Small business bookkeeping and tax returns
Okay small business owners, it is tax time! I know you may want to hide in the corner from all of the overwhelm of the paperwork, reports, and numbers, but we have got your back and as your small business bookkeeping company, we will step through this with you!
Besides, it is not all that bad once you get that nice little return in your lap!
Small business owners rightly get confused with tax for businesses vs individuals so let’s break this down first.
If you are a business owner whether that is as a sole trader, company or partnership you still need to do a personal tax return. Yes, even though you have done a business tax return, you still need to be assessed for income tax based on the drawings you have made from the business.
Didn’t I already pay my tax through my Business Activity Statement?
Business Activity Statements are different to tax returns in that they assess your business every quarter to determine the tax you need to pay the ATO on GST, if you have registered for GST, and pay as you go (PAYG).
Your individual tax return is an assessment on your personal income from the business to determine how much income tax you either are owed from the government as a refund, or owe to the government.
Factors such as business expenses are used to determine GST payments for BAS, however personal expenses that don’t come into play with the business such as higher education load debt and Medicare levy is what helps to determine your personal income tax assessment.
How small businesses who do their own bookkeeping should prepare for tax time
If you have been in small business for some time, you will probably be aware of some recent changes to payroll. From the last financial year, all Australian businesses were required to transition to Single Touch Payroll, which changed the way your employer reports your tax and super information to the Australian Taxation Office (ATO). As a result of this change, payment summaries are no longer provided. Instead, employees will need to access their payment summary information via mygov.
As a small business or sole trader, what do I tell my employees?
When your staff (or you if you are your only staff member) access the payment summary in mygov, they will notice it is called an income statement. It will still show the year-to-date salary and wages, the tax that has been withheld and the superannuation amounts that have been paid. You as the employer have until 14 July 2021 to finalise the information contained in the income statement and they will be available and ‘Tax Ready’ by 31 July 2021 in mygov.
When can employees lodge tax return?
Employees and sole traders of Small businesses in Australia can lodge their tax return once the Income Statement is marked as Tax Ready online. If it is not marked Tax Ready by July 31, 2021 (i.e., if it is still marked as ‘Year to Date’ or something similar) employees should contact the payroll processing team or your bookkeeper.
What is an income statement?
Your income statement is like a payslip, except you only get your income statement once a year. It shows:
- your year-to-date salary
- the tax that has been withheld
- the superannuation amounts your employer must pay for you
Do all employees and business owners need an Income Statement?
Yes. Employees and business owners need an Income Statement to lodge a tax return at the end of the financial year
What if you or an employee does not have a myGov account?
If someone does not have a myGov account set up, they will need to set one up by July 31, 2021 and link it to the ATO Online Service to access your Income Statement.
What happens if you or an employee do not set up a myGov account before July 31?
If an employee does not have one by this time they will not be able to download your 2020/2021 Income Statement until they set up your myGov account.
Employees may set up their myGov account after July 31, however we recommend they do this prior to July 31 to avoid delays with submitting their tax return, or technical issues with setting up myGov account during peak times.
Are there other ways to access my Income Statement without having to set up a myGov account?
Yes, but we strongly recommend you access your Income Statement via your myGov account, as there can be significant delays accessing your income statement by other means.
If you absolutely cannot set up a myGov account, you can phone the ATO on 13 28 61 to get a copy of your Income Statement.
Alternatively, if you use a registered tax agent to lodge your tax return, they will have access to your Income Statement and can download it on your behalf.
How to set up a myGov Account
A myGov account can quickly and easily be set up online via https://my.gov.au/ The ATO has provided online guides and video tutorials to help you set up your myGov account. To access, please visit: https://www.servicesaustralia.gov.au/individuals/online-help/create-mygov-account
I have set up a myGov Account, what do I do now?
Now you need to link your account to the ATO Online Service. This will allow you to download your Income Statement
For instructions on how to link the ATO Online Service to your myGov account, please visit the ATO website: https://www.ato.gov.au/General/Online-services/Create-your-myGov-account-and-link-it-to-the-ATO/#LinktotheATO
How can I download my Income Statement via myGov?
Once you have your myGov account set up and linked to the ATO Online Service, you should:
- Log in to myGov.
- Select Australian Taxation Office.
- Select (from the top of the screen) Employment and then Income Statements.
All Income Statements will be Tax Ready and available for download by July 31, 2021.
Due to privacy and security restrictions, employers are required to send Income Statements directly to the ATO. Employers are unable to download and provide Income Statements directly to employees.
Can anyone else access my Income Statement on my behalf?
Only the employee, the ATO and a person nominated by the employee (such as a family member, financial administrator, or tax agent) can access the Income Statement.
Where to now
If this is your first business tax return and your first individual tax return as a business owner, it can be a daunting experience but luckily there are professional bookkeepers and accountants in Australia who have decades of experience dealing with these annoying but essential business activities.
If you’re looking for someone to make the path to success a little more stress free please feel free to book in a free call with our friendly team to understand how we can help you.