It’s been such a busy first half of the year for the wedding industry that we can’t believe it’s EOFY already!
To help you get prepared for tax time, we spoke with Senior Accountant Josh Underhill, of Business Lighthouse. Josh shared some hot tips to help wedding industry businesses and sole traders get ahead of the ATO as they prepare to lodge their tax returns, as a special guest during our recent webinar.
1. Know where you stand on the GST threshold
The impact of ‘COVID catch-up weddings’ has generated a higher-than-usual financial year 2021/22 income for many industry suppliers, after almost two years of significant reduction. This increase in revenue has the potential to bump businesses over the annual GST turnover threshold of $75,000 this year — perhaps for the first time.
In Australia, businesses must register for GST if they reach the $75,000 turnover threshold, or if it looks likely they will exceed the threshold in the current financial year. Once the threshold has been reached, the business has 21 days to register for GST.
A good rule of thumb is to check if you are coming close to $6,250 in any given month. If you look like you are coming close to reaching that amount, and you expect it to continue for a few months, it is probably time to consider registering for GST.
For business with an annual turnover below $75,000, registering for GST is optional. However, once the business is registered for GST, the GST amount must be included in the fees regardless of turnover. On the flip side, the business may cancel its GST registration if its annual turnover drops below the $75,000 threshold.
2. Budget through the year
If you are registered for GST, Josh advised thinking about tax as an operational cost of doing business, as you would any of your other operational costs.
“We often see in the first couple of years of being a sole trader can come into quite a bit of trouble when it comes to cash flow management around their tax obligations because you’ve shifted into an area where – instead of those funds being dealt with on your behalf by your employer,” Josh said.
“You’re getting all the revenue into your bank account upfront, and it’s up to you now — as a business owner — to work out how you’re going to deal with those obligations.”
Small businesses can get ahead of the ATO before tax time by managing their cash flow throughout the year, Josh advised
“Putting aside 30% of your revenue is a really great way to make sure you’re covering your tax as you go,” he said.
This might be moving the funds to a separate bank account or keeping a record of earnings and mentally setting the money aside. This ensures the funds are readily available when they are needed at tax time.
For example, as a sole trader, if your business earned $100,000 over the financial year (with no deductions), you must be registered for GST. If you set aside 30% of revenue throughout the year, that $30,000 will cover most of the following components:
- Tax obligations of $22,966
- GST obligations of $10,000
3. Understand what you can claim, and what you can’t
Businesses can claim the expense of COVID tests as a deductible business expense, (so long as you can demonstrate the test was a requirement of your working activities – which is generally relatively easy to satisfy).
As travel is generally an essential part of many wedding businesses, claiming motor vehicle expenses per kilometre can be beneficial – provided a log book or record is maintained.
Asset write-off is another deduction available to small businesses during FY22.
Home office expenses may also be claimed for income earners who have worked from home during the financial year. The ATO introduced its Shortcut Method during COVID to allow expenses to be claimed with minimal record-keeping. Income earners can claim 80 cents for every hour worked at home for the 2020-21 and 2021-22 income years, to cover operating expenses.
If you intend to claim one of the other home office expense methods instead, you must prove that you have a designated work area and keep a fairly detailed record of actual expenses incurred. Josh advised having a really good read of the information provided on the ATO website or speak with an accountant.
Unfortunately for celebrants hoping to claim formal wear or suits, the bad news is that clothing is generally considered a private purchase rather than a business expense.
Likewise, coffee, tea, milk and sugar are another no-go zone for claiming working from home deductions.
4. Take extra care with ATO’s focus areas for FY22
This year, the ATO has announced that record-keeping, home office work-related expenses, anything to do with rental properties and anything to do with cryptocurrency, shares, and property sales, are areas of particular scrutiny this year.
“So keep that in mind when you’re filling out your tax return,” Josh added.
Additionally, Business Lighthouse warned that the ATO has significantly invested in data matching technologies in recent years, increasing its ability to audit those areas.
5. Pre-pay expenses to boost deductions
Bringing expenses forward into the current financial year, rather than waiting for July through to September, is one way to increase deductions a year earlier and minimise tax payable this year, Josh added.
That might be buying assets like a new piece of tech or home-office equipment, or bulk-paying expenses in advance like rent, interest payments, annual subscriptions or your Easy Weddings listing for the following year. Speak to your business advisor to find out what options to pay your listing in advance.
There are still a few days before July 1 for some last-minute purchases to help bring your deductions into the previous financial year.
On the flip side, if it is commercially reasonable for you to do so, you may wish to push back some of your invoices or defer receiving cash payments until July, to extend the time you will be required to make tax payments on that income.
6. Reflect registration fees in your pricing
If you expect your business will reach the GST turnover threshed, Josh suggested considering a price increase to absorb those additional costs. If you have any ongoing clients, it’s good practice to email them to advise that your prices will soon increase.
“That’s just something to keep in mind, that when you do have to make that registration, it’s really important that you are reflecting that in your pricing and you’re not having your business activities impacted by that requirement.”
Once you have reached the GST turnover threshed, you will of course need to indicate the GST costs in your invoicing.
Josh chats in more detail about tax for wedding sole traders in the full webinar replay, below.
7. Consult an accountant if you are out of your depth
If you feel out of your comfort zone, it may be time to consult with an accountant to help manage your finances. The team of finance professionals at Business Lighthouse can manage your bookkeeping and accounting, while you can focus on running and growing your business.
To coincide with our webinar, they are offering our suppliers a special deal on one of the following services:
- Tax planning advice: only $350 plus GST(usually $700 plus GST). This offer includes a full tax planning report and comprehensive tax planning brochures; OR
- 2 hours of consulting time only $250 plus GST(usually $500 plus GST). This offer includes 1.5 hours of consulting, topics covered in the webinar and .5 hrs of follow-up information.
All you need to do is enquire with Business Lighthouse and mention Easy Weddings. Call (03) 5955 2042 or email info@businesslighthouse.com.au. Be sure to include the services required and your contact details, including your phone number.
Register for our next webinar
Don’t miss our next webinar on July 6: Instagram Reels Crash Course with our Easy Weddings Social Media queen, Emma. If you aren’t auto-registered, you can sign up here.
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