We all have at one point in time, heard about a great way to save on tax. At this time of year you are bound to hear a line ball call or two so it’s timely to debunk some of those tax myths, rumours and mistruths. In part 1 we debunked the Tax Myths, Rumours and mistruths for Individuals, in part 2 we covered Tax Myths, Rumours and mistruths for Investment Properties so to finish up our tax myth series we wanted to debunk the most common tax myths, rumours and mistruths when it comes to businesses:
- My business owns a qualifying dual cab utility vehicle that is supplied to one of my employees, it is exempt from Fringe Benefits Tax regardless of the amount of private use on the vehicle. False, the vehicle is only exempt from FBT when the private use is minor or incidental to the business travel. This would include travel between home and work plus the odd trip during the year such as a rubbish run or to collect large bulky items from the shops.
- I have a small business that I run in my spare time, it has made a loss this year so I can use that loss to reduce my salary income. Partly true, the loss can only be offset against salary income where one of the non-commercial losses tests are passed.
- If I don’t use that piece of machinery sitting in the back corner of warehouse anymore then I can write it off. False, to write off the balance of any depreciable plant item it must be physically scrapped and disposed of.
- Superannuation for my employees is deductible regardless of when it is paid. False, superannuation is only deductible on payment and only when that payment is made before the due date under the Superannuation Guarantee rules.
- Interest paid on my business overdraft or loan is always deductible. False, interest is only deductible if the proceeds of the debt facility are used for income producing purposes. For example, if a business operates through a trust and has an overdraft facility that has funded overdrawn beneficiary accounts, the interest on that facility will not be deductible.
- We took some clients to lunch where we discussed business matters therefore it is tax deductible. Partly true, the cost of lunch covering the client is not deductible however the cost covering employees of the business is deductible. Unfortunately though, this deduction is also subject to Fringe Benefits Tax.
- I have losses in one company that I can use to reduce profits in another company. False, each company takes care of its own tax position each year. Other structures such as Trusts are capable distributing profits into loss making entities dependent on the beneficiaries of the Trust and compliance with the Trust Losses rules.
We hope this information helps to dispel what's fact from fiction when it comes to taxation of businesses.
Hanrick Curran has over 30 years of experience in providing accounting advice to SME’s, listed organisations, individuals, property investors and professionals. To discuss your personal circumstances and how the tax rules apply to you please contact your usual Hanrick Curran advisor or alternatively contact Matthew Beasley on 07 3218 3900.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.