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 my top tips for end-of-year tax planning:
Take advantage of the instant asset write-off
One of the best tax breaks for small business is the instant asset write-off which means that you can score an immediate tax deduction for the costs of capital assets costing up to $20,000 if your business turnover is less than $10 million. With many businesses offering EOFY promotions, now is the ideal time of year for your business to take advantage by acquiring some much-needed assets to build your business and, at the same time, reduce your taxable profits.
The scheme is scheduled to run until 30 June 2024 so you have a limited time to take advantage of the scheme. 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 cashflow (or the borrowing capacity) to finance it, now is certainly the time because generous tax breaks like this may not last.
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 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.
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.
Write off bad debts
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. 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.
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.
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 asks 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 where they are unable to provide the requested evidence.
