Financial management

Wrap up the end of the tax year with these six top tips for small businesses

- July 8, 2022 5 MIN READ
Wooden letters 'EOFY' on australian dollars background

As the end of the financial year is upon us, it is crucial that small business owners take action to improve their tax position. Aaron March, Director of Accounting at BlueRock shares six key areas all business owners should focus on to put themselves ahead at tax time.

Small businesses, particularly those that are newly established, may find that the end of the financial year is a difficult period to navigate. With tax obligations, such as bookkeeping, tax returns, record-keeping and tax planning for the next financial year, it can be very stressful for small business owners to satisfy these obligations whilst also running their business.

“The end of the tax year can be exhausting for small business owners, who are already balancing a lot on their plate,” says Aaron March, Director of Accounting at entrepreneurial advisory firm, BlueRock. “But with adequate preparation, it can be easy to manage your tax obligations and it’ll become less daunting each financial year.”

Here are Aaron’s golden tips for small businesses to prepare for the end of the tax year:

Old fashioned alarm clock with post-it note attached reading ‘tax time’

1. Write off bad debts & depreciating assets

The end of the tax year is an opportunity for small businesses to write off any bad debts they have been unable to recoup in the current financial year.

A ‘bad debt’ is any form of income that cannot be recovered from a customer or debtor. Business owners are able to claim a deduction on bad debts by writing them off and recording that decision in writing before the EOFY.

It is also important to write down the efforts you made to recover your bad debts in order to lower your taxable income. 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 the deadline to claim the deduction this year.

Businesses with an aggregated turnover of up to $5 billion can claim unlimited instant asset write-off for eligible in-use assets. But before you go ahead and buy the latest Audi or Range Rover, the luxury car depreciation limit is $60,733 for the 2022 financial year, meaning only up to that amount can be immediately claimed.

2. Assemble all your paperwork

Verify that the relevant records are accurate and up-to-date by ensuring that the bookkeeping systems you have implemented for your small business are solid. Tax law requires that records be kept for five years.

These records should include credit card and bank statements, vehicle records, asset purchases, employee records (including wages, superannuation, contracts, etc), and invoices. Records can be kept either electronically or in paper form, but they must be easily retrievable.

Sometimes, small business owners can stumble and struggle to locate their paperwork and verify their transactions to the ATO, which can even cause ‘innocent’ businesses to get fines or penalties.

In Australia, the Fair Work Amendment (Protecting Vulnerable Workers) Bill makes it essential for employers to maintain accurate employee records. Under this legislation, the maximum penalty for ‘serious contraventions’ of the Fair Work Act are $126,000 for individuals and $630,000 for corporations. Digital systems and software, such as Xero, can help to make this process easier.

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3. Review your cash flow

During tax time, it is important that small business owners manage the funds drawn from their companies.

Company funds accessed during the 2022 tax year in a tax-preferred manner could be treated as deemed dividends, which could be taxed at 47 per cent. Tax-preferred methods of accessing company funds include by way of loan, payment or debt forgiveness. It is essential that such loans are either repaid or documented and made subject to minimum interest and repayment terms. This process must be completed before the lodgement day of the company’s tax return.

Having enough cash at the right time will make it easier for your business to meet your tax, superannuation and employer obligations. The key is in reviewing your cash flow and paying regular attention to record-keeping and reporting tasks.

One of the best ways to ensure that your business has enough cash available to meet your tax obligations is to complete a cash flow budget or projection. A cash flow budget considers three main elements: timing, costs and income.

4. Look forward to the next financial year

Small business owners can receive an immediate tax reduction for certain pre-paid business expenses. You can prepay your small business’ expenses for up to 12 months to bring forward your deduction into the 2022 tax year. These expenses may include rent, insurance premiums or an investment loan interest for a period up to 12 months.

If your business’ cash flow allows it, it may be worthwhile to bring forward all June quarter superannuation payments before the EOFY to accelerate the tax deduction. These contributions must be paid, cleared in the business bank account, and received by the employee’s super fund before the end of the financial year for a tax deduction to be available.

Any other outstanding amounts should also be paid before year end.

5. Check for updates in tax law

Small business owners should always check if there have been any legislative changes, such as updates in tax law, deductions or concessions for small businesses, to ensure you are 100 per cent compliant.

Some reliable resources include the Australian Taxation Office website, the Small Business Newsroom and the ATO Community Forum.

6. Get the right advice

According to the ATO, over 90 per cent of small businesses in Australia use a tax agent to lodge their tax return. This is no surprise – tax agents are focused on maximising your tax return and minimising your stress.

Taxation legislation is constantly evolving. And as your business grows and changes, so do your taxation obligations. Tax agents are across all the latest changes and will give you the right advice for your business. For instance, BlueRock has a range of taxation and business advisory experts that help businesses stay on top of compliance with effective specialist tax solutions.

The best part is, you can also claim back the fees from engaging a professional as a tax deduction for your business.

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Now read this:

Seven ways to get the best tax return possible for your business

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