June is an ideal time of year for you to consider your business tax position, including compliance issues, and to identify and make the most of the legitimate tax benefits that may be available. If you pay more attention to these issues over the next few weeks, you’ll have a greater chance of managing your tax liability for the current financial year. The key date to remember is 30 June.
So, where to begin?
A good starting point is to ensure that your personal and business affairs are kept separate.
Ideally, you have maintained a dedicated and separate business bank account throughout the financial year, through which all business transactions are processed. If you haven’t, though, don’t stress. Just take the time to identify your actual business income and expenses, and try to find the documents that support these. Typically, these documents are invoices/receipts that you have issued, and invoices/receipts you have received. You’ll need these documents regardless of whether you have a dedicated business bank account, and you should keep them for five years.
And if you haven’t already got a dedicated business bank account, open one (or more) now and start using it from 1 July. It will make life easier for you.
Timing of income and deductions
You can generally manage your current year tax liability by paying attention to the timing of your income and deductions. If you issue an invoice on or before 30 June, there is a good chance the invoiced amount will form part of your assessable income this financial year, and your taxable income may be increased. But if you issued the same invoice on 1 July, you’ll push that amount into the next financial year. The same applies for expenses – spend money on or before 30 June if you want extra tax deductions in this financial year.
Bad debt expenses
A debt can be considered ‘bad’ in several circumstances, but generally it means that there is little or no likelihood of the debt being recovered.
If there is any good news in the fact that an amount owing to you is not recoverable, it is that such amounts are generally tax deductible. For this reason, now is the time to look at your trade debtors – are there any invoiced amounts for which there is little or no likelihood of recovery? If so, you should record these as an expense in your accounts prior to 30 June, and then claim the expense as a tax deduction this financial year.
Ensure that you properly bring to account, and claim, all your depreciation expenses. In this regard, keep in mind the availability of immediate write-off for certain assets costing less than $1000. Other depreciating assets can generally be pooled together and treated as a single asset for depreciation purposes. And remember, too, the immediate deduction amount increases to $6500 next financial year, so probably best to hold off on those capital acquisitions until after 30 June.
Do you operate a business through a trust? If so, you should talk to your adviser well before 30 June. Basically, in order to effectively distribute trust income to beneficiaries, the trustee will likely need to pass resolutions on or before 30 June, and this is a bit of a change from previous years. Don’t get stuck with undistributed trust income, because the tax consequences can be significant.
Final tips for now…
- Carefully examine any loans from private companies with which you are associated – such loans can be ‘deemed dividends’, in which case the amount of the loan is assessable in the hands of the recipient.
- If you carry trading stock, consider allowing your stock on hand to run down for the end of year. If the difference between your opening and closing stock on hand value for the year is $5000 or less, you don’t need to account for trading stock. If your closing stock value exceeds the opening value, by more than $5000, the difference will be assessable income.
Always remember that any business decision you make should be made for the right reasons, and never simply for the sake of a tax benefit.
If you need some help with tax planning, or just want some further information, consult your registered tax agent (the cost of which is also deductible!). This should ensure sound tax planning, both now and for the financial year ahead.
How do you plan for tax time? Any questions? Any more tips?