With the end of the tax year approaching, it’s time to take action to minimise the tax liability for your small business. Here are six top tips for end of year tax planning by Mark Chapman, Director of Tax Communications at H&R Block.
6 small business tax tips for the EOFY
1. Take advantage of temporary full expensing
One of the best tax breaks for business is Temporary Full Expensing, which means that you can score an immediate tax deduction for the costs of capital assets. With many businesses offering end of financial year promotions, now is the ideal time of year for businesses to take advantage by acquiring some much needed assets to build your business and, at the same time, reduce your taxable profits.
The tax break works by offering an immediate deduction for all capital assets against your profits for the year. There is no ceiling on the cost of assets you can acquire, and provided your business has turnover of less than $5 billion, you are included.
Temporary full expensing runs through until 30 June 2023 but from a tax-planning perspective, purchases immediately before the end of the financial year always make the most sense – so now is the time to take the plunge.
Whilst now isn’t the ideal time to make large capital purchases for many small businesses, if your business needs to invest in new capital equipment and has the cash flow (or the borrowing capacity) to finance it, now is certainly the time because generous tax breaks like this will probably never recur.
Amongst the items you could look at claiming are the following:
- Cash registers and other POS devices
- Delivery vans
- Store or office fittings and fixtures
- Computers, laptops and tablets
- Security systems
- Accounting software
- Plant and equipment, including tools
2. Prepay expenses
You can get an immediate tax deduction for certain pre-paid business expenses.
The basic rule is that a deduction is available for expenses that cover a period of no more than 12 months. That covers expenses such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges on your premises, and bookings for seminars, conferences or business trips.
3. Pay superannuation
Employers have to pay superannuation contributions within 28 days of the end of the quarter. Ensure that all June quarter superannuation contributions are paid by 30 June to accelerate the tax deduction.
Note that contributions must actually be paid, cleared in the business bank account and received by the employee’s super fund before 30 June for a tax deduction to be available. Any other outstanding amounts should also be paid before year end.
4. Write off bad debts
No business wants to be in a position where they can’t recover outstanding debts but we have to be realistic and acknowledge that it does happen sometimes, especially during an economic downturn like the current one. The good news is that if your business has to write off a debt, a tax deduction is available for the amount of the debt written-off.
A debt that is unpaid and deemed to be a ‘bad debt’ is an allowable deduction, provided it was included as assessable income in the current or a previous income year.
At this time of the year, it makes sense to go through your debtors list and if there are any debtors on it who you believe can’t or won’t pay, write off those debts by 30 June to claim the deduction this year. The business must keep a written record to document that the debt has been written off.
5. Get the right trading stock valuation
Damaged and obsolete stock can be written down or written off entirely and a tax deduction claimed – now is the time to crystalise that tax deduction.
6. The Golden Rule – keep records
Good record keeping is your best friend for efficient business management and will also make life easier if the ATO ask you questions. It’s essential that records are kept to substantiate what’s in your tax return; any unsubstantiated deductions, for instance, are generally not allowable.
Tax law requires that records be kept for five years, and they should include:
- sales receipts
- expense invoices
- credit card statements
- bank statements
- employee records (wages, super, tax declarations, contracts)
- vehicle records
- lists of debtors and creditors
- asset purchases
Records can be kept on paper or electronically, but should be easily retrieved.
In our experience, businesses often stumble when asked by the ATO to verify transactions by providing supporting records, with the consequence that even ‘innocent’ businesses can find themselves stung by the tax man when they are unable to provide the requested evidence.
This article originally appeared on Kochie’s Business Builders, read the original here.
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