There are plenty of reasons why the Australian Taxation Office might want to run a tax audit on your business. It’s completely normal for businesses to go through this even though there are likely no problems on your end. If you’ve been filing correctly and you have the receipts for everything, then there’s nothing for you to worry about.
But it is not uncommon for businesses to file claims that they can’t fully support beyond a reasonable doubt. To avoid any trouble with the ATO, try to steer clear of these mistakes businesses have tend to make when handling their finances and taxes.
Work Expenses Without Having Receipts
Your receipts are essential to filing taxes as a small business owner. You can justify everything you buy for business purposes if you have the reason and the receipt behind it. If you don’t have a receipt on a business expense you claimed, you might as well have not filed it.
The ATO can’t just take your word for it when you make business expenses without an official receipt. Aside from misplacing it, they can suspect you of either not making the purchase or buying the item under illegal circumstances. Neither of those will sound good for you as a business owner.
Home Office Expenses Where the House is not a Place of Business
Many small businesses start in a garage, on a kitchen table, or a small home office. But when your workplace is primarily residential, you can’t claim that the toilet paper you bought for the house is a business expense. In the same vein, you cannot claim a residential apartment’s rent is a business expense when it was not leased to you for business purposes.
Claiming 100% of GST on Purchase of Vehicles or Other Equipment
It’s a common mistake for businesses to purchase vehicles or other equipment and claim all of it to be a business expense.
The only time you can claim full credit for the GST included in the price of the vehicle is when that statement is true. If it’s a delivery truck with your logo that you only drive to make orders, then the claim is valid. But if you’re driving around a car to use for personal errands as well, you can’t truly claim it to be 100% for business use.
While you can use vehicles for business and private purposes, you cannot claim a full tax deduction for such vehicles. However, you are entitled to a reduced GST payment for the times that you do use these vehicles for business use.
Tax audits conducted by the ATO may seem intimidating, but it is all for a good reason. Plenty of businesses have filed ridiculous claims, so be careful how you account for things. To avoid these mistakes throughout the year, the best advice is to hire a dedicated accounting service that knows exactly how to file business taxes for you.
To make sure you make fewer mistakes in your next tax audit, entrust your accounts to one of the top accounting firms along the Sunshine Coast. SMB Accounting offers trust account audits, audits of special purposes financial statements, special needs audits, and more. Contact us today!