Many businesses dread this time of the year because the end of the financial year means additional time spent ensuring accounts are up-to-date and in order, and less time building the business or with one’s family. Clearly, nobody relishes the hassle of sorting through incomprehensible tax and financial matters.
Fortunately, with the advent of cloud-based accounting software designed specifically for small businesses and their trusted accountants and bookkeepers, year-end compliance can be less taxing than ever before.
That said, the end of the financial year signals a number of deduction opportunities as well as potential threats to cash flow. So, it’s time to be alert but not alarmed!
Get in early and make an appointment with your accountant to discuss how to make the most of your tax position to help you get ahead. Also, note that the Federal budget announcement on 13 May could affect small business. So be sure to ask about its impact on future financial years.
Besides the professional help, here are nine quick tips to help ease the 30 June burden:
1. Secure your Super deductions
Even though superannuation doesn’t have to be paid until 28 July, paying employee and personal contributions by 30 June will allow time for processing delays and get valuable deductions this year.
According to The Australian Tax Office, superannuation is only deductible when paid. That means payments must be cleared through your bank account, and received and recorded by the employee’s superannuation fund prior to that date. Be prepared; pay early.
2. Pay expenses in advance
If your cash flow allows it, consider paying recurring expenses in advance. Insurance premia, interest, rent, conference fees, subscriptions and travel costs are immediately deductible. If you expect your tax liability to be higher this year than next year, you may benefit from deferring income to next year and accelerating deductions into this year. Using credit cards to pay for tax-deductible expenditure will earn you the deduction this year, even if you don’t pay for it until next year. However, the expense may not be eligible if it covers more than 12 months.
3. Claim deductions for future expenses
You may be entitled to claim an immediate deduction for expenses you are committed to – goods or services that have been received or work performed – even if that won’t happen before 30 June. It also includes salaries and wages, staff bonuses and directors’ fees.
4. Spend up but only if you need to
If you need to replace low-cost equipment or purchase new tools, computers or other equipment soon, consider purchasing them before 30 June to get the full tax benefit now. You may only receive a $300 benefit for every $1,000 spent. Always check the ATO website for the latest updates.
5. Write off bad debts
The ATO requires you to write off bad debts prior to 30 June if you want to deduct them. Review your accounts receivable to determine whether a deduction qualifies before the deadline.
6. Audit your assets and inventory
Consider writing down or writing off obsolete stock. Also think about revaluing the remaining stock using one of three methods: cost price, market selling value or replacement value. Choose the method that produces the lowest stock value. If the value of closing stock is less than the value of your opening stock, you may receive a deduction. When the reverse occurs, you may generate income.
7. Repay any borrowings
If you, a family member or an associate have borrowed money from your business, you should ensure that the company charges the appropriate interest and consider making the minimum required repayments before the end of the financial year. Failure to do so may result in the entire amount of the loan being treated as taxable income, causing you to be taxed personally at rates of up to 46.5%.
8. Pay on time and don’t overclaim
Unpaid taxes and fraudulent claims are serious business. The ATO is actively looking to recover $17.7 billion, with 60 per cent of that – some $10.6 billion – owed by small businesses. It’s critical to submit accurate returns and pay on time. Fines are calculated at a higher rate than a loan and interest on accumulating tax debt is not deductible.
9. Use expertise, not guesswork
Don’t forget that the ATO site is an extremely useful resource for small and medium businesses. You should always consult a qualified accountant before making decisions that may have a bearing on tax obligations.
Brad Paterson is vice president and managing director of Intuit APAC.
