In this blog, we’ll discuss how business owners can claim a tax deduction for employee salaries, wages, and super contributions.
When Can You Claim a Deduction?
As a business owner, you can apply to claim a tax deduction for:
- the wages and salaries you pay to employees
- super contributions you make to a complying super fund or retirement savings account for your workers for certain contractors.
Salary and wage expenses are considered a type of operating expense, which is often called working or revenue expense. If you are a sole trader, you can apply to claim a deduction for your own super contributions in your personal tax return. If you are looking to hire or have already hired someone to work in your business, make sure you understand your super and tax obligations when engaging a worker.
Labour costs for creating intangible or tangible capital assets can’t be claimed as an immediate tax deduction. Capital asset labour costs are capital in nature and may be claimed as part of your depreciation or capital works expenses.
If you don’t understand what deductions you are allowed to claim, you can seek help from accountants in Melbourne. They understand what and when you can claim deductions.
Salaries and Wages
As the business owner, you can claim deductions depending on the type of business you run. Usually, to claim a deduction for the payments you pay to your employees, you need to comply with the PAYG withholding and reporting obligations for each payment. You can remove tax deductibility of non-compliant payments if you complied with reporting obligations and PAYG withholding. If your income includes personal services income, the amount you can claim as a deduction for payments you make to an associate may be limited.
Sole traders
If you are a sole trader, it means you are the business owner and not an employee of your business. This means you can’t pay yourself a wage or salary. Any nominal payment of a wage or salary to you is referred to as a distribution of profit.
Partnership business
If you run your business as a partnership, you can’t pay yourself wages or salary. This is because you are a partner, not an employee. Any nominal payment of wages or a salary to a partner is referred to as a distribution of profit.
Company or trust
If you run your business as a trust or company, your company or trust can apply to claim a deduction for any wages or salaries paid to you or other employees. Claiming the right deductions is important to avoid penalties for wrong claims or unsupporting documents. You can engage a professional tax accountant to help you claim the right deductions. When searching for ‘tax accountant near me’, make sure they know what deductions you can claim.
Contractors
If you work with a contractor to complete a service for your business, you might be eligible to claim the amount you pay them as a deduction. Regardless of your circumstances, when claiming any deduction, you must have supporting documentation. You can get help from bookkeepers in Melbourne to ensure your records are accurate, supporting your claims.
Super Contributions for Your Workers
You may be eligible to claim a deduction for super contributions you make on time to a complying super fund or retirement savings account for your workers and for certain contractors. If your income includes PSI, the amount you are looking to claim may be limited. As a business owner, it’s understandable how busy you are handling every task of your business and growing your business while meeting your employer obligations. Make sure you plan for your own future. Super can have an impact on your lifestyle in retirement.
You might be eligible to claim a deduction for your personal super contributions. You may also qualify for government super contributions, such as the super co-contribution or low-income super tax offset.
Conclusion
Whether you are a sole trader, company or trust, or are involved in a partnership business, make sure you know your tax obligations and deductions you are eligible to claim. For detailed information about your eligibility requirements for a specific tax deduction, you can seek help from Reliable Melbourne Accountants.