Tax time tips for construction businesses 2022

Tax time is here again and that means it is time to check in with the bookkeepers and make an appointment with your accountant.

With some measures put in place to support businesses affected by COVID-19 winding down this year, it is imperative to check your deduction entitlements and ensure you take advantage of those incentives while you still can.

After all, tax time is all about maximising return and putting more money back into the pocket.

We spoke to CPA Australia senior manager of tax policy, Elinor Kasapidis, for things to look out for when lodging your tax return this financial year.

Are you still owing the ATO money? If so, it is imperative you talk to your agent or the ATO directly and work out a payment arrangement, in addition to getting your lodgments up to date.

According to news.com.au, the construction industry is the biggest tax debtor in the country, owing the ATO a whopping $7.2 billion in the 2020 fiscal year. After being lenient for two years, the ATO has recently ramped up its debt recovery efforts and is urging those yet to engage with the ATO to discuss payment arrangements to do so ASAP.

“It is important for businesses to get all their lodgments up to date first before entering a debt payment arrangement, otherwise the debt and liabilities just snowball, which will make it harder and harder for businesses to keep on top of their debt,” Kasapidis said.

Over the last few years, the corporate tax rate has reduced year-on-year and in the 2021-22 tax year, it falls further to 25 per cent from 27.5 per cent in the 2019-20 year. And it will stay at that rate for now.

What that means is essentially more money back in the pocket.

But not all businesses are eligible for this new tax rate. A business is eligible if:

Temporary full expensing is an incentive that allows business owners to completely write off asset purchases within the year that they bought them.

Temporary Full Expensing allows businesses with turnover of less than $5 billion to purchase and write their assets off instantly in the year they purchased and used them, with no asset value limit applied.

The TFE currently has an end date of June 2023.

For businesses with aggregated turnover of less than $50 million, the assets can be second-hand and this includes cars and motor vehicles.

However, be aware of the car limit which is $60,773 for 2021-22, which will increase to $64,741 for 2022-23. The car limit doesn’t cover vehicles such as vans or utes which you may write off fully using the TFE measure. Read our TFE FAQ piece for more information.

Because of the long wait times for machinery at the moment, and the fact that you need to have the item on hand, installed and ready for use in order for you to take advantage of the TFE before it ends on June 30, 2023, it is strongly advised that you get in as early as you can.

If you’ve received state or Federal Government subsidies in the 2021-22 year, you need to work out whether or not they are considered assessable income and whether you should report them.

Some grants such as the

But some support payments such as those offered in response to COVID-19 or natural disasters like the floods earlier this year may not need to be declared.

To see a list of COVID-19 grants eligible for tax exemption, click here. If you’ve received help in relation to natural disasters, click here to gauge whether you need to declare the subsidy.  

For businesses operating through a company structure and have made a loss, they can get a refundable offset for tax paid in previous years rather than having to carry the loss forward.

Kasapidis said it is important that the company has a sufficient surplus in their franking account to cover the claim and the ATO will be checking to make sure this is correctly accounted for.

The Government has also extended the temporary loss carry back scheme to businesses with turnover up to $5 billion to offset losses from the 2022-23 income year against profits going back to 2018-19 on which tax has been paid, to generate a refund.

“GST adjustments are needed when the price of a sale or purchase changes, goods are returned, there’s a change in the use of a purchased good or transactions have been classified incorrectly,” Kasapidis explained.

“Businesses will generally make the adjustment in their next Business Activity Statement (BAS), or they can revise earlier BAS.”

The ATO has worksheets to assist in calculating GST adjustments for sales, purchases, bad debts, creditable purpose and adjustments summary. You can download them here.

According to Kasapidis, some challenges facing businesses include financial losses, bad debts and having unplanned excess trading stock.

“Some construction businesses have renegotiated loans and terms with their financiers and are renegotiating some of the terms of debts with trade debtors. This can raise tax issues so it’s best to check with a tax agent.”

A tax agent can help identify bad debt that you can write off, which will reduce your tax, Kasapidis added.

This is essentially tax you pay when making money from selling capital assets such as real estate or shares, or if you sell your business.

Kasapidis said calculating capital gains tax (CGT) can get complicated and the amount depends on a range of factors.

“There is a 50 per cent discount on the capital gain for assets held by individuals for more than 12 months.

“There are also a range of small business CGT concessions which may apply to properties that form part of a business and we recommend speaking to a tax agent before selling to get the best outcome.

“Also, make sure you calculate the cost base (i.e. the amount that you deduct against the proceeds of the sale to calculate your capital gain or loss) correctly and have good records to support these claims.”

Where you have inventory that might have lost its value, or you're stuck with a little bit more than you had planned, you can use different methods to value that stock.

Many businesses use the simpler trading stock rules if the value of their trading stock doesn’t vary by more than $5000 a year.

But if your sales and inventory levels have been significantly affected by the pandemic, then it might be more tax-effective to use the market selling value or replacement value basis for your calculations.

It is best to run this past your tax agent to figure out the best method for your circumstances.

If you make payments to contractors for building and construction services, there's a separate report – the Taxable Payments Annual Report (TPAR) – you need to submit to the ATO by August 28 each year.

The report helps the ATO identify contractors who have not included all their income on their tax return or have not lodged tax returns or activity statements.

Examples of building and construction services are bricklaying, cable laying, demolition, earthworks and pile driving.

“The message here is, declare your income because this reporting system is how the people that you're working for are telling the ATO that they've paid you,” Kasapidis said.

“So if you don't declare the relevant income in your tax return, you can get caught out.”

And then there are the usual and sundry expenses like travel expenses, protective clothing and tools that you can claim, with some exceptions.

Just make sure you keep records of the distances travelled and receipts so you can prove to the tax office that your claims are legitimate.

Some other items you can claim include tool repair and maintenance costs, phone and internet costs and renewal fees for licenses and permits such as forklift and crane licenses. But you cannot claim the cost of obtaining the initial licence.

Also claimable from July 1, 2021, are COVID-19 self-test kits you used for work purposes, you just need to ensure you have receipts for the purchases and proof that you needed to take the test to return to a work site, for example.

In summary, the key things you need to know for lodging your 2021-22 tax return are:

Note: These tips do not constitute tax or financial advice. Speak to a registered tax agent for advice on your specific circumstances.

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Tax time tips for construction businesses 2021