Your tax return will show whether you have made a tax profit or a loss and will determine how much tax you should pay.
You need to keep comprehensive records explaining all transactions that relate to your tax affairs. This will help you complete and lodge your tax returns each year.
Keeping good records also ensures you are meeting your reporting obligations.
Records you need for your tax return
Your business records must contain enough information to calculate the income, expense and other amounts you must report in your tax return.
You will need to keep records of your transactions; cash, online, EFTPOS, bank statements, credit or debit card, covering:
gross earnings or proceeds from your business including
sales
income earned from the sharing economy
other money received such as
foreign income
personal services income
crowdfunding
payments outside of ordinary business activities
government payments
commissions, investment earnings, gratuities and compensation payments
expenses you will claim as a deduction such as
business travel expenses
motor vehicle expenses
salary, wages and super
repairs, maintenance and replacement expenses
home office expenses for a home-based business
other operating expenses
capital assets and expenses
We may review your tax return and ask for copies of your records to check the information provided. If we are unable to verify these claims, we may adjust your return. We will contact you before this occurs.
It is easier for you to lodge your tax return if you update your records regularly. We recommend you use the following practices to help:
Reconcile daily sales to ensure all sales are accounted for.
Keep specific records showing when you use business purchases for private purposes or make cash payments and drawings. This will ensure your business finances can be easily separated from your personal finances.
If you use a bookkeeper or a registered agent, regularly summarise your expenses. This may reduce the time it takes them to prepare your tax return or activity statements.
There are commercial business accounting packages which can automatically update and summarise your income and expenses records for you. Alternatively, you can do it manually by keeping a record of cash book totals for the period.
Use our record keeping evaluation tool to evaluate how well you are keeping business records.
Before you sit down to do your tax, you’ll need to gather all the right information. Here are some of the documents you’ll need to complete your tax return.
Payment summaries – Outlines the income you have received from your employer, super fund or government payment like Centrelink and the Department of Veterans Affairs.
Bank statements – Details any interest you have earned during the period and fees you have paid.
Shares, unit trusts or managed funds statements – Information on dividends or distributions you’ve received. Dividends that you’ve elected to reinvest must be declared as income.
Buy and sell investment statements – Needed to calculate capital gains and losses. If you bought or sold any shares you can access the details on your online broking account or you can get them from your investment adviser or stockbroker.
Records from your rental property – If you use a property manager you will probably get an annual tax statement that details income and expenses, otherwise you will need to gather details of income received and expenses paid, including any capital gains or capital losses from the sale of property.
Foreign income – Details of foreign pensions or other foreign income.
Private health insurance policy statement – Information needed to complete the private health insurance section of your tax return.
Income you must declare
You can do your tax online using myTax. You can access myTax through myGov or the ATO website.
Smart tip
If you wait until mid August the ATO will pre-fill most of the information from employers, banks, government agencies and other third parties into your tax return. All you will have to do is double-check the information is correct, enter any deductions you have and hit submit.
If you are lodging your tax return before pre-fill is complete, here’s a list of common types of income that must be declared on your tax return.
Employment income
Super pensions, annuities and government payments
Investment income (including interest, dividends, rent and capital gains)
Business, partnership and trust income
Foreign income
Income from crowdfunding (for example donations received for a venture in which you intend to make a profit)
Income from the sharing economy (for example Uber or Air BnB)
Other income – including compensation and insurance payments, discounted shares under employee share schemes, some prizes and awards
When completing your tax return, you’re entitled to claim deductions for some expenses, most of which are directly related to earning your income (called ‘work-related expenses’). A deduction reduces your taxable income, and means you pay less tax.
Take a look at the ATO’s video about the rules on claiming your deductions
To claim a deduction for work-related expenses:
You must have spent the money yourself and not been reimbursed.
It must be directly related to earning your income.
You must have a record to prove you paid for it.
When your expenses meet these criteria, here’s a list of the things you may be able to claim.
Vehicle and travel expenses – This does not normally include the cost of travel between work and home but if you use your car for work or work in different locations then you may be able to claim a deduction.
Clothing, laundry and dry-cleaning expenses – To legitimately claim the cost of a uniform, it needs be unique and distinctive, for example it contains your employer’s logo, or is specific to your occupation, like chef’s pants or coloured safety vests.
Home office expenses – Costs could include your computer, phone or other electronic device and running costs such as an internet service. You can only claim the proportion of expenses that relate to work, not private use.
Interest, dividend and other investment income deductions – Examples include interest, account fees, investing magazines and subscriptions, internet access, depreciation on your computer.
Self-education expenses – Providing the study relates to your current job, you can claim expenses like course fees, student union fees, textbooks, stationery, internet, home office expenses, professional journals and some travel.
Tools, equipment and other equipment – If you buy tools or equipment to help earn your income, you can claim a deduction for some or all of the cost. Examples include protective gear, including sunscreen, sunglasses and hats if you work outside, office equipment, safety equipment and technical instruments.
Other deductions – other items you can claim include union fees, the cost of managing tax affairs, income protection insurance (not if it’s through super), overtime meals, personal super contributions and other expenses incurred in the course of earning an income.
The ATO has an app called myDeductions that will make record keeping easier. The tool allows you to record deductions including work-related expenses, gifts and donations, interest and dividends. It also lets you store photos of receipts and record car trips. The myDeductions app can be used by individuals and sole traders (sole traders can use it to keep track of business income) and at tax time you can send your deductions to your tax agent or upload them directly to myTax.
What tax deductions are not allowed
The ATO is focused on helping taxpayers get their deductions right, but they’re also on the lookout for red flags that identify people who are doing the wrong thing.
Here’s a list of deductions you usually can’t claim on your tax return.
Travel between home and work – which is generally considered private travel.
Car expenses – unless you are transporting bulky tools or equipment, that you need to do your job, that your employer requires you to transport, and there is no secure area to store the equipment at work.
Car expenses – that have been salary sacrificed.
Meal expenses – unless you were required to work away from home overnight.
Private travel – including any personal travel portion of work-related travel.
Everyday clothes – you bought to wear to work (for example, a suit or black pants), even if your employer requires you to wear them.
The cost of laundering eligible work clothes – unless you can show how you calculated the cost.
Higher Education Loan Program – contributions charged through the HELP scheme.
Self-education expenses – where there is no direct connection to your current employment.
Phone or internet expenses – that relate to private use.
Tools and equipment that cost more than $300 – however, you can depreciate the cost over a number of years.
Test your understanding of what you can and can’t claim with the ATO’s myDeductions quiz. If you are still not sure what you can or can’t claim visit the ATO or a registered tax agent.
Lodging your tax return in 2017
You can lodge your tax return online using myTax – it’s quick, easy, safe and secure. Visit the ATO website to find out how to lodge online.
If you have a spouse you will also need details of their income and expenses to make sure your entitlements are correctly calculated.
Once you have lodged your tax return keep an eye on your myGov inbox for your notice of assessment and tax receipt.
Smart tip
To lodge online, you will need to create a myGovaccount and then link it to the ATO.
Lodge your return before the deadline
If you are lodging your own tax return, you have until 31 October 2017 to lodge it. If you decide to use a registered tax agent, or are using a different agent to last year, you will need to contact them before 31 October.
Video: The ATO explains the best time to lodge with myTax
Take a look at the ATO’s video on lodging using myTax.
Get help from a registered tax agent
If you want to use a professional to do your tax return, make sure you use a registered tax agent. You can check if the agent is registered on the tax and BAS agent register.
Whichever way you choose to lodge your tax return, remember you are responsible for the claims you make, so make sure your deductions are legitimate and you have included all your income before you or your agent lodges your return.
Make tax this year as easy as possible by getting organised and knowing what information you will need to lodge.
12 steps to your perfect small business payroll system
If you’ve never needed a payroll system before, you may not know where to start. This checklist will help you set up one that best suits your small business.
Decide whether to manage payroll in-house or outsource it
If you have the resources, you could handle the work in-house. This gives you more control, and good software makes it quite easy to do. Or you may prefer to outsource the work to a bookkeeper, accountant or payroll company.
Ask a bookkeeper or accountant for advice about best practice
Accountants and bookkeepers deal with small business payroll all the time. They know which systems work for which types of business. If you don’t already have one, now is a good time to hire an accountant or bookkeeper.
Set up a system that’s easy to use and works with you
You’ll need a system that works with you. Online payroll software:
lets you work from anywhere and at any time, wherever there’s an internet connection
is designed to be easy to use
lets you share data with your bookkeeper or accountant.
Ensure your payroll system can handle all the necessary employee records
Some of the items it should be able to process include:
new employment documentation
full details of each employee, such as name, address and tax file number
bank account details if the employee wants a direct deposit
salary details for all staff, including amounts and dates of payment
tax codes and returns
benefits, superannuation funding, healthcare and bonuses
sick days and holidays
maternity and paternity leave.
Be sure to comply with all employment and payroll legislation
Check out minimum wage legislation and end-of-year reporting requirements. Make sure you comply with these and other relevant laws (such as overtime). If you don’t, you might be audited – and fined.
Ensure your records are always accurate and up to date
Accuracy is vital. Even a small mistake could be expensive to put right. Good payroll accounting software helps, by automating a lot of the work. That reduces the chance of errors through duplicate data entry.
Know the difference between an employee and an independent contractor
The difference isn’t always clear. Getting it wrong can be expensive because you’ll pay extra tax. Ask your accountant or local tax office for guidance if you need it.
Choose the most appropriate payment period for your staff
Employees are usually paid either weekly, fortnightly or monthly. You’ll need a system that can handle this, as well as variable payment schedules if you use them.
Set tax filing and payment reminders so you never miss a deadline
Governments require regular staff payment reports. Sometimes these are quarterly or yearly. But sometimes you have to report every payment when it’s made. Set up reminders in your accounting software. Then you’ll never have to worry about missing a deadline.
Set up direct bank payments to keep your employees happy
Late salary payments can cause stress for your employees. Avoid mistakes by setting up automatic, scheduled payments. Smart payroll software will let you make staff payments directly from your business bank account.
Make time to check payroll on a regular basis, even if you outsource it
Payroll isn’t something you can set up and forget about. You need to keep tabs on what’s happening, so use a system that ties in with your accounting software. Then you can generate reports that show you the big picture.
Keep your staff employment records for as long as is legally required
Usually you must keep records for seven years. Check local laws to find out how long you should keep yours.