Inside story – June 2012

Many travel agencies and staffers will pay too much tax for this financial year

MANY small businesses like travel agencies are almost certainly missing out on tax concessions available to them. Similarly travel industry employees need to be aware of the tax breaks they are eligible for, and how to go about claiming them from the Australian Taxation Office (ATO), to ensure they get the biggest possible tax refund cheque.

With June 30 looming and businesses and individuals compiling financial details for their 2011/12 taxation returns, an American Express survey has found that few small business owners are fully across the dispensations for which they qualify.

And accountancy company, PHAT Returns, which specialises in handling taxation for travel industry employees, points to a number of issues that differentiate travel staff and provide scope for significant claims.

“For example, they can be entitled to claim the cost of their holidays,” said PHAT founder and principal Travis Paine.

Paine set up PHAT (Pretty Hot And Tempting) Returns to specialise in handling the tax affairs of defence force personnel and travel industry employees.

The company services clients around Australia through detailed consultations over the telephone using a 1300 number backed up by email and fax contact.

Paine said he had agent clients who were successfully claiming the cost of their annual leave but he warned agents must go about it the right way – for a start they must be able to show that they are undertaking bona fide investigation of destinations and venues to improve their ability to advise clients.

They also need to have receipts to verify expense claims. Noting that the cost of meals while travelling can accumulate to a sizeable deduction but receipts can easily be misplaced, Paine has a tip for agents.

“Smartphones provide a portable scanner, enabling you to take date-stamped pictures of all receipts,” he said.

Familiarisation expenses are also tax deductible, but once again Paine warned they must be genuine familiarisations. He said the ATO has poured millions of extra dollars into auditing resources and a prime target will be overseas trips to attend sham conferences.

He said members of some pro-fessional groups are reputed to have claimed expenses of the order of $50,000, covering first class travel to five-star resorts to attend “conferences” that involve little more than watching a video in their room.

Paine said another area that travel agency staff should explore before finalising their tax returns is expenses incurred working from home. His clients include a number of Flight Centre staff who have continued working for the company from home after leaving to have children. They can qualify for “big deductions”, he said.

Meanwhile, on the small business front, a nationwide survey commissioned by American Express has found that confusion reigns among owners over what tax concessions they are able to access.

According to American Express, this has prompted experts to warn that thousands of business owners may pay too much tax this financial year. The survey was conducted for American Express by Galaxy Research among more than 1000 small business owners.

Just 13 per cent of those surveyed said that they were completely up to speed with the existing tax breaks for small businesses. The number was slightly higher at 21 per cent among those businesses that prepared their tax returns without the help of an accountant. 

Said American Express head of small business services Jason Fryer: “It’s clear from the research that many small business owners may be missing out on concessions that may assist their business in the next financial year. 

“Depending on the size and activity of the business, the value of these concessions could be quite substantive. 

“Understanding what tax concess-ions are available is just as important as being familiar with reporting obligations.” 

American Express quotes taxation expert and author, Adrian Raftery, saying: “From my experience one of the most common questions I get asked from small business owners is: ‘Is there something that we are miss-ing out on in our tax?’ 

“This research supports my belief that there are thousands of Australian business owners out there who are paying too much tax simply because they are not aware of what rebates and concessions they are legitimately entitled to. 

“Learning what can be claimed as a business tax concession does not need to take up a lot of time, but it could save business owners a significant amount of money which could be ploughed back into the business. 
“Some small business concessions that are available include the simplified depreciation rules which allow small business owners to immediately write-off many depreciating assets that cost less than $1000 (rising to $6500 from July 1, 2012), the entrepreneurs tax offset and the 45 per cent R&D tax incentive for research and development expenditure,” said Raftery. 

The survey results also show that tax reporting continues to be a source of stress for small business owners, with 83 per cent citing it as a stressful task. 

In fact, as many as 64 per cent would prefer to keep themselves busy with other chores within the business such as catching up with filing (37 per cent), chasing up outstanding invoices (25 per cent) or even cleaning out the office fridge (24 per cent)! 

Topping the stress list for small business owners gearing up for their end of financial year obligations were:

• Keeping track of all receipts and invoices (43 per cent);
• Worrying about inaccurate reporting (41 per cent);
• The amount of time tax reporting takes (35 per cent); and
• Getting tax reports in on time (31 per cent). 

“End of financial year tax reporting is always going to be an arduous task but there are many ways it can be made easier: use software to help collate receipts and record transactions or use a business charge card to separate business and personal expenses and to provide GST compliant itemisation for ease of reporting,” said Fryer. 

Raftery says it pays to be organised. “Keeping receipts in a shoe box is not recommended but this is the system employed by 39 per cent of small business owners,” he said. 

“It’s not surprising that the majority of small business owners admit to losing those pesky petrol (34 per cent) and stationery (31 per cent) receipts.” 

“Ironically, another survey result which I find quite staggering is that younger tech-savvy entrepreneurs are among the most likely to keep their receipts in a shoe box (46 per cent of those aged 18-34 years),” said Raftery. 

“Small business owners in this age category are more likely to be stressed about tax reporting when it comes to claiming appropriate business expenses (51 per cent) and keeping track of receipts (50 per cent).” 

Four-in-ten entrepreneurs log their receipts electronically as they go, while around one-in-three use specialist accounting software to manage their tax reporting. 

While 60 per cent of “shoe-boxers” are worried about staying on top of their receipts, those who log their receipts electronically (40 per cent) or use specialist software (36 per cent) feel much less stressed. 

Looking towards the new financial year, most small business owners (78 per cent) are committed to improving the efficiency of their tax reporting. 

As many as 44 per cent of them say their “new financial year resolution” is to be more organised in filing their receipts and collating information throughout the year. 

Over one quarter (28 per cent) are confident they can improve their tax reporting with the help of their accountant or a business mentor. 

“Even small measures can help make tax reporting more efficient, accurate and less stressful. I encourage all small business owners to stick to their resolution, stay more organised and seek the help of experts when they need it,” said Raftery.