Can My Business Get A Tax Refund?

Can My Business Get A Tax Refund? + Can Business Advice Help?

Written by: Adam Ramage | Accounting Team

 

Let’s start with the obvious.  None of us enjoy paying tax, and the thought of a tax refund is always appealing.  So how can you make that happen when running a business?

There are four key numbers relating to getting a business tax refund:

1. Business Revenue;
2. Business Expenses;
3. Business Profit; and
4. Tax Paid.

Before going further, let me explain how business tax returns and our business advisory services interact.

Business Tax Returns + Getting Business Advice

The business tax return is an outcome.

It is determined by the activities for a tax year.  Once the tax year is past, the ability to impact on tax deductions and the taxable income of the business is limited, so we look to work with our clients through the year to ensure they understand their revenue and expenses, the impact of these on the business profit (and taxable income) and the opportunities to optimise the end of year result.

“How do I do this?!”

We strongly recommend our clients work with us before the end of the year on “tax planning”.  We want our clients to pay as little tax as legally possible whilst delivering business outcomes that meet their goals.

Tax planning means: considering choices and strategies during the year that can deliver profits and tax benefits.

Business costs that can reduce tax include investing in assets, and our intention would be that any assets a business invests in should move the business towards the business owner’s goals.  New equipment or technology can save ongoing costs or enable new products or services to build revenue.  At the same time, this investment can deliver tax deductions.

Maximising Your Tax Returns With Good Records Keeping

The best way to maximise your deductions is to keep appropriate records of all of the business-related expenses, and not forget about sundry items like tools, uniforms, protective clothing and office costs.  Your business can also make donations to deductible gift recipients, and it is important to keep records of these.

The general deductibility principle is that costs incurred in earning assessable income are deductible, but often a business can take advantage of specific legislation, or look at the timing of earning income, incurring expenses and the cash and tax impact of these.

If you have items you are not sure of, keep your records and let your adviser know.  If you are not great at keeping records, let your mobile phone be your friend, take pictures, and note that there are tools that can help with your receipts and invoice “capture”.

For example, a Xero Business subscription entitles you to use HUBDOC, which can save the invoices and receipts and even flow them through to your Xero Accounting file.  DEXT is another great receipt and invoice capture tool that our clients use to do the heavy lifting of capturing the source records, without having to keep lots of paper receipts.

With all of your records kept, and with any potential investments in items for your business, we can work with you to consider your income and expense strategies, we look at that taxation impact and consider strategies to optimise. This will not always result in refunds, but the objective is to optimise for the business group including the individuals.

If you’re running a business and you’re looking to understand what you can claim in the space of gifts and celebrations for your staff, check out this previous blog we put together: Staff Gifts, End Of Year Celebrations + FBT.

Considering Your Business Structure When Planning Your Tax Returns

Now, although this is targeted at business tax refunds, remember that any tax refund due to a business will interact with the individuals associated with that business.

Too much jargon?  We will break it down into the key components that should make it easier to understand.

How is your business structured?  A company, a trust, a joint venture, a partnership, or a sole trader?  Each structure has its own taxing points, meaning the ability to receive a refund depends on those taxing points.

Company

A company pays tax on the profit after taking into account the income of the company and the expenses of the company.  In addition, a company can pay dividends to its shareholders, which can come with franking credits for the shareholders.

Trust

A trust will in most cases pay out all of any profit to beneficiaries (in a discretionary trust) or unitholders (in a unit trust).  Unless a trust does not distribute all of its income, it does not pay tax itself.  The tax on profit in a trust is in most cases paid by the beneficiaries or unitholders based on their taxable income.

Joint Venture

A corporate joint venture may pay tax on profit like a company noted above, and a more common joint venture will pay profits to the joint venture participants in accordance with their rights.  This means it will be the taxable income of the joint venture participants who pay any tax, rather than the joint venture itself.

Partnership

In a partnership, the profit of the partnership is distributed to the partnership in accordance with their partnership interest, so again it will not be the partnership that pays tax (or receives a refund), it is actually the partners themselves.

Sole Trader

Sole traders account for the income and expenses of their business and account for any profit or loss in their individual Income Tax Returns.

But what you want to know is, can your business get a refund or if you are a trust beneficiary, partner or sole trader, can you get a refund?  Yes!  But of course, “it depends”.

To Receive a Tax Refund, There Must Have Been Tax Paid!

If a company is making a Pay As You Go instalment, then any tax refund will be dependent on the final profit and tax payable on that profit compared to any instalments made.  Additionally, for any dividends to have franking credits attached, the company must first have paid company tax.

• If a trust has delivered profits in the past, then the beneficiaries or unitholders may be in the Pay As You Go Instalment system.
• If a joint venture has delivered profits in the past, then the joint venture participants may be in the Pay As You Go Instalment system.
• If a partnership has delivered profits in the past, then the partners may be in the Pay As You Go Instalment system.
• If a sole trader business has delivered profits in the past, then the sole trader may be in the Pay As You Go system.

When it comes to preparing tax returns, any Pay As You Go Instalments are “credits” against any tax payable, and if the credits are more than the tax payable, then a refund may be available.

So, tax planning for businesses includes tax planning for the individuals in a business group.

For a company, not only do we need to consider company tax, but also dividends and the impact of dividends on the company shareholders.  For trusts, joint ventures and partnerships we need to consider how the profit of each of these will flow down and impact on the trust beneficiary, the joint venture participant, or the partner in a partnership.

And of course, as a business owner, you may have a company AND a trust in your corporate structure, meaning that the interaction of the company, trust and individuals of the group must be taken into account when looking to optimise the taxation outcome for the group as a whole.

Can You Do Your Own Tax Planning Or Do You Need An Accountant?

You are certainly able to do your own tax planning, but the matters we would caution you on include:

1. Do you fully understand your structure and how the profit flows?
2. Do you understand the difference between profits and taxable income?
3. If you have a trust, do you understand your trust deed and ensure your actions comply with the requirements of both the trust deed and ATO requirements?
4. If you have a company, do you understand the impact of any drawings from the company?
5. If you have a partnership, do you have a partnership agreement which details how the profit is to be split between the partners?

Because we have been helping our clients with their tax planning for decades, we understand the varied strategies for optimising group tax outcomes.  Because we maintain our ongoing professional development, we are aware of the ongoing tax legislation changes and how they can impact business and individual tax positions.

Canny Accounting + Seeking Tax Planning Advice…

So to answer the question, yes!

Your business can potentially get a tax refund—but it all depends on your unique situation! That’s where we come in. At Canny Group, we make tax time less of a headache and more of an opportunity for your business.

Think of us as your financial sidekicks, ready to help you explore your options, plan for the here and now, and set you up for future success. We’re all about working together to turn your business goals into reality.

Canny Group Accountants can assist you to understand your options, plan for the current AND future financial years and help you reach your business goals!

Get in touch with our team today to start the tax planning process!