When it comes to tax mistakes a business owner can make there are many. But three stand out as the most repeated, easiest to avoid and they tend to revolve around cash. They are hiding cash, not managing cash flows, and not borrowing tax effectively when there is not enough cash. The biggest mistake owners make, where their businesses take large amounts of cash, is to dive into the black economy. The problem with black money is it must be spent on non essential things such as entertaining, grog, and lavish holidays. In extreme cases this can lead to a combination of drinking problems, obesity, and all of the resulting medical conditions such as liver failure and diabetes. Even when …

At the same time the GST commenced the non-commercial loss rules were introduced. Under these rules a business loss can only be claimed as a deduction against a person’s other income if certain tests are passed. From the 2010 year these rules have been tightened further. It is common when a business starts losses to be made. The pain of having to fund those losses can be reduced when they can be used to reduce income from other sources, such as salary and wages, and either create a tax refund or reduce tax payable. Prior to the introduction of the non-commercial loss rules there were no definitive tests in place to determine whether a loss could be deducted. It came …

Motor vehicles are often a necessity for business. Where their use will be for business purposes the cost is tax deductible, for vehicles with little business use the cost must be funded by after tax profit. How much can be claimed depends on the type of vehicle, the number of business kilometres driven in a year and the method used to claim the expenses. Vehicles designed to carry more than 8 passengers, or a load of 1 tonne or more, can be claimed in full unless they are used for purely private purposes. Panel vans, taxis, and utes of less than 1 tonne can also be claimed in full where the private use is limited to travel between a person’s …

Before this year’s federal budget there were five ways a business owner could claim for claiming motor vehicle expenses. As a result of the change, allegedly to clamp down on tax avoidance, the choice will reduce to four because the rules relating to car fringe benefits will be changed. Business owners that have used the statutory method to claim motor vehicle expenses under fringe benefit tax system, avoid being embroiled in the hassle of keeping a low book for 12 weeks, will find that this will no longer be a tax effective. Of the methods for claiming motor vehicle expenses, for owners employed by their business that travelled more than 25,000 kilometres a year, the FBT system provided a reasonable …

When a business sells and purchases a new asset, such as a motor vehicle, there are three GST traps that need to be avoided. The first relates to how the purchase of an asset is financed and, depending on the way a business accounts for GST, if the wrong type IS used there can be major cash flow implications. There are two ways a business can account for GST, the cash method or the accrual method. Under the cash method only GST actually collected and paid is accounted for. Under the accrual method GST included in income earned, and expenses incurred, must be accounted for even though the cash has not been received or paid out. A business using the …