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Tax time tips for SMEs and sole traders

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
12 June 2020 2 minute readShare
Tax time tips

Recognising the challenges COVID-19 has brought upon businesses, the ATO has made a number of changes to tax time including the addition of home-based businesses to its temporary shortcut method for calculating returns.

The tax authority has been busy pulling together new guides to help Aussie taxpayers, including businesses, navigate their tax affairs during the coronavirus crisis.

Home-based businesses

Home-based businesses are able to calculate their tax returns using the same temporary shortcut method introduced by the ATO for individuals.

The Australian Taxation Office has added home-based businesses to its temporary shortcut method, allowing them to claim a rate of 80 cents per hour for all their running expenses from 1 March 2020 until 30 June 2020. 

The ATO’s definition of a home-based business is one where the business owner’s home is also their principal place of business. That is, they run their business at or from home, and have a room or space set aside exclusively for business activities.

According to the ATO, business owners operating under these conditions may be able to claim tax deductions for home-based business expenses such as occupancy expenses, including mortgage interest or rent, council rates and land taxes; running expenses, such as electricity, phone, decline in value of plant and equipment; and the expenses of motor vehicle trips if the travel is for business purposes.

The ATO has advised that if the home is not a business owner’s principal (or main) place of business but they do some work from home, they may still be able to claim a deduction for some of their expenses relating to the area they use.

Sole trader or partnership home-based business

Sole traders or partnership home-based businesses may be able to claim a share of their occupancy expenses that relate to their business, but they will first need to pass the interest deductibility test.

To pass the interest deductibility test, the area they have set aside in their home for their business must have the character of a place of business.

Indicators that an area of a home has the character of a place of business include that it’s:

  • clearly identifiable as a place of business, for example, a sign identifying the business at the front of the house
  • not readily suitable or adaptable for private or domestic purposes
  • used exclusively or almost exclusively for carrying on business
  • used regularly for visits by clients

Sole traders eligible to claim occupancy expenses will also be able to claim running expenses. 

What to include in assessable income

To help businesses determine their assessable income, the ATO has released further guidance, addressing particularly the government’s stimulus payments.

The Tax Office explained that while a number of federal, state and territory government grants and payments have been made available in response to recent natural disasters and COVID-19, only those grants and payments that are assessable income will need to be included.

These payments include:

  • fuel tax credits or product stewardship (oil) benefit
  • wine equalisation tax producer rebate
  • JobKeeper payments (COVID-19)
  • Supporting Apprentices and Trainees wage subsidy (COVID-19)
  • excise refund scheme for alcohol manufacturers
  • grants, such as an amount you receive under the Australian Apprenticeships Incentives Program
  • subsidies for carrying on a business

The ATO has advised businesses not to include cash-flow boost payments and government grants that are tax-free.

For more information on home-based businesses, click here.

For more information on assessable income, click here.

Tax time tips for SMEs and sole traders
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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