The Five-Minute Business Coach - June 2010
Year-end tax tips for business
It's that time again. The end of financial year is looming and the Australian Taxation Office is preparing to get down to business.
At this time of year, SMEs are very aware that every dollar counts. Keeping a business's tax burden as low as possible ensures more money can be spent on helping the business prosper.
June is the last chance to step up your tax deductions and boost tax savings, so to help businesses navigate their way through the turbulent waters of taxation, we’ve prepared the top tax tips on how to improve savings and avoid a hefty tax bill.
Write-off bad debts
If the GFC taught us one thing, it’s that bad debts are commonplace. Very few small to medium businesses emerged from tough times without having a few bad debts, so if you’ve tried everything to recover a debt and you’re certain you won’t be paid this financial year, write-off the debt and claim it as a deduction. Make sure it’s written off on your debtor’s ledger by 30 June or if you don’t maintain a ledger, a director’s minute confirming the write-off is a good idea.
Pay it forward
Take a look at what you need to spend money on in the new financial year, and think about acting on it now. You can bring forward deductions and increase your refund (or reduce your tax debt) simply by taking a realistic look at what repairs will need to be done, what stock should be replenished, and where you might be paying a trade gift or a corporate donation. It’s helpful to know it’s not always essential to pay for the items this financial year, providing you have the invoices or purchase orders to bear the deduction.
Foolproof your profits
If your business has sold any assets during the year and made a profit, it’s highly likely you’re going to be hit with capital gains tax (CGT). If you haven’t yet entered into a contract of sale, consider deferring the sale contract until after the end of the financial year to defer the CGT.
On the other side of the coin, if your business has any CGT assets that are worth less than what you paid for them, bear in mind that selling them pre 30 June will help resolve the loss. Better still, you can use the loss to offset against any capital gains you made throughout the year and this will mean you’ll reduce the tax you’re probably going to have to pay on those gains. Importantly, make sure the sale contract is entered into before 30 June to claim the loss this financial year.
Investment allowance - is your claim actually claimable?
The Government’s Investment Allowance was enormously popular, and with good reason. Available to businesses with a turnover of less than $2 million, the Investment Allowance provides an additional 50% deduction on the price of an asset principally used in the business in Australia.
However, conditions apply to what, when and how assets purchased by your business could be entitled to the 50% deduction. The first condition is the timing of the purchase, or when you entered into the contract. Keep in mind you have to have bought the asset or entered into the contract by 31 December 2009.
The second is when you actually started to use to asset. If you want your claim to be claimable, make sure you have in reality used it by 30 June, or have it installed and ready to go by this date.
The Tax Office will be keeping a watchful eye on the Investment Allowance to make sure claims are for the correct amount, so back yourself up with paperwork - otherwise you could be in for a nasty fright when you discover an expensive item you expected to be partially offset by the allowance doesn’t qualify.
Take stock of your stock
Good news for small business - if your business has an aggregated annual turnover under $2 million, you have access to a wide range of tax concessions and one of these is simplified trading stock rules. Under these rules, you can choose not to conduct a stocktake for tax purposes.
However, keep in mind this is dependent on the difference between the opening stock balance and a reasonable estimate of the closing stock balance is less than $5000.
For everyone else, you’ll need to do a stocktake, however you can utilise this as an ideal opportunity to take care of any superseded or damaged stock you no longer need. Check to see if outmoded or obsolete items sit on your depreciation schedule and write it off before 30 June, rather than letting it depreciate a small amount every year.
Take advantage of plant and equipment deductions
If you operate an SME with an annual turnover under $2 million, it’s likely that you can claim an immediate deduction for the cost of certain assets under $1,000.For everyone else, take a look at your asset register. If you have redundant or damaged plant and equipment that has no value and you are unlikely to use in the new financial year, you might be able to claim a deduction.
Pay for repairs, consumable items, trade gifts and donations
It seems like an obvious ‘must do’, but many SMEs allow this to slip by. To claim a deduction for the financial year, make sure you pay for any required repairs and replenished consumable supplies such as office stationary, gifts and donations before 30 June.
Declare team bonuses or director’s fees
If you intend to pay bonuses to your team and/or a Director’s fee, you can claim the deduction in this financial year provided you declare it before June 30. Given that you’ve declared them in time and your business is 100% committed to the bonus or fee, you’re entitled to a deduction even if they haven’t yet been paid.
Just make sure that you have proof that you advised them pre 30 June and you have a minute noting that the fee or bonus will be paid. If the payment is not made until July, the person will not have to declare the income until the next financial year.
Get savvy with super
If you have the cash available and want to claim a tax deduction this financial year, think about paying your June quarter employee super contributions before the end of June. Many savvy employers choose to make the payment early in order to bring forward the tax deduction, instead of needlessly waiting around for another 12 months.
Meanwhile, don’t forget yourself! Superannuation can be a solid way to help with tax relief and build your wealth. Lodge your personal or company sponsored contributions before June 30 to get a deduction, and talk to your accountant about concessional contribution caps. If you’re a Director of the company, you can top up your own super contributions. Just take care you don’t breach the cap limits.
Keep aware of what you’re entitled to
For many SMEs who are busy running the day-to-day element of their business, to common to not fully realise what tax concessions you’re entitled to and what steps you need to take to ensure you’re not hit with a big tax bill. Legislations change frequently, Governments launch new schemes and the goalposts for SMEs are frequently shifting. To know what you’re entitled to and to give yourself the tools to prepare yourself for the best possible return, ensure you talk to you accountant or business advisor regularly.
Quote of the month: Albert Einstein
[on filing for tax returns] “This is too difficult for a mathematician. It takes a philosopher.”
If you are considering a review of your business situation, the professional and proactive team at McAdam Siemon would welcome the opportunity to discuss the ways we can meet your needs.
Year-end tax tips for business
It's that time again. The end of financial year is looming and the Australian Taxation Office is preparing to get down to business.
At this time of year, SMEs are very aware that every dollar counts. Keeping a business's tax burden as low as possible ensures more money can be spent on helping the business prosper.
June is the last chance to step up your tax deductions and boost tax savings, so to help businesses navigate their way through the turbulent waters of taxation, we’ve prepared the top tax tips on how to improve savings and avoid a hefty tax bill.
Write-off bad debts
If the GFC taught us one thing, it’s that bad debts are commonplace. Very few small to medium businesses emerged from tough times without having a few bad debts, so if you’ve tried everything to recover a debt and you’re certain you won’t be paid this financial year, write-off the debt and claim it as a deduction. Make sure it’s written off on your debtor’s ledger by 30 June or if you don’t maintain a ledger, a director’s minute confirming the write-off is a good idea.
Pay it forward
Take a look at what you need to spend money on in the new financial year, and think about acting on it now. You can bring forward deductions and increase your refund (or reduce your tax debt) simply by taking a realistic look at what repairs will need to be done, what stock should be replenished, and where you might be paying a trade gift or a corporate donation. It’s helpful to know it’s not always essential to pay for the items this financial year, providing you have the invoices or purchase orders to bear the deduction.
Foolproof your profits
If your business has sold any assets during the year and made a profit, it’s highly likely you’re going to be hit with capital gains tax (CGT). If you haven’t yet entered into a contract of sale, consider deferring the sale contract until after the end of the financial year to defer the CGT.
On the other side of the coin, if your business has any CGT assets that are worth less than what you paid for them, bear in mind that selling them pre 30 June will help resolve the loss. Better still, you can use the loss to offset against any capital gains you made throughout the year and this will mean you’ll reduce the tax you’re probably going to have to pay on those gains. Importantly, make sure the sale contract is entered into before 30 June to claim the loss this financial year.
Investment allowance - is your claim actually claimable?
The Government’s Investment Allowance was enormously popular, and with good reason. Available to businesses with a turnover of less than $2 million, the Investment Allowance provides an additional 50% deduction on the price of an asset principally used in the business in Australia.
However, conditions apply to what, when and how assets purchased by your business could be entitled to the 50% deduction. The first condition is the timing of the purchase, or when you entered into the contract. Keep in mind you have to have bought the asset or entered into the contract by 31 December 2009.
The second is when you actually started to use to asset. If you want your claim to be claimable, make sure you have in reality used it by 30 June, or have it installed and ready to go by this date.
The Tax Office will be keeping a watchful eye on the Investment Allowance to make sure claims are for the correct amount, so back yourself up with paperwork - otherwise you could be in for a nasty fright when you discover an expensive item you expected to be partially offset by the allowance doesn’t qualify.
Take stock of your stock
Good news for small business - if your business has an aggregated annual turnover under $2 million, you have access to a wide range of tax concessions and one of these is simplified trading stock rules. Under these rules, you can choose not to conduct a stocktake for tax purposes.
However, keep in mind this is dependent on the difference between the opening stock balance and a reasonable estimate of the closing stock balance is less than $5000.
For everyone else, you’ll need to do a stocktake, however you can utilise this as an ideal opportunity to take care of any superseded or damaged stock you no longer need. Check to see if outmoded or obsolete items sit on your depreciation schedule and write it off before 30 June, rather than letting it depreciate a small amount every year.
Take advantage of plant and equipment deductions
If you operate an SME with an annual turnover under $2 million, it’s likely that you can claim an immediate deduction for the cost of certain assets under $1,000.For everyone else, take a look at your asset register. If you have redundant or damaged plant and equipment that has no value and you are unlikely to use in the new financial year, you might be able to claim a deduction.
Pay for repairs, consumable items, trade gifts and donations
It seems like an obvious ‘must do’, but many SMEs allow this to slip by. To claim a deduction for the financial year, make sure you pay for any required repairs and replenished consumable supplies such as office stationary, gifts and donations before 30 June.
Declare team bonuses or director’s fees
If you intend to pay bonuses to your team and/or a Director’s fee, you can claim the deduction in this financial year provided you declare it before June 30. Given that you’ve declared them in time and your business is 100% committed to the bonus or fee, you’re entitled to a deduction even if they haven’t yet been paid.
Just make sure that you have proof that you advised them pre 30 June and you have a minute noting that the fee or bonus will be paid. If the payment is not made until July, the person will not have to declare the income until the next financial year.
Get savvy with super
If you have the cash available and want to claim a tax deduction this financial year, think about paying your June quarter employee super contributions before the end of June. Many savvy employers choose to make the payment early in order to bring forward the tax deduction, instead of needlessly waiting around for another 12 months.
Meanwhile, don’t forget yourself! Superannuation can be a solid way to help with tax relief and build your wealth. Lodge your personal or company sponsored contributions before June 30 to get a deduction, and talk to your accountant about concessional contribution caps. If you’re a Director of the company, you can top up your own super contributions. Just take care you don’t breach the cap limits.
Keep aware of what you’re entitled to
For many SMEs who are busy running the day-to-day element of their business, to common to not fully realise what tax concessions you’re entitled to and what steps you need to take to ensure you’re not hit with a big tax bill. Legislations change frequently, Governments launch new schemes and the goalposts for SMEs are frequently shifting. To know what you’re entitled to and to give yourself the tools to prepare yourself for the best possible return, ensure you talk to you accountant or business advisor regularly.
Quote of the month: Albert Einstein
[on filing for tax returns] “This is too difficult for a mathematician. It takes a philosopher.”
If you are considering a review of your business situation, the professional and proactive team at McAdam Siemon would welcome the opportunity to discuss the ways we can meet your needs.
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