New research from Xero has found that 66% of small business leaders in Australia don't understand all parts of a business tax return.
The study was conducted by Lonergan Research and surveyed more than 500 small business owners and managers, and more than 1000 consumers.
It found that almost a third of people who run a business (30%) taught themselves how to lodge a company tax return online, and a further 12% never learnt how to lodge a tax return. For business leaders, the most confusing components of filing their taxes are around tax offsets, asset depreciation, and profit and loss statements.
However, the research also showed the majority (76%) of small businesses are seeking the help of an accountant or tax advisor at EOFY. Xero says this highlights the vital role they play in keeping businesses compliant at tax time.
Xero's managing director for Australia and Asia Joseph Lyons says the research highlights a concerning but unsurprising education gap for people who run a business at tax time.
"Most Australians who start their own business do so because of passion or opportunity, not because of a love of financial and business administration," he says.
"That's all the more reason to make sure small business owners and sole traders make use of the right people, like accountants and bookkeepers, and cloud tools to stay compliant and on track."
"These advisors can guide small business owners through the complexity of the EOFY process and set them up for success. They're the secret sauce to being confident heading into EOFY."
Other key points for small businesses from the research:
● 42% don't fully understand tax offsets, while a third (33%) don't understand asset
● 26% don't fully understand profit/loss statements, and another 21% don't
fully understand overseas transactions.
● A quarter (27%) double-check what they are eligible to claim for online, while only a fifth (19%) will check in with an advisor.
● Only a third (34%) of small businesses understand all parts of a business tax return.
Consumers and their own tax returns
Xero's research found that Australian consumers will be conservative with any tax refunds this year, with 40% of respondents planning to save and 23% intending to put any refunds towards everyday bills.
The company says for many, this could reflect the rising cost of living pressures resulting in conservative money management.
Similar to small business leaders, a third of consumers surveyed taught themselves to do their personal tax returns through online research. Of those that will lodge a return this year, the majority (84%) of those surveyed say they will be claiming deductions. However, a third aren't confident about what they can claim, so they will search for answers online, while nearly a sixth (15%) plan to check in with an advisor.
Key research from general consumers surveyed who are lodging a tax return:
● 48% know exactly what deductions they are eligible to claim.
● Donations (38%) and work from home utility bills (33%) are the most common deductions
claimed, followed by home office equipment (25%).
● 41% will be making additional work-related purchases before the 30th of June to be
able to claim them in this financial year.
● 60% like to reward themselves with something fun once they have completed their
● 37% would rather be stuck in traffic than carry out their EOFY responsibilities/tasks.
"Tax season can be stressful so preparation is key, whether you run a business or are filing your personal tax return," says Lyons.
"While it can take time to set up good processes and say goodbye to the shoebox of receipts, it's a worthy investment that will make the whole experience smoother for years to come."