At this time of year, with the end of financial year just around the corner, we’re often asked by clients what they can do to minimise tax. There are number of key principles to bear in mind when trying to arrange your affairs as tax effectively as possible, and these don’t just apply at year end.
a. If you have a tax problem you don’t have a problem, because it usually indicates that you have made some money. In general the bigger the tax “problem”, the more money you have made.
b. What I call the Kerry Packer principle, you should pay not one cent more than you have to.
c. Many of our tax strategies really only change the timing of the incidence of tax, but in principle don’t pay tax until you have to.
d. Tax should not be an excuse for spending money. It’s no good spending $1 to save yourself 46 cents, unless of course you were going to spend the dollar anyway.
With that in mind, here is the countdown of my top year end tips for business.
1. Take advantage of new accelerated depreciation
Announced in the recent budget, all small businesses will get an immediate tax deduction for any individual assets they buy costing less than $20,000. (Currently, the threshold sits at $1,000). This $20,000 limit applies to each individual item. Small businesses can apply this $20,000 rule to as many individual items as they wish. These arrangements started on Budget night and will continue until the end of June 2017. This assumes of course that the budget measures are passed by parliament.
Now could be a good time to consider replacing a computer server, printer or any other item of plant costing less than $20,000. For multiple component purchases it makes sense to have each discreet item detailed on any supplier invoices etc.
2. Review Receivables
You know all those little amounts sitting in your debtors ledger that you’re not going to collect? Now is the time to write them off. In order to claim a tax deduction for bad debts this year, you must have written off the debt in your records prior to 30th June. If you are on an accruals basis for GST don’t forget to claim the refund of GST in respect of these in your next BAS.
We all have small jobs that need doing in our businesses. If tax is an issue for you this year (or if you just want to apply my 3rd principle above), now is the time to get them done. Vehicles serviced, office painted, light globes replaced, leaking tap fixed etc. that sort of stuff…. You were going to spend the money anyway, so why not do it now, and get a tax deduction this year, rather than putting it off until July.
4. Prepay Business Expenses
I like to have things like insurances and subscriptions fall due on 30th June, then I can decide whether to prepay twelve months of the cost as a tax minimisation strategy. Small business can generally obtain a full deduction in the year of the payment, so long as the prepayment is not for more than 12 months and finishes before the end of the following income year. Things like Workers Comp, Professional memberships, and at a personal level Income Protection Insurance could fall into this category. You could even arrange to prepay twelve month’s worth of rent with your landlord if you wanted to.
5. Stock up on non-inventory items
We all keep stock of things like stationery, cleaning products, light globes, etc. Why not buy these things now rather than in July so you get a tax deduction this year. The tax man lets us claim these things as we buy them, so applying Principle c. above, if you were going to buy them anyway, why not buy them now. Don’t be tempted to buy stuff you are not going to use though, that is a just a waste of money and in breach of Principle d above.
6. Pay Your Super Now
We’re supposed to pay our employees super for the June quarter by 28th July, but if you want to claim a deduction for the payment this year, payment must be made prior to year end. (Technically it must be in the hands of the super fund by year end). Depending on your payroll cycle, and how easy it is to calculate your super liability, you might decide to pay a proportion of the June quarter’s super before year end, and the remainder before 28th July, once final numbers have been calculated.
There are a number of year end considerations in relation to super, not just related to tax which you might need to seek some advice on. Now is a good time to do that.
7. Replenish Petty Cash before year end.
Most businesses do not record their petty cash expenditure until the cheque is drawn to replenish the fund. It makes sense to get this done before year end to ensure this expenditure is brought in to the correct year.
So there are my top year end tips for business. You may have others of your own which I would love to hear, why not share them in a comment. If you want any amplification, email me at firstname.lastname@example.org and I will respond.
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