Running a business is hard enough without getting caught up in the complexities of the tax system. So, to make things simpler, H&R Block has produced a beginners’ guide to the tax deductions all retail businesses should be looking to claim.
Purchases of stock
Everything that you purchase to sell in your store is tax deductible as a cost-of-sale. In addition, you can also claim for associated costs of getting stock delivered from suppliers as well as other costs of sale such as delivery charges to customers (if you pay them rather than the customer), packing, etc.
If you travel to trade fairs to examine new products, those costs are also deductible.
Write-off any lost, damaged or obsolete stock before the year end in order to claim a tax deduction.
Immediate write-off of capital purchases
From 12 March 2020 through until 30 June 2020, your business can claim an immediate tax deduction for all capital purchases which cost less than $150,000, rather than writing off the cost over several years. That could be a great way to refresh your store and generate some extra cash flow. To qualify, your business must be have an aggregate turnover or less than $500 million.
Amongst the items you could look at claiming are the following:
• cash registers and other POS devices
• delivery vans
• store fittings and fixtures
• computers, laptops and tablets
• in-store security systems
• accounting software
Prior to 12 March 2020, the immediate tax deduction was available for purchases costing less than $30,000, and only for businesses with a turnover of less than $50 million.
Covid-19
Don’t forget that any amounts your business received under the government’s JobKeeper program, designed to help employers retain employees during the shutdown, are taxable income. However, the costs you paid out to staff in wages are deductible.
Any credits you received through the government’s Cash Flow Boost scheme are not taxable.
Advertising and marketing costs
Advertising and marketing to sell stock, gain publicity and hire employees is all tax deductible. Costs incurred in entertaining clients and suppliers, sadly, are not deductible.
Property costs
Rent, mortgage interest, rates and land tax for your business premises are all tax deductible.
Salary and superannuation expenses
You have to pay staff wages and you also need to contribute compulsory superannuation payments for everyone on the payroll. All those costs are tax deductible. If you can get your June quarterly super payment in before 30 June, you might be able to accelerate that deduction into the current tax year (the actual deadline is in July, after the next tax year has started).
Tax expenses
All tax and accounting related expenses should be tax deductible including the cost of hiring a bookkeeper to prepare your business records, having tax returns or BAS prepared and costs associated with attending to an ATO audit or objecting to a tax assessment which you think is incorrect.
Fringe benefits
Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the Fringe Benefits Tax (FBT) they pay on those benefits. A fringe benefit is a benefit provided to an employee (or their associate) because that person is an employee (or a former or future employee) and can include items such as cars and car parking spaces.
Business insurance
Premiums you pay for business insurance are generally tax deductible provided they are connected to your business’ capacity to earn an income or to protect its assets.
This means that premiums for workers compensation insurance, professional indemnity insurance, fire damage, theft cover, public liability insurance, loss of profits and commercial motor vehicle insurance are all tax deductible.
Premiums for key person or key man insurance, a type of policy which offers a benefit payment when an important company employee is incapacitated and no longer able to work, can also generally be claimed as a tax deduction provided the key person cover is taken out to protect your business’ revenue.
Reorganising your business tax-free
Not a tax deduction as such, but a tax relief that applies to small businesses, the government has recently introduced new measures which allow businesses to reorganise themselves without incurring unexpected income tax consequences, such as capital gains on asset transfers. This is particularly valuable for new and expanding businesses, which are looking to change their legal form to allow greater asset protection for the owners or greater freedom to expand, for instance by changing from a sole trader to a trust or company.
Finally….
The above guide is a brief overview of what your retail business should be claiming. As a general rule-of-thumb, any cost incurred in generating income for your business is deductible, either straight away or over time.
If you need help getting your taxes right, it’s always best to talk to a tax adviser like H&R Block.
By Mark Chapman, director of tax communications, H&R Block
