Whether you are a Plumber, Carpenter Sparkie, Plasterer, Tiler, Cleaner or involved in other trades the area of tax and accounting is one you may wish would go away!
BAS returns have to be done, the cash has to found to pay them, plies of paperwork mount up, Keeping things in order on accounting systems is for bean counters not for tradespeople!
Complex tax rules exsist to take your hard earned money when all you want to do is to do your job earn some money, increase your wealth, and of course save tax!
After a hard days work the last thing you want to do sometimes is to do the the books!. Some tradies, according to a plumber client of mine, “Work hard and play hard “ so the last thing they want to bother with is bookwork!
We have a number of clients who are tradies ranging from the small to larger and they tell a similar story.
There are solutions that allow you to get on top of all this and not spend heaps of time on record keeping but instead manage your business in way that allows for expansion and growth.
Bookkeeping is often the bane, of many a small business owners. Some don’t even bother and keep a shoe box full of receipts and hand this to their accountant or endeavour to try an accounting package such as MYOB or QuickBooks – only to find their hard earned efforts do not necessarily result in reduced fees from their accountant!
There is a number of software packages on the market and there will be one that is perfect for you. We can advise you, based on your circumstances which one would be the most appropriate for you and your business!We can evaluate your needs and help you establish the system so that it gives you the right results and in the format that allows for easy preparation of BAS returns and ultimately the tax return – so that the accounting fees are kept to a minimum.
Cloud based accounting is a recent development that offers huge benefits to the tradie in terms of reduced cost and time in doing the books! Packages like Xero allow automatic bank uploads. They also allow the accountant to directly access the books to fix any issues, to do some of the work as necessary or to give advice.
We can fix our fees on a yearly basis so there are no surprises having to find extra unexpected cash for compliance work!
More importantly our unique Income and Financial Management Planning System allows you to keep complete track of your finances on a weekly basis with minimum time and effort – so that bills do not become a problem, and you have sufficient cash to build your business and expand.
If you have gotten into a jam on your finances and taxes and all looks bleak and unconfrontable – don’t worry! – We can fix it and set you up so that it does not reoccur! We provide a full range of services from Tax to Accounting to Finance services to Business Coaching to give you a helping hand.
a) Expenses as deductions for Trades
Generally the ATO allows deductions for any expense that is directly connected with the earning of income. For the trades some of these include:
Tools under $300 each can be an immediate deduction for any employee otherwise they are depreciated at the relevant rate according to their classification.
If a business, the ATO allows an immediate deduction of up to $6500 for any tools and equipment as a Small l Business Entity (SBE) with turnover of less the $2m. this included an immediate deduction of $5000 for a car
b) Motor Vehicle Expenses
For Motor Vehicles that are one tonne or more, trucks, and utilities the Tax rules re motor vehicles do not apply.
Tip: However beware the Utility that is a four seater and four doors that is used for private purpose on more than an incidental basis!
Ute’s and the like can be used for private purposes on an incidental basis. This implies that the vast majority of private travel is from another vehicle that is not claimed as a tax deduction.
For other vehicles running costs are allowable deductions if:
- you are transporting heavy tools to work and they cannot be left at work
- you travel between jobs i.e. different sites each day
- you home is you place of business and you travel to jobs sites each day
The ATO allows for three methods of Calculation:
A) Log book
A log book is to be kept to a continuous period of twelve weeks to establish the % of business to private expenses, which then can be used to calculate the costs based upon actual expenses. This implies that actual expenses such as petrol are recorded. A method of handling this and avoiding lots of petrel receipts is to ether use a type of petrol card or credit card for your business expenses. The log book is valid for five years.
b) Cents per Km method
This is s fixed rate method for use up to 5000 Km of business use is multiplied by a rate .75 per KLM, ( for cars over 2600cc), .74 for cars 1601 cc to 2600cc and .63 for cars under 1600cc). Fro example the maximum deduction allowed for 5000 Km for a car over 2600cc would be $3750
c) 12%of Cost Method
This is a straight 12% of the Original Value of the car if the businesses Km are more than 5000 Kms The tax office allows the method which gives the most deductions in any one year.
For trades generally the Log book usually proves the most successful and the effort required to keep it for twelve weeks is offset by the deductions able to be claimed
Should you operate as a Sole trader, Partnership, Company or trust?
This needs to be evaluated given the size of the business, the risks involved, legal tax minimisation strategies to be adopted, asset protection and succession planning.
Each has benefits and drawbacks and varies in accounting and other compliance costs.
We can access these needs and recommend a proper structure that fits your needs for now and into the future.
Superannuation and Income protection
Being self employed one should not forget such things as superannuation income protection and life insurance.
You can choose to have you own Self Managed Super Fund (SMSF), which we can help establish to ensure compliance not only in tax matters but all superannuation legislative requirements.
With the establishment of a SMSF there are considerable obligations placed upon the Trustees of the fund, (usually yourself or an established company for that purpose).
The Trustee manages the fund and is legally responsible for it in law.
Alternatively you may wish to stick with an exiting public managed fund whether that be industry specific or not.
Annual compliance costs for a SMSF usually range between $1k and $2.5K depending on the size and number of transactions in the fund. The fund has to be audited separately by a registered superannuation Auditor.
Whether to embark a SMSF will depend on your circumstances and long term strategies regarding retirement and the amount available on the initial establishment of the fund.
Tax deductions are allowed for superannuation contributions for self employed up the age based limits – currently $25K for under 60 year olds and $35K for over 60 year olds. Any contribution over this amount that is claimed as a tax deduction is taxed at the highest tax rate of 46.5 %
If you have a self managed super fund and are actively making contributions these need to be kept track of to ensure the limits are not exceeded and it they are – the tax office acceptable solutions are followed. Otherwise severe penalties apply.
Income protection and life insurance is a must for the self employed. There are various coverage’s available depending on age, the type of business one in involved in and the degree of coverage required. As well if operating a partnership or have another key shareholders or directors in the business then key man insurance in recommended.
We are affiliated with a number of entities that offer these services. They independently review your situation, and offer competitive quotes.
Income protection insurance as well and key man insurance is tax deductible.
Life insurance unless held in a Superannuation fund is not tax deductible
You need to be registered for GST if your gross income is above $75k per annum.
One can elect to pay GST even if the income is less than $75K based upon commercial decisions. E.g. one is dealing with a large business and needs to look professional or larger in order to get the business.
If registered and your income less than $75 you can elect to pay GST on an annual basis. However the disadvantage with this is that you need to ensure the cash is there when it is due to be paid which is when the income tax return is due.
If turnover is more than $75K and less than $20m the GST periods are Quarterly, being September, December, and March. The returns and the amount payable are due by the 28th of the following month.
One can elect to do the returns on a cash basis of accrual basis. A cash basis is usually suitable where an organisation has large debtors which would otherwise be included as income although the money is not yet received. Most small business elect a cash basis.
Are you going to hire Contractors or employees?
There are specific tax office rules that determine whether someone is a contractor or employee. Just because someone has an ABN does not mean they cannot be a contractor.
Some industries lean toward contractors such as cleaners and certain building industries but generally the rules are:
- A contractor has the right to hire others to do the work
- He supplies his own equipment
- He can come and go as he pleases – there is no master servant relationship
- Get paid by results and is responsible for correcting errors or faults
- Generally not paid on an hourly basis
The specifics of the business will need to be assessed to determine if contractors are of and correct for your business
Apprentices Governments Grants
The Australian Government provides a range of grants for small l business and those who wish to employ apprentices. We can help you determine you eligibility and also apply.
CALL US NOW TO TAKE THE HEADACHE OUT OF BOOKKEEPING AND TAX!