Tax administration is one of the most dreaded tasks for small businesses or organisations. As a small business owner, you encounter several obstacles and concerns the problems that require your attention regularly. Your plate is constantly full, whether dealing with limited resources, juggling many projects, or day-to-day operations. But among all, paying taxes and getting refunds on time is the most challenging task of business operations.
Taxes in Australia is very complicated and can leave you with many misconceptions. Taxpayers can claim ‘anything within reason’ in their tax return and receive a refund. However, if the claims are erroneous, they must repay the tax saved and pay interest on incorrect claims of around 7% each year. If the ATO feels the taxpayer acted negligently, a 25% to 95% tax-evaded penalty may be imposed.
There are many more misconceptions and myths about the Australian taxation system, which can cause you unwanted trouble. Hence, to keep the ATO happy, start by memorising the reality regarding the following tax myths:
Tax Refunds are an Entitlement
The most widespread myth is that every Australian taxpayer is entitled to a tax refund after the fiscal year. Tax refunds are not an entitlement for all and depend on an individual’s financial situation.
A tax refund is awarded when an individual’s overall tax credits and prepaid tax amounts surpass their tax due for the fiscal year. A refund is due if the prepaid tax exceeds the tax liability. If it was less, an extra tax payment would be necessary.
If You Get a Tax Bill, You can Request an Extension
The tax cycle ends on 30 June, and you get time to file your tax return with the ATO. There are two possibilities for receiving a tax bill:
- You did not make any prepayments in the preceding year.
- You do not make enough prepayments.
If you don’t want to face late fines (which will merely add to your rising debt), you should budget for and prepay your taxes all year. And after this, you won’t be surprised by a large bill during tax time.
Tax Refunds are a Windfall or a Bonus
Another prevalent misperception is that tax refunds are a government bonus or windfall. A tax refund simply means an extra amount is in your tax returns, and the government is returning your money. Sometimes, you assume that you are getting free money, but this is simply you are getting your extra money back.
Take Maximum on all Standard Deductions
Certain basic running expenditures are allowable deductions for agency owners on their tax returns. Some have maximum restrictions, such as $150 for apparel or 5,000 kilometres for car-related costs.
However, just because they’re “standard” doesn’t mean you can immediately deduct $150 in garments from your tax return for attending a web design conference. These standard deductions only define what is and is not eligible.
If you did not acquire work-related apparel (for example, if you were a nurse with a formal uniform), that is not an expense you may deduct.
However, you can claim money spent on something directly used in or for your business.
Early Tax Filing Ensures a Speedier Refund
You don’t get a speedier refund when you file your tax returns early. The ATO tax return system is based on a first-come, first-served basis. However, the tax processing time can differ according to return complexities and any unavailability of relevant information.
In general, electronic filing through a tax agency can result in a speedier return, with most refunds given within two weeks.
No Deduction on Not Filing Returns
If you think you don’t have to file returns to avoid penalties, it can create problems for your business. The ATO employs sophisticated data-matching tools to identify individuals who have not filed their tax returns.
When you fail to file your returns on time, you will be charged pay fines and penalties.
Filing a Tax Return in Australia is Voluntary
You must file a tax return if you own a business and earn any business revenue. You must file a return if you had any tax withheld during the physical year. And at last, If you are an Australian resident with taxable income exceeding the tax-free slab, you must file a tax return. The ATO provides extra information on whether you must file a tax return. You can connect with an accountant if you have more doubts about this.
Taxes can be Simplified and Easy with Outbooks…
As a small business owner, you must handle all your tax returns. It’s important to be well-versed in Australian tax regulations to avoid misunderstandings that can cause fines and penalties.
Outbooks is here to help you cut through the clutter. From calculating business expenditures to staying on top of taxes, we will make tax returns a piece of cake rather than a source of stress.