Doing it tough? Tax help is available for SMEs

Is your business struggling through the pandemic? The Australian Taxation Office (ATO) is reminding small businesses hit hard by Covid-19 there is help available, including claiming a deduction for losses.

ATO assistant commissioner Andrew Watson said “We know some small business owners are under incredible amounts of stress and facing uncertainty like never before. We understand your tax obligations may not be at the top of your list of things to do. So if you need some extra help with your tax and super affairs, I urge you to contact your registered tax professional or the ATO. We’re here to help.

“If you’re feeling overwhelmed or getting behind with your tax, let us know as early as possible so we can work with you to find a solution. No matter what your situation is, it’s never too late to ask for help.”

The ATO anticipates that in 2019–20 and 2020–21, some usually profitable businesses may be showing a loss due to Covid-19, possibly for the first time.

“If you find yourself in this boat, you may be able to claim a deduction for the loss. It’s crucial that you keep proper records to ensure you can claim the deduction you’re entitled to,” Watson said.

How to offset your losses

Businesses set up in a company structure, and which have made a tax loss in a current year, can often carry forward that loss for as long as they want and claim a deduction for their business in a future year.

Watson said “You’ll need to keep records for five years for most transactions. However, if you fully deduct a tax loss in a single income year, you only need to keep records for four years from that income year.”

Sole traders and individual partners in a partnership who meet certain conditions can offset current year losses against other assessable income (such as salary or investment income) in the same income year.

An alternative option is to defer the loss or carry it forward and offset it to a future year when the business next makes a profit.

Some deductions are ineligible for tax losses, such as donations or gifts and personal super contributions.

You can watch Andrew Watson talk through the options here

Closing the business temporarily – or for good

Businesses that are closing temporarily are encouraged to do their best to keep up with tax and super obligations, said Watson.
These businesses can get in touch with the ATO on 1800 806 218 or contact their registered tax professional if they need additional time or support.

“If you have to close your business permanently, there’s a few things you’ll need to do, like lodge any outstanding activity statements and instalment notices, make GST adjustments on your final activity statement and lodge final tax returns – so we can finalise your account and issue any refunds that might be owed to you,” Watson said.

Business owners are reminded to cancel ABN and GST registration once all the tax affairs are finalised, and to keep business records for at least five years after the end of the financial year you sell or close your business in.

The ATO also acknowledged that businesses may be finding it difficult to estimate income for the purposes of pay as you go instalments.

“To assist businesses affected by Covid-19, we will not apply penalties or interest for excessive variations when you make your best attempt to estimate your end of year tax,” Watson added.

To help businesses navigate through these difficult times, the ATO is offering a series of webinars:
  • Tax support for small business
  • Considering your small business viability
  • Closing your small business

For more information about claiming business losses visit ato.gov.au/businesslosses

Information about options for business owners experiencing mental health issues is available at ato.gov.au/smallbizmentalhealth