The end of financial year can be a frantic time for small-business owners as they scramble to get in last minute purchases and ensure their paperwork is in order.
Familiarising yourself with the deductions available to your business can help avoid the last-minute rush and potentially save thousands of dollars. Here are six end of financial year tax tips to help you attack your tax liability and help prevent that dreaded audit from the tax man.
Pay back your loans from the business
Borrowing money from your business to help with personal cashflow can be tempting. After all, it’s your money right? Well, according to the ATO, not really. There are laws in place to prevent company owners from withdrawing funds from their businesses as tax-free income.
Any forgiven debt from the business to its shareholders is assessed as taxable “unfranked dividends”. If you have borrowed money from your business this financial year, it must be paid back by 30 June, to avoid it being assessed as a dividend.
Consider how you value your trading stock
How you value your trading stock during a stocktake can potentially save you thousands of dollars as a decrease in the value of the stock over the past financial year is an allowable deduction while any increase is considered assessable income. If the estimated value of the stock does not change by more than $5000, up or down, an unchanged value can be recorded for the year, and the time and expense of a stocktake can be avoided.
Claim your start-up costs
If you have started your small business (less than $10m in turnover) in this financial year you may be able to claim some of the costs of establishing your business. Deductible costs include:
Obtaining advice on setting up the business such as meeting with accountants and lawyers.
Fees on borrowing.
Government fees such as the cost of registering the business with ASIC.
Remember that fees and interest from the business’ accounts and loans can also be claimed on an ongoing basis.
Take advantage of the instant asset write-off
The instant asset write-off was extended in the May Budget to 30 June 2019, meaning that businesses with an aggregate annual turnover of less than $10 million can deduct the cost of every asset purchased with a value of up to $20,000. There is no limit on the number of assets that can be purchased, as long as they are under the $20k limit. Just remember that the asset must be installed and ready for use before the 30 June cut-off date.
Write off your bad debts
It is good practice to write off bad debts before 30 June as you may be eligible to claim a GST credit and therefore reduce your overall tax liability. A bad debt, or a partial bad debt, can be claimed as a deduction as long as it was included in the business’ assessable income in the current or previous years. The debt must be in existence; it must be more than just a doubtful debt.
Keep accurate records
I can’t stress the importance of this enough. Setting up an efficient filing system will save you the headache of searching for records at tax time but, more importantly, will be invaluable if the ATO decides to conduct an audit of your business. Tax law requires records to be kept for five years, and the ATO has powers to impose fines for not retaining records.
Greg Charlwood, Managing Director, Australian Invoice Finance