As Black Friday approaches, many Australian businesses are gearing up for the annual shopping event, aiming to capitalise on significant savings. However, amidst the excitement, it’s crucial to ensure that your purchases align with Australian Taxation Office (ATO) regulations. Improperly claimed deductions or inadequate record-keeping can lead to audits and penalties.
Common ATO Pitfalls with Black Friday Purchases
1. Misclassifying Personal Purchases as Business Expenses
Only expenses directly related to earning assessable income are deductible.
Personal items, even if purchased during a sale, cannot be claimed as business deductions.
For instance, purchasing a laptop on sale for both personal and business use requires you to apportion the business-use percentage and maintain records to substantiate the claim.
2. Insufficient or Incomplete Record-Keeping
To substantiate a claim, you must have records of the expense, including receipts or invoices. A bank statement alone is not sufficient evidence.
The ATO provides a guide to help you understand what records are required to support your claims.
3. Overlooking Goods and Services Tax (GST) Implications
If you’re a GST-registered business, you can claim GST credits for business-related purchases.
However, if you purchase items from overseas sellers, ensure that GST is correctly applied.
Some overseas sellers may collect GST at the point of sale, while others may not. Incorrect GST treatment can lead to compliance issues.
4. Unaware of Fringe Benefits Tax (FBT) on Employee Gifts
Gifts to employees can attract FBT. The minor benefits exemption may apply if the gift’s value is under $300 (GST inclusive) and is provided infrequently and irregularly.
However, if the gift is entertainment-based, such as tickets to a sporting event, and is valued over $300, FBT applies, and the deduction may be limited.
“To substantiate a claim, you must have records of the expense, including receipts or invoices. A bank statement alone is not sufficient evidence. “
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Practical Steps to Ensure ATO Compliance
Maintain Detailed Records: Use tools like the ATO’s myDeductions to keep track of your expenses and receipts.
Apportion Mixed-Use Items: For items used both personally and for business, calculate the business-use percentage and retain supporting documentation.
Understand GST Obligations: Verify whether GST is applicable on your purchases, especially when dealing with overseas sellers.
Be Aware of FBT Implications: Understand the FBT rules concerning employee gifts and ensure compliance to avoid unexpected liabilities.
We are here to help.
If you’re unsure about the deductibility of a purchase or need guidance on record-keeping practices, don’t hesitate to reach out. Proper documentation and understanding of tax obligations are essential to avoid complications during tax time!