If your accountant is not seeing your accounts until after end of Financial Year has passed, often it is too late to take advantage of some of the best tax planning strategies available.
And while there are accountants who are wizards of their craft, I have yet to see one master the art of time travel. Luckily, there are some easy to execute strategies that you can employ now which will help to reduce your tax liability without needing the help of a mad cap scientist or a DeLorean!
Defer income and bring forward expenses
During tax time, businesses should aim to minimise income and maximise expenses in order to reduce assessable income and tax.
The key here is to only delay income where it is practical and only bring forward expenses which you were going to incur anyway. Remember, just because you haven’t paid for something doesn’t mean that you can’t claim it.
Businesses are entitled to an immediate deduction for most expenses that have been “incurred” but not been paid by June 30.
Pay superannuation contributions early
Superannuation is one of the few business expenses in which simply incurring it does not allow for a tax deduction – it must actually be physically paid and the fund must receive the money before 30 June for a tax deduction to apply.
If you have the cashflow and the timing works, I always encourage my clients to calculate Super payable right up until the June Qtr contributions and pay this before financial year end. However, you must ensure that this payment is made by June 23, at the latest, to guarantee the fund receives the money before 30 June and for the deduction to apply.
The Prepayment Rule
An immediate deduction is available to small businesses (turnover under $10M) for the prepayment of certain expenses, such as lease payments, interest, rent, business travel, insurances and subscriptions up to 12 months in advance - if paid by June 30. This is particularly useful if you have the money in the bank and are going to be paying these expenses in the next three months anyway. Pay it now and claim the deduction in this year’s tax return.
Writing off Your Bad Debts
Businesses should review trade debtors to assess their likely recoverability with a view to identifying genuine bad debts which could be written off for tax purposes before year end. Creating a provision for the bad debt in your accounts is not enough – you need to actually credit it out of your accounts to claim a deduction. However, it is important to ensure there is little to no prospect of recovery for the debt and to retain a written record of your efforts to recover, which is important if it is ever subject to review by the ATO.
Update the value of your stock and assets
If you are dealing in selling goods, and particularly if you have high volume of transactions or have a lot of fixed assets, it can be difficult to keep your stock accurate all the time. As a minimum I advocate that businesses conduct one annual count to keep their accounts up to date with an accurate value of stock on hand. Where stock or assets have become obsolete or their value has been impaired, this may result in their closing balance being valued at an amount less than cost which will generate an allowable tax deduction.
Temporary full expensing
The temporary investment tax incentive announced in last year’s budget allows businesses with a turnover up to $5 billion to deduct the full cost of any eligible business asset, including the cost of improvements to existing assets, until 30 June 2023. For businesses with an aggregated turnover of less than $50 million this also includes second hand assets. This means, as long the asset is first held and ready for use by 30 June, you can claim its cost in full as a deduction in your tax return for this year.
Finally, I encourage all businesses to speak with their accountant or Finance Manager now, before end of financial year passes, to discuss their position and the tax planning strategies available to them. While taxes may be certain, timing is everything and a little bit of forward planning can make a significant difference to what you will pay when the tax man comes knocking.
Joseph Essey is the founder and operator of Your Business Finance Manager, an Outsourced Finance and Accounts solution for growing small businesses and has over 15 years’ experience helping small to medium sized businesses to manage their financial position and achieve sustainable growth. Visit: www.ybfmanager.com
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.
