Managing business taxes in Australia can be complex, especially with changing regulations and requirements. Hiring a tax advisor is one way to ensure you’re complying with all your tax obligations.

Whether you’re a small business owner or run a larger enterprise, steering clear of these common tax mistakes can save you from costly penalties, reduce stress, and even improve your cash flow. Here’s what to watch out for.

1. Failing to Register for GST on Time

   In Australia, if your business has an annual turnover of $75,000 or more, you’re required to register for the Goods and Services Tax (GST). Missing this threshold or delaying registration can lead to non-compliance penalties. Monitor your revenue carefully, and consider registering for GST as soon as it’s clear you’re approaching the limit.

   An accountant will track your revenue in real-time, and ensure you’re prepared to register as soon as you hit the threshold.

2. Mixing Business and Personal Expenses

   It’s common for small business owners to occasionally blur the lines between personal and business expenses. However, only legitimate business expenses should be claimed as deductions. Mixing these expenses makes tax audits more challenging and can lead to penalties if personal expenses are mistakenly deducted.

   Having a separate bank account for business transactions means you can keep everything distinct and easy to track.

3. Neglecting to Keep Detailed Records

   The ATO requires businesses to keep detailed and accurate records of income, expenses, and other financial transactions for at least five years. Poor record-keeping can make it difficult to justify claims during audits and can result in penalties.

   You or your accountant should keep a thorough record of receipts and track expenses, income, and payroll.

4. Incorrectly Classifying Workers as Contractors

   Misclassifying employees as independent contractors is a common mistake. The ATO has clear criteria to distinguish between employees and contractors, and misclassification can lead to issues with superannuation, PAYG withholding, and workers’ compensation.

   If in doubt, seek professional advice to avoid potential missteps. We know the ATO’s guidelines on employee vs. contractor classifications inside out.

5. Not Understanding Fringe Benefits Tax (FBT)

   If you provide benefits to employees outside of their standard pay – such as cars, gym memberships, or reimbursed expenses – you may need to pay Fringe Benefits Tax (FBT). Misreporting or underestimating these benefits can trigger penalties.

6. Missing Deadlines and Payment Dates

   Missing deadlines for filing and payment is a costly mistake that can result in late fees, interest, and even penalties. The ATO sets strict deadlines for quarterly BAS lodgments, annual tax returns, and PAYG instalments, and staying on top of these is essential. Keeping a tax calendar is critical for this.

7. Overclaiming or Underclaiming Deductions

   While deductions can be beneficial, claiming incorrect or excessive deductions is a red flag for the ATO. Overclaiming can lead to audits and fines, while underclaiming means missing out on potential tax savings. Not sure which deductions apply to your business? You might want to seek help from a tax advisor.

8. Not Tracking Cash Payments Properly

   Cash payments are often overlooked, leading to discrepancies in reported income. Underreporting income, whether intentionally or accidentally, can result in severe penalties and, in some cases, legal consequences.

   All cash transactions should be recorded with the same detail as electronic payments, ensuring that they are accounted for in your books.

9. Neglecting to Pay Superannuation on Time

   Superannuation obligations are non-negotiable for Australian employers. Late payments can incur additional fees, and super contributions are not tax-deductible if paid after the due date.

10. DIY Tax Lodgements Without Expert Help

    While many small business owners opt to handle their taxes themselves, this can lead to unintentional mistakes. A qualified accountant or tax advisor can offer insights on eligible deductions, assist with compliance, and help you structure your finances for maximum tax efficiency.

    Consider consulting a tax advisor, even if just annually, to ensure your tax return is accurate and to identify potential tax-saving opportunities.

Avoiding these common tax mistakes can help your business stay compliant, avoid penalties, and keep your finances on track. By prioritising good record-keeping, staying on top of regulatory changes, and consulting with a tax advisor, you’ll not only reduce stress but also likely save money. Remember, tax compliance is an investment in your business’s long-term growth.