Your business has had a strong year, then the ATO notice arrives and it is for far more than you expected. This happens to thousands of Australian small business owners every year. In most cases, it comes down to a handful of very common and very avoidable gaps in tax planning.
Here are the five reasons it keeps happening, and what you can do before 30 June.
1. You Pay Tax on Profit, Not Cash in the Bank
Most businesses are assessed on taxable income, not on what has actually been received. Under accrual accounting, income is recorded when invoiced, not when paid. Invoice a client for $80,000 in June, get paid in August, and the ATO still counts that income in the current financial year ended in June.
Fix: Set aside a portion of every invoice you issue, not just every payment you receive. Review your invoicing timing in April and May each year.
2. Your PAYG Instalments Are Based on Last Year
The ATO sets your Pay As You Go (PAYG) instalments based on your previous year’s tax return. If your income has grown, those instalments will be too low and a gap will build up quietly all year.
Fix: Check your instalments each quarter. If your income is tracking higher than last year, you can vary your instalment amount. Speak to your accountant before doing this, as underestimating can trigger a penalty.
3. GST Errors Are Adding Up
Common GST mistakes include claiming credits from suppliers who are not GST-registered, missing the $75,000 registration threshold, and not reconciling your BAS before lodging. These errors compound across quarters and often surface all at once during your annual tax return.
Fix: Reconcile your GST accounts in your accounting software before every BAS lodgement.
4. Personal and Business Finances Are Mixed
Running personal expenses through a business account makes your bookkeeping unreliable. Deductions get missed, non-deductible costs get claimed, and your accounts no longer reflect reality.
For company structures, there is an added risk. Money informally taken from the company by a shareholder can be treated as an unfranked dividend under Division 7A, adding unexpected income to your tax return.
Fix: Keep a separate business bank account. Pay yourself a regular salary or documented drawings. Review your loan account with your accountant before 30 June.
5. There Is No Tax Planning Until It Is Too Late
Once 30 June passes, your options close. Strategies that could have reduced your liability or improved your cash position are no longer available.
Before year-end, eligible businesses can:
- Claim the small business income tax offset (up to $1,000 for eligible sole traders)
- Write off eligible asset purchases immediately under the instant asset write-off rules
- Prepay deductible expenses such as insurance, rent, or subscriptions before 30 June
- Make superannuation contributions before 30 June to ensure they are deductible in the current year
Fix: Book a tax planning review in April or May, not July. Proactive tax planning strategies for small business owners can make a significant difference to your EOFY outcome.That window is the difference between managing your liability and absorbing it.
We’re Here to Help
Surprise tax bills are a planning problem, and planning problems are solvable. Our Sydney-based team works with small business owners year-round to keep their tax position clear and manageable. If you are not confident about where you stand heading into EOFY, now is the right time to find out.
About Chan & Naylor
Since 1990, Chan & Naylor has partnered with business owners and property investors in managing their taxes and building tax-effective wealth. Choosing Chan & Naylor means you’re not just selecting a service provider; you’re gaining a partner aligned with your financial goals. You’ll have access to a dedicated client manager supported by a team of accountants that specialises in business and property tax.
Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
