How to take the stress out of tax and maximise your return for salon & clinic owners

By Mark Chapman – H&R Block

Nobody wants to pay more tax that they have to and the key to minimising your taxes is to ensure that you claim all the tax deductions you’re entitled to. If you’re a hairdresser, there’s a long list of potential tax claims that might apply to you. Not all of them will apply to everyone but it will pay to spend a bit of time running your eyes down this list to see which of them apply to you.

The Golden Rules of Tax Deductions

If you want to make a claim for expenses incurred, you need to follow the three golden rules:

• The expense must relate to your work

• You mustn’t have been reimbursed by anybody

• You must be able to prove that you spent the money. That means that you must keep receipts, invoices or statements to demonstrate that you actually incurred the expense.

H&R Block’s tip is to keep electronic copies of all documentation relating to expenses. Paper receipts get lost or fade, so keeping everything together on your phone or computer will save time and effort when you come to complete next year’s tax return.

Get Help

There’s a reason why nearly 70% of people use a tax agent to help them do their taxes. Tax is complicated and stressful and if you do it yourself, you’re likely to make a mistake. You might claim something you weren’t entitled to and find yourself audited by the ATO or you might miss out on a deduction you could have claimed but didn’t realise was available to you; the result is a lower refund than you could have got.

Using a tax agent like H&R Block takes away the stress and opens up a whole world of expertise to guide you through the process, so you can be sure you’re claiming everything you’re entitled to. You wouldn’t generally choose to treat a medical condition yourself; you’d see a doctor so why should tax be different? Get expert advice and the fee will generally be more than covered by the bigger refund, and the peace of mind.

Claim for equipment purchases….instantly!

Look to utilise the “instant asset write-off” measure. Provided your business has a turnover of less than $10 million, this allows you to claim an immediate tax deduction for all capital purchases costing less than $20,000, rather than depreciating the cost over several years, as used to happen.

This could include hairdryers, salon furniture and décor, external signage, makeup brushes and applicators, waxing kits, mobile phones, laptops and bags or briefcases and even motor vehicles (though any cars will probably need to be second hand, given the $20,000 limit!).

Remember, as well as making a purchase, the asset you acquire also must be used or available for use in your business, so realistically you need to get the item delivered and installed by 11:59PM on 30 June 2024, which is when the relief is scheduled to expire. If you buy something now for delivery and/or installation in July, you won’t be able to claim the deduction this tax year.

You can also claim the cost of insuring work related equipment.

Prepay expenses

You can get an immediate tax deduction for certain pre-paid business expenses. The basic rule is that a deduction is available for expenses that cover a period of no more than 12 months. That covers expenses such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges on your premises and bookings for seminars, conferences or business trips.

Pay superannuation

Employers have to pay superannuation contributions within 28 days of the end of the quarter. Ensure that all June quarter superannuation contributions are paid by 30 June to accelerate the tax deduction. Note that contributions must actually be paid, cleared in the business bank account and received by the employee’s super fund before 30 June for a tax deduction to be available. Any other outstanding amounts should also be paid before year end.

Get the right trading stock valuation

If you’ve bought surplus hair products which are sitting unused in your salon, you can potentially claim a tax deduction if they are out of date or out of fashion. Damaged and obsolete stock can be written down or written off entirely and a tax deduction claimed - now is the time to crystalise that tax deduction.

The Golden Rule - Keep Records

Good record keeping is your best friend for efficient business management and will also make life easier if the ATO ask you questions. It’s essential that records are kept to substantiate what’s in your tax return; any unsubstantiated deductions, for instance, are generally not allowable.

Tax law requires that records be kept for five years, and they should include:

• sales receipts

• expense invoices

• credit card statements

• bank statements

• employee records (wages, super, tax declarations, contracts)

• vehicle records

• lists of debtors and creditors

• asset purchases.

Records can be kept on paper or electronically, but should be easily retrieved. In our experience, businesses often stumble when asked by the ATO to verify transactions by providing supporting records, with the consequence that even “innocent” businesses can find themselves stung by the tax man where they are unable to provide the requested evidence.

Mark is a regular commentator on tax matters for a variety of Australian broadcast and print media outlets. In addition to his columns in Money Magazine and My Business magazine, he has written for a variety of national publications such as The Australian Financial Review, The Daily Telegraph, The Age and Business Spectator.

Previously, Mark was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office.

Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales.