Tax for Builders

Gotcha #1: Don’t wreck your balance sheet!

There’s a lot made of the instant asset write off and businesses love to claim deductions for things. Commonly, though, we see assets written off in the books, but this is wrong.

Writing assets off reduces profit and distorts the value of your business. This makes it difficult for you and other parties (bank, financiers, regulators QBCC QLD) to have a clear picture of the financial health of the business.

Our hot tip: A better way of doing things is to keep the asset on your balance sheet. BUT you still get the tax deduction. Books and Tax Return don’t have to say the exact same thing!

Gotcha #2: Don’t get whipped by WIP!

Another area we see that is often overlooked or a complete mess is the way people go about calculating WIP or work in progress. Whilst not strictly a tax issue WIP is critical to getting a clear measure of how your business is really travelling from a profit perspective.

Getting your WIP figure right is also critical when dealing with external parties like banks, finance companies, QBCC, and anyone else who needs to get a true picture of your financial position.

Our hot tip: WIP can really help you get an edge in understanding the health of your business.. BUT… it does not impact your tax position in any way.

Learn more about WIP on our dedicated WIP Accounting for Builders page – which includes a free downloadable WIP tool.

Gotcha #3: Use trusts wisely!

A commonly used, BUT often misunderstood structure is the Trust – a great vehicle for protecting your assets and minimising tax through the use of of family members who are on lower tax rates.

Our hot tip: The ATO have trusts under the microscope – particularly where adult children are used as beneficiaries but not actually paid any income.

Gotcha #4: QLD builders beware of trusts!

Most accountants will recommend trusts for the reasons outlined above.

HOWEVER…. Queensland builders need to be aware that the QBCC does not recognise assets held in trusts when determining a licensee’s Minimum Financial Requirements.

Our hot tip: Trusts can still be used as part of an overall tax and asset protection strategy however builders in QLD must get specialist accounting advice to ensure they don’t fail their QBCC obligations.

Gotcha #5: Never Be Late. Ever.

Super: To make sure you can claim super as a tax deduction you must make sure it is paid on time. The payment deadline is the 28th of the month following the recently completed quarter. Note that the funds must have arrived in the recipient’s super fund before this date – not just be paid from your account.
BAS: Under recent changes, businesses who lodge their BAS later than 90 days may be unable to claim wages as a deduction. Directors may also attract a Directors Penalty Notice.

Our hot tip: Even if you don’t have the money – make sure you lodge your BAS anyway – and discuss setting up a payment arrangement with the ATO.

Gotcha #6: Be careful mixing business and pleasure.

Utes, Sheds, Caravans…. We know that builders love their toys – you’ve worked hard for your money, you want to enjoy it, and so you should!

There is no reason why you can’t claim items you use for leisure as business expenses, and get a tax benefit for it – as long as there is a legitimate business case and one that aligns with the ATO guidelines (not your own version of why you can claim it!).

Our hot tip: Make sure you have a clear plan (and check it with your accountant!) for how you handle expenses and assets that are a mix of business and pleasure – and then be disciplined about applying this logic.

Get in touch now for your free 30-minute tax-time consultation!

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• WIP Accounting for Builders

Xact Accounting Client Directors Daniel Wilkinson and Josh Robertson tackle the best practise approach to calculating Work In Progress (WIP) – an extremely important, yet often overlooked or miscalculated aspect of your financial position.

Watch here

• Cashflow Workshop for Builders

Xact Accounting Founder and CEO Mick Renton and Client Director Daniel Wilkinson walk builders through a working cashflow forecast and provide tips on how to get your cashflow under control!

Watch here

• Building & Construction Accounting

Find more webinars and workshops, useful articles, and downloadable tools on our resources page!