How Can Small Businesses Reduce Taxes?

Thursday, 30 Jun 2022

Filing income tax is the most taxing period for an entrepreneur. They have to part with their hard-earned money and scour through the books to identify the expenses that can be claimed for deductions. Many of them end up paying more than they are supposed to the Australian Taxation Office because they are not aware of the strategies that can minimise business taxes in Melbourne.

Business taxes vary for every type of entity and can be complex to understand. This is where bookkeeping professionals come into the picture with their excellent tips for saving money on tax for small businesses.

They use tax planning to identify the ways of reducing the tax bill in a legal manner. Also, the business owner needs to bear in mind that they should not indulge in unlawful tax evasions because it can lead to ten years of imprisonment as the maximum penalty.

So, here are the best and most lawful ways of minimising business taxes in Melbourne used by bookkeepers to avoid any penalties and deficits.

1. Company Tax Rate Reduction

Entities that are generating a turnover of less than $50 million are liable for a company tax rate of 27.5% if 80% or less of the business’s assessable income is passive income. Royalties, rent, net capital gains and other such income types are considered passive for a base rate entity.

The company tax rate has been reduced to 25% for base rate entities in the financial year 2021-22. The tax rate for other companies is 30% and has not been reduced. So, eligible businesses in Melbourne must apply for the lower rate to reduce their tax burden with the help of their bookkeepers.

2. Instant Asset Write-Off   

The instant asset write-off allows business owners to claim an instant deduction for the business portion of the cost of an asset in the same financial year when it was first used or installed for use.

Expert Bookkeeper Melbourne prove helpful in claiming these deductions that can be applied to more than one asset if the cost of each asset is lower than the relevant threshold. It is also applicable to second-hand assets. However, you need to check assets that are excluded from the simplified depreciation rules.

The instant asset write-off threshold has been increased from $30,000 to $150,000 per asset for businesses with an aggregated turnover between $50 million and $500 million. The assets bought by these entities must have been purchased before 31 December 2021 and installed for use by 30 June 2022.

3. Utilise Deductible Super Contributions

The concessional superannuation cap is $27,500 for all ages from 1 July 2021. It should not exceed the cap because the excess amount will incur more tax. The cap includes the super guarantee contributions made by the business owner.

The contributions should be made before 30 June so that your bookkeeping company can claim tax deductions for the business. Every business in Melbourne that has employees has to make contributions to the employee super funds on time to avoid penalties from the ATO.

If the contribution exceeds the cap, the additional part is considered assessable income and is taxed. Thus, the business owner must maintain the cap and claim a deduction on the contribution.

4. Purchase Tools with Tax Benefit

Businesses in Melbourne can save tax by purchasing work-related items that are exempt from Fringe Benefits Tax (FBT). These include tools of trade, computer software, movable electronic devices, protective wear, and briefcases. Your bookkeeping company can guide you to claim deductions for the reimbursement offered to the employee for the cost of the equipment. The business owner can also claim GST input credit.

5. Expenses Not Paid by End of the Income Year  

Most bookkeeping companies in Melbourne help their employers by claiming tax deductions for expenses that have not been paid by the business by the end of the financial year. The expenses that can be claimed are salaries and wages that have not been paid by 30 June, staff bonuses and commissions that are pending and repair expenses that have been billed before 30 June but have not been paid.

6. Maintain Business Vehicle Log

The use of the business vehicle in Melbourne for work-related affairs during the year is not easy to justify. Thus, the bookkeeper must maintain a log of the motor and vehicle use during the financial year to claim deductions for petrol and maintenance expenses. If you do not want the logbook hassle, you can use the cents/km method to claim up to $5,000 business kilometres.

7. Defer Income and Prepone Expenses

Expert bookkeepers use this method to reduce the tax bill. It involves invoicing after 30 June to delay the incomings that can increase the taxable income for the financial year. They also ask the suppliers in Melbourne to send all the stock before 30 June to claim more tax deductions on expenses in the same year.

They also make sure that all the bad debts are written off and the payments for repair work on the property or equipment are done before the next financial year.


Bookkeeping offers a variety of strategies that can be utilised by businesses in Melbourne to reduce their tax bill in the current financial year. Thus, entrepreneurs should leverage these legal opportunities to claim deductions and reduce their tax liabilities.          

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