I got a refund last year, why did I get a tax bill on my tax return this year?
There are many reasons for variations in tax refunds or tax bills from year-to-year even when you feel you're circumstances haven't changed. Some of the common situations that we see include: - A change in government legislation which impacts the amount of tax payable for certain groups - Higher income than previous years - Lower deductible expenses then prior years - More earnt from salaries and wages when also receiving centrelink payments We will always do a breakdown for you to explain major differences in tax refunds/bills from year-to-year.
I worked from home this year what can I claim?
This is one of the common questions we get and also one that is catching a lot of people out. During the peak of Covid, the ATO recognised an increase of people working from home and to simplify the tax process of claiming deductions related to working for home, introduced what was known as the 'Shortcut Method'. This method was a simple hourly rate multiplied by the number of hours worked from home. This method is no-longer available. There are now two methods for calculating costs related to working from home: - Fixed Rate Method - Similar to the former 'Shortcut Method' this is an hourly rate multiplied by the number of hours worked from home and covers expenses for phone, internet, electricity, computer consumable expenses incurred when working from home. There is no need to keep a record of these costs, however, the ATO requires you keep a detailed account of the hours you worked from home (eg. through diary entries or timesheets). - Actual Cost Method - As the name suggests, this method is the claiming of actual costs incurred. The record-keeping for this is somewhat more onerous in that you need to keep a record of all of your working from home related expenses (phone bills, internet bills, electricity bills etc.) but you have to be able to show how you've reliably calculated what proportion of these bills is related to work/business compared to what is personal. For example, to claim your actual expenditure on internet, the ATO requires that you use a 4-week period to breakdown the data used on your internet which relates to work compared to what is personal use. The percentage relating to work/business can then be applied to the whole year's cost for internet. We will help you to ensure you comply to ATO requirements.
What’s the difference between owner’s drawings and an owner being paid salary and wages from the business?
Simplistically owner’s drawings is simply withdrawing money from the business without undertaking a proper payroll process. If you take cash out of your business without paying PAYG withholding tax and superannuation as per legislative requirements, this will be considered owner’s drawings even if you intend it to be a ‘wage’ to yourself. For payments to be considered true salaries and wages the following needs to be met: - Payments made at regular intervals (eg weekly, fortnightly, monthly) - Payment amounts are consistent. Can’t just pay $1,000 one week and $4,000 the next week for no apparent reason. - PAYG withholding is taken and remitted to the ATO - Superannuation is paid in accordance with legislative requirements - Typically payroll would be setup on relevant accounting software to enable Single Touch Payroll (STP) with the ATO Depending on the business structure, there are pros and cons to an owner either taking owner’s drawings or paying themselves salaries and wages.
Why doesn’t my business income in my tax return match what I took as owner’s drawings?
There’s a common misconception that the money business owners take out during the financial year as owner’s drawings should be what’s included in their tax return. For tax purposes a business is taxed on the entire profit (or loss) for the financial year regardless of what money the owner has taken out of it. For example, if a business makes a profit of $50,000 but the owner only takes out $30,000 as owner’s drawings during the year, the whole $50,000 gets taxed and goes in the relevant tax return depending on the business structure. Note that owner’s drawings is different to an owner being paid true salary and wages out of the business. If an owner is paid salary and wages, this is the amount that would be included in their tax return.