Tax audits can be quite a nightmare if you’re not ready for them. It’s nothing like preparing a tax return, which you can just file and forget and worry about again the following year. Tax audits are something that you need to be ready for at all times. Every financial document, invoice, or transaction your business ever went through should have an accurate record, not to mention the standards on business practices set by the Australian Taxation Office (ATO). Here are more mistakes you should avoid if you don’t want the ATO to hunt you for during tax audits.
Director Fees Paid Without Making PAYG Deductions
As an employer, you have a role to play in helping your employees meet their tax obligations. You do this by collecting pay as you go (PAYG) withholding amounts from payments you make to employees and other workers.
Director’s fees are also considered to be salary for the purposes of PAYG withholding. PAYG must be withheld from the gross director’s fees, reported on the IAS or BAS used to report the salary and wages, and remitted to the ATO within the appropriate time frame. This means that director’s fees are also covered by superannuation contributions and must be paid at the applicable rate. You can still get in trouble if you fail to deduct PAYG contributions from the director’s fees.
Claiming Home Office Expenses
Now small business owners do have the luxury to work at home. This would require them to have a room set up as a dedicated home office where they put their work computers and other equipment, very much like their setup in the office. However, a common mistake you should avoid is failing to have a clearly designated business area in your home and claiming office expenses for it.
This just means that it is clearly a residential property and does not qualify as a place of business. If you want your home to qualify as a principal place of business, it must have a room or separate area set aside exclusively for business activities. Otherwise, you can’t claim home office expenses that include a portion of your utilities (phone and electricity costs) or even occupancy expenses.
Spending too Much on Christmas Parties and Not Paying FBT
Company Christmas parties are some of the most anticipated events for your employees, staff, clients, and business partners. Even if you don’t want an extravagant celebration to cut on costs on tax audits, you still have to pay your Fringe Benefits Tax (FBT). Even if you plan to throw your party outside of the premises of your office, that doesn’t remove your obligation to pay FBT. There’s only one way to avoid paying for it legally, and that’s by celebrating at an after-hours offsite venue and keeping the cost per employee for the celebration to under $300.
Claiming Repairs on Rental Properties Which are Clearly Renovations
Repairs on a rental property are classified as an ongoing expense, which is done in a short period of time and is relatively inexpensive. Since ongoing repairs can be claimed as tax deductions, some business owners make the mistake of categorising any improvements done on the property as repair work. Suppose you wanted to upgrade or install a new item on the property, this is already considered a capital expenditure, which cannot be claimed as an outright deduction.
Tax mistakes can be very costly, especially if the tax agent found something during an audit of your company. If you don’t want to be in hot water with the ATO, you better avoid these mistakes at all costs. Make sure your company lives up to the standards of the industry and the ATO so you won’t have any trouble with your finances.
If you need the help of experts in managing your taxes and financial records, turn to the Ecommerce Accountant. Whenever you need bookkeeping or eCommerce accounting services, our business advisors can help you stay on top of your finances. We are an online accounting firm with a passion for all things eCommerce. Partner with us today!