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Canberra Today 14°/17° | Friday, March 29, 2024 | Digital Edition | Crossword & Sudoku

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Tricks and treats of covid grants

It’s tax return time and companies may be wondering how to treat the covid grants of the past year. Chartered accountant GAIL FREEMAN has some advice.

DEREK was in touch to say he was unsure about how to claim covid monies and whether there were any other useful things he needed to know to complete his company tax returns.

Gail Freeman.

I told him that covid grants were paid out this year and needed to be checked to determine their status for tax purposes. 

“I note that your company received the ACT government’s COVID-19 business support grant,” I said. 

“This grant is classified as non-assessable, non-exempt income so it’s not included as income in your tax return and is not subject to income tax provided that it remains within the company. You will see it in your company’s balance sheet as a reserve. 

“However, when you want to take it out of your company, you either have to distribute it as a dividend or as salary to the director/s. This has the impact of making it taxable in the hands of the recipients at that time. So effectively it is not taxable in the year that it is received but income tax may be paid on it later. This grant is also exempt from GST as it is not in the nature of a supply as defined in the legislation.”

Derek also received reimbursements under the small-business hardship scheme. 

“These were not declared as non-assessable non-exempt income,” I advised him. “Therefore they need to be included in your taxable income.”

Derek said sorting through this was a bit more complex than he thought it would be.

I said: “Then there is the question of covid tests for your employees. These are now deductible both to employers, if they pay for them, and to employees, similarly provided that they are a requirement for work purposes and they were all used to determine your employees’ suitability for work that day.”

I then offered Derek some advice on a couple of useful things for future years. 

“Firstly, temporary full expensing has been extended to June 30, 2023, which means any items of plant and equipment, including motor vehicles, that you buy for your business in the next year will be written off in full, which will certainly minimise any tax that you have to pay while your business is recovering from the effects of the covid epidemic,” I said. 

“However, the downside is that when you sell the items, all sale proceeds will be fully accessable. As you are starting to get back on your feet, I think it would be a good idea for you to include purchase of new assets into your business plan for the next year.

“The other good thing is that the tax rate for small companies like yours, known as base rate entities, has been reduced to 25 per cent effective for the tax year 2021-2022. So, if your company does have to pay any tax, it will be at this lower rate.

“I should also remind you that the Australian Taxation Office (ATO) has again recommended that tax returns are not lodged too early so that all required information has been received by the ATO. 

“If you lodge early and the ATO subsequently receives information that  means the lodged return is incorrect, you will be contacted and asked to amend your return. This could possibly incur penalties, so be wary if you do lodge early.”

Derek said: “Thanks, Gail. All duly noted.”

If you require any information on your income tax returns or the COVID requirements contact the friendly team at Gail Freeman & Co. Call 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser.
Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.

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