If you’re a business owner, the end of financial year should be geared towards putting your business in the best position tax-wise. Paying less tax on the profits earned, as well as other housekeeping issues, is the name of the game each and every year.
We have outlined the issues that we believe will be the most relevant to our business clients this year.
$20K asset write off
If you are a small business (with turnover under $2M) earning a profit and therefore paying tax, you may want to look into taking advantage of the new $20K asset write off announced in the recent budget in order to offset some of your obligations. However if you are breaking even or running at a loss, spending up to $20K on any new assets will not help your business in any way and will only result in more losses, as it is not a $20K cash in the hand deal and only applies as a deduction after considering your overall taxation position. So first decide if your cash flow can actually bear spending $20K before splashing the cash. In addition, bear in mind there are a few things that do not qualify for the write off (building and construction works, horticultural plants) and there does need to be a direct relationship between the purchase and your business (does a wholesale business need a grand piano, for example).
Other Deductions to Think About
Bringing forward any deductible expenses like repairs and maintenance or prepaying rent, utilities, wages or superannuation may help offset profits. Be sure to record odometer readings from business cars on June 30.
If you’ve got some outstanding invoices sitting with clients, try to recover any bad debts before the end of June. If they are not recovered they can be written off and are a tax deduction. You do however need to prove to the ATO that you have taken reasonable steps to recover the debt, so document your process for each case.
Sign off any employee bonuses in writing, they do not need to be paid by June 30 but they do need to be recorded.
Review depreciable assets by following the ATO’s guide to the effective life of assets to help you calculate the depreciation rates of your assets.
The ATO Watch List
Review your expenses but be mindful that the ATO will be paying close attention this year to those who are accessing business assets for private use, such as high wealth individuals and SMEs. Some things they will be looking out for is overnight travel, motor vehicle expenses, and the use of phones, computer and electronic devices for work purposes. Make sure you can adequately prove with documentation (such as diary entries/logs) the breakdown of personal and work usage for each item and only claim the deduction on the work related portion.
Retailers and wholesalers with turnover of more than $2 million and a difference in value of more than $5000 between opening and closing stock need to undertake stock take at the end of each financial year. You are exempt if these conditions do not apply.
If you have received income but not earned it, such as receiving a progress payment for work that will not start until after 1 July, you should defer this income.
Preparing Your Documentation for Your Accountant
Get your files in order so there is less back and forth and you don’t miss any important documents. This includes invoices, cash register tape, receipts, bank statements, loan statements, cash deposit records, list of creditors and debtors, list of depreciating assets, capital gains records, stocktake details, and anything that may be particular to your business. If you’re not sure, ask us.
Planning For Next Year
There are too many strategies to list here, and each case is individual, so talk to your accountant about how to best take advantage of your situation for tax purposes when you discuss your end of year return. Sometimes just a few small changes to the way you do things can make a big impact.