Two-thirds of small-business leaders do not understand their company’s tax return and four out of 10 cannot grasp tax offsets, according to research by software company Xero.
Other confusing areas include asset depreciation and profit/loss statements in findings that show a worrying lack of knowledge, said the managing director of Xero, Australia and Asia, Joseph Lyons.
“The research highlights a concerning but unsurprising education gap for people who run a business at tax time,” said Mr Lyons.
“Most Australians who start their own business do so because of passion or opportunity, not because of a love of financial and business administration.
“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.”
The survey highlighted particular gaps of knowledge in business leaders with 42 per cent not fully understanding tax offsets, 33 per cent not grasping asset depreciation and 26 per cent not fully understanding profit/loss statements.
The research did show that the majority of Australian businesses make up for this lack of knowledge through relying on accountants or tax agents, with 76 per cent engaging with one at the end of financial year.
“These advisers can guide small business owners through the complexity of the EOFY process and set them up for success,” said Mr Lyons.
“They’re the secret sauce to being confident heading into EOFY.”
The survey, of 500 small-business owners and managers, also revealed that almost 30 per cent had taught themselves how to lodge a company tax return online, while 27 per cent had learnt with the help of a tax adviser, but 12 per cent could not lodge a tax return at all.
Xero’s research revealed that less than half of the 1,000 consumers it asked knew what deductions they were eligible to claim.
Of those, donations were the most common at 38 per cent and home utility bills were next at 33 per cent.
The research also showed that tax time was stressful for many Australians, with 37 per cent preferring to be stuck in traffic rather than carry out their EOFY responsibilities.
Mr Lyons said that the stress of tax time was most likely due to lack of preparation and processes and once that was in place it should make for an easier time.
“Tax season can be stressful so preparation is key, whether you run a business or are filing your personal tax return,” said Mr 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.”