- Running your own business comes with a lot of perks as well as some difficulties you need to prepare for, among which are corporate tax and how to prepare for that tax return.
- You can't do it alone, so you'll definitely need to find a good accountant who'll be able to assist and guide you throughout the entire process.
- Whether you're using a cloud accounting software, or have experience preparing your own tax returns up to this day, once you get into the corporate world, tax return policies and subtleties become more complex.
Trading through a company structure has many advantages such as asset protection and access to the corporate tax rate. However, operating through a company structure adds another layer of complexity to your tax affairs. If you have been preparing your own tax return up to this point, it is time to go speak to an accountant who knows company tax returns inside out and can help guide you through this process. More importantly, a good accountant will also help with you with tax planning and be a sounding board for all the general business issues you come across.
When it comes to tax time, it is important that you are prepared. So here are the 5 things you need for your company’s tax return and how you can get ahead of the game using technology:
1. A reconciled accounting file
Once you move to a company structure, spreadsheets with income and expenses are no longer going to cut it. You need an accounting package to keep track of everything and also give you an up-to-date understanding of where your business is at. These days there are a wide variety of different accounting software packages available. The most common ones we see for small to medium businesses (SMEs) are MYOB and Xero which are easy to use for business owners and bookkeepers. We are noticing a trend towards cloud based products, such as Xero, that simplify accounting and tax for SMEs, and allow for greater collaboration with advisors.
Before your accountant gets to work on preparing the company’s tax return, it is important that your accounting file is reconciled up-to-date. This includes ensuring that the company’s bank accounts are reconciled, all customer and supplier invoices are entered and doing a sanity check of the balance sheet and profit & loss.
This accounting file forms the basis for the preparation of financial statements, reporting of income and expenses in the company’s tax return and for a series of financial disclosures required on the tax return. The more accurate you can make your accounting file, the more efficient the tax return process will be. This allows your accountant to spend more time working with you on strategies to grow your business rather than getting bogged down in the detail of reconciling the company’s accounts.
2. Bank statements
Historically the first question your accountant would always ask was, “Send us the 30 June bank statement for each account.” The advent of cloud accounting and bank transaction feeds directly into your accounting software have reduced the need for this. This functionality has been a gamer changer by improving accuracy and streamlining the process of recording bank transaction data. Many of our clients have reported considerable time savings by moving to systems with these capabilities.
Arguably, if the bank feeds are working correctly, then there is no need to refer to the bank statements as all data should be present in your accounting file. Practically, your accountant will still probably ask for copies of bank statements to confirm that the bank accounts are reconciled correctly even where this functionality is in place. They may also request copies of financial documents for new loan facilities such as hire purchase or lease arrangements.
Get ahead of the game and provide these upfront to expedite the tax return preparation process.
3. Ensure that you provide good descriptions on transactions
Not every cost or expense is tax deductible upfront. Some expenses, such as fines and penalties, are specifically treated as non-deductible, meaning you never get a tax deduction for them. Other expenses, such as borrowing costs on new loans, are only deductible over a number of years. Legal expenses can sometimes be deductible, sometimes be non-deductible and sometimes be treated as a capital cost of the business.
Accordingly, it is important that you provide detailed descriptions for each transaction so that your accountant can identify what the transaction relates to and what the correct tax and accounting treatment is for it.
Some accounting software providers are taking this to the next level by allowing you to attach invoices or other documents to a transaction. The benefit of this is two-fold.
- Firstly, it means your accountant has all the information taxavailable when they look at a transaction.
- Secondly, the documents are stored in a convenient location meaning no more searching through emails or files to find a missing invoice.
4. Make sure all BAS lodgements are up-to-date
Having your BAS lodgements up to date is important for many reasons.
Firstly, the ATO requires you to lodge these statements on time and can issue fines for late lodgement. With improvements in accounting technology it is easier than ever to stay up-to-date with your reporting requirements.
Secondly, these BASs provide a point of reference for your accountant when looking at GST, PAYG withholding and income tax liabilities. Your accountant will also look at wages reported on the BASs compared to your accounting and payroll records.
5. Details of any other businesses you are involved with
For many years it did not matter whether you had multiple businesses in different entities, the tax rate was the same for all companies. In recent years Australia has moved to a two-tiered company tax rate with smaller businesses paying 27.5% and all other businesses paying 30% in a company structure. This requires you to combine (aggregate) the turnover for all related businesses to determine the appropriate tax rate.
It is important that you make your accountant aware of any entity in which you hold a significant interest so they can assess which tax rate is applicable to your company.
As you can see, there is a bit to think about when it comes to preparing your company’s tax return. Finding a good accountant and making use of technology are key to making this process as easy as possible for you.
The less time you spend thinking about tax, the more you can spend on growing your business.
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