What small businesses can claim on this tax year: COVID-19, natural disasters and more

As we near the end of yet another turbulent tax year, small business owners aren’t sure of the effects that government grants and payments will have come tax time.

Here are how certain government grants will factor in your business tax return, including COVID-19 and natural disaster support payments.

COVID-19 grants

Any government payment is taxable by default and counts as income in your tax return unless specifically categorised otherwise.

The following COVID-19 business support programs are being treated as non-taxable income in this financial year:

• Australian government support payments established under the COVID-19 Business Assistance Program; and
• Certain state and territory grants relating to COVID-19 recovery (as listed here).

You also don’t need to pay GST on cash payments received under state government lockdown support.

It’s important to know that not all support grants are exempt from tax. In fact, all COVID-19 grants were considered assessable income up until September 13, 2020.

COVID-19 business expenses

Since July 1, 2021, all work-related COVID-19 test expenses have been tax deductable and exempt from Fringe Benefit Tax (FBT). This includes PCR and rapid antigen tests (RATs) that are purchased for work purposes.

Certain COVID-19 safety expenses such as masks and other PPE, mandated professional cleaning expenses and air ventilation equipment may also be eligible to claim as a tax deduction.

This does depend on your industry and if the equipment you purchased were essential for workplace duties. For example, if you work from home and don’t interact with clients face to face, then face masks would not be considered a necessary business expense.

As with any tax deduction, you will need to keep records of all your purchases to claim them back on tax. Make sure you’ve got receipts for all items you intend to claim.

Natural disaster payments and support

If your business was affected by a natural disaster this financial year, such as the devastating floods earlier in 2022, you may have received government support.

The Australian Government Disaster Recovery Payment is treated as exempt income — meaning you don’t pay tax on the payment amount. But, it does still need to be included in your tax return.

Small business recovery grants of up to $50,000, such as the Storm and Flood Disaster Recovery Small Business Grant and the Small Business Northern Flood Grant, can be considered non-assessable, non-exempt (NANE) income for the 2020–21 financial year.

This means you don’t include them in your assessable income, and you don’t pay tax on them.

Claiming expenses on tax

What expenses are you eligible to claim?

• Travel expenses;
• Motor-vehicle expenses;
• Worker’s salaries, wages and super contributions;
• Repair costs;
• Home business expenses;
• Depreciating assets; and
• COVID-19 safety expenses.

What can’t you claim?

• Entertainment expenses;
• Traffic fines;
• Private costs for your family or home life (e.g. childcare); and
• Expenses related to earning non-assessable income (money you earn from a hobby).

Temporary full expensing

This scheme can be a great opportunity for some small business owners to get an instant asset write-off.

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Businesses with an aggregated turnover of less than $5 billion can claim asset deductions immediately in the year that the asset was first set up. This means you get the cash back in your pocket earlier, without having to wait until after the financial year is over.

These assets can be new depreciable assets, improvements to existing eligible assets, or second-hand assets — and at any price point. It covers assets that are first used or installed by June 30, 2023.

Some expenses are excluded, including improvements to land or buildings that are not treated as plant or as separate depreciating assets.

General year-end strategies for small businesses

• Make sure all your record keeping is up to date, don’t leave it til the last minute! This includes making sure you have receipts for all tax-deductible purchases; 
• You should write off any bad debts in your accounts before June 30, 2022; 
• Scrap any obsolete item in your asset register before June 30, 2022; 
• Remember that employer superannuation contributions must be received by the super fund before 30 June. We recommend allowing 3-5 business days for the payments to go through, to avoid significant penalties; 
• Keep in mind that small businesses with turnover of less than $10 million can claim expenses prepaid up to 12 months in advance; and  
• If you are the director of a company, you should apply for your Director ID Number.

This is general advice only, and we encourage you to speak to your tax agent for individual advice to ensure you’re compliant and getting the best tax result at year-end.

Read more

1. Cheat sheet: Bad debts, and how to write them off
2. Have your staff been working from home? Here are your EOFY obligations
3. Explained: How to prepay expenses this financial year to benefit your business
4. Checklist for SMEs: Maximising your tax deductions this EOFY