7A is triggered and may deem this to be a dividend to which the benefit of possible attached franking credits (also known as imputation credits) is disregarded. This is a disadvantageous spot to be in. Division 7A is another complex area of taxation for which further advice should be thought.
Conclusion
As can be seen, the above information provides a broad overview of various tax considerations when operating a business. The ATO website is a good resource to use to find out more. Another great website to visit to learn more about money and business is the Australian Securities and Investment Commission’s (ASIC) Money Smart website.
Questions? Fill out the form below and we’ll reach out to you.
