Start well and end well is always a good maxim to have at hand. It helps small businesses ensure a smooth flow into the next financial year.
First of all, if you're a small business owner who has questions about the elusive concept of 'financial year', you're not the only one scratching your head. It's certainly not something to feel embarrassed about. It's a very relevant question to ask and clarify.
What is a 'financial year'?
Simply put, the financial year is a time period. It lasts 12 months and it's put in place for tax purposes. In Australia, the financial year starts on 1st July and ends on 30th June of the following year.
What happens at the end of the financial year?
This is the time when small business owners finalise their numbers. They wrap up their tax time paperwork and accounting. During the period of 1st July to 31st October, businesses (and individuals) submit their tax return to the Australian Tax Office (ATO). This is how the ATO determines how much tax you need to pay.
What paperwork do small businesses need to submit?
You need to lodge a tax return at the end of the financial year. This is a summary of our income and expenses for the period of the financial year.
Self-employed and sole traders with an ABN lodge an individual tax return. The business income and expenses go in the individual tax return using a separate business schedule. This can be done online through myTax, by paper* or via a registered tax agent, like myself.
*Note that paper returns can take up to 50 days to process.
How to complete the tax return
Put together and organise your financial records. Generate the financial reports that will give you the figures you need to fill out your tax return. The most important reports to have in order are your Profit & Loss Statement (P&L) and your Balance Sheet.
Profit & Loss Statement (P&L) - this shows your total income and expenses for the year. Income - Expenses = How profitable your business is, which will represent your taxable income.
Balance sheet - this lists your business assets and liabilities so we know what your net assets are.
Important dates to note
There are some dates you need to be mindful of. Set your phone reminder, update your agenda etc. and make sure you give yourself enough time before the deadlines to get everything in order, or to ask for assistance from a registered tax agent.
Self-employed or sole trader with an ABN will lodge their tax return from 1st July to 31st October of each financial year if you do it yourself.
If you get a registered tax agent to do any of these lodgements, the dates may vary so speak with them with ample time ahead to ensure everyone has enough time to get information together.
Check out this useful list of due dates from the ATO to help you plan your financial year.
Every little bit counts, and when we have our numbers in order from Day One, it makes the entire experience of finances and taxes a lot friendlier and manageable. Check out this video to help you get more clarity about the financial year.
The first year of business may be a little wobbly, but practice does make perfect and once you understand the rhythm of the financial year, which is not unlike going through the cyclical nature of seasons, you will incorporate the necessary paperwork and processes into your yearly schedule.
As a Registered Tax Agent (TAX 25591120), we can help small businesses feel more confident about their accounting and finances. Speak to us if you need some guidance to have a clear path ahead and start a new financial year with clarity.
Get in touch with CATS4TAX:
0404 483 685