The importance of keeping good records
Businesses should keep proper and consistent records to explain their business transactions and enable them to claim all the tax deductions (e.g. motor vehicle deductions, depreciation and home-based business expenses) to which they may be entitled.
One of the simplest ways to keep good records is to reconcile on a daily basis the amounts evidenced on the cash register tapes with the actual amount of cash received in the till.Businesses should not:
- Estimate their sales and income;
- Estimate their closing stock figures;
- Use the “no sale” and “void” button on their cash register when receiving cash payments from customers; or
- Pay their employees cash-in-hand.
Please be aware that the ATO receives many “dob-in” letters from disgruntled customers, employees and ex-spouses in relation to the non-payment of GST and income tax by businesses that do not record cash receipts and payments.
Know when to claim GST input tax credits
GST registered businesses can claim GST input tax credits of the GST included in the price of goods or services purchased for use in the business if a valid tax invoice is held.The retention of a tax invoice is not required for purchases less than $75 GST exclusive.While this concession was enacted to save on the retention of tax invoices for relatively small amounts, we recommend that tax invoices be held or be scanned for computer storage.Please note that GST registered businesses must issue a tax invoice for the sale of all goods and services regardless of price.
GST input tax credits can only be claimed if purchases are made relating to the making of either:
- Taxable supplies (e.g. a property developer that sells new apartments may claim the GST charged on acquisitions relating to the sale); or
- GST-free supplies (e.g. a farmer who has carried on a farming business on the land for at least 5 years and sells the land to a buyer and the buyer intends that a farming business will be conducted on the land, may claim the GST charged on the original purchase price of the farmland).
GST input tax credits cannot be claimed on purchases relating to the making of input taxed supplies (e.g. selling financial products or second hand property).
Beware of SMSF schemes
The ATO is currently scrutinising the self-managed superannuation fund (SMSF) industry and have identified a variety of schemes directed towards minimising or avoiding tax through channelling money inappropriately through SMSFs.
For example, in a previous Top Tax Tips, we have referred to an SMSF scheme that attempts to divert personal services income to an SMSF so that the income will either be exempt from tax (if in pension phase) or at least concessionally taxed (i.e. taxed at 15% as opposed to the individual’s marginal tax rate).
Taxpayers involved in such illegal schemes can face severe penalties under both taxation and superannuation laws and potentially lose 45% of their retirement savings or their rights as trustee to manage their SMSF.
Although you may not have been involved in such a scheme, we are obliged to alert you in case you are ever contacted to enter into such schemes. After all, forewarned is forearmed!