Get your calculators and green eyeshades ready because it’s end of financial year time again! A time when business owners the country over frantically reach out to their accountants to ensure everything is in the best possible position before the 30 June cut-off date.
Whilst tax planning is an important thing to consider each year, it’s perhaps not the make or break event that many think it is. Regardless, we’ll run through some things you should be thinking about as we head into the final months of the financial year.
This is the major thing business owners need to be aware of at this time of year. When superannuation is paid late it’s not tax deductible (there is a 28 day exception here, but let’s not split hairs). That means if there are corrections made to wages after year-end or if some contractors were overlooked, then it’s likely you’ll miss out on those precious tax deductions. Not only that, but you may also be up for interest charges and administration fees to get everything brought up-to-date. Avoid this by reviewing all wages and contractor payments in June to make sure everything is paid up where it needs to be.
If you’ve got some spare cash in the business you can take this opportunity to top up the super contributions for yourself to get up to the concessional contributions cap ($30,000 for those under 49 years of age and $35,000 for those older – more info here).
Is it worth buying something just before 30 June for the tax deduction? The simple answer is if you were going to buy it anyway (in July for example) then yeah, do it (assuming you can get it at a good price that won’t later be reduced in some EOFY sale!). That said, don’t go spending money just for the tax deduction – if you’re running your SME business in a company structure a dollar spent saves you 28.5 cents in tax. A tax deduction is never better than a dollar in your pocket – even if the tax man has taken a bite out of it!
It’s also worth keeping in mind the following if you’re a SBE (small business entity = turnover less than $2 million):
- prepaid expenses (think rent, interest, insurance, etc.) can be claimed when paid, so if profits are up this year maybe prepaying and getting the deduction in advance could be beneficial – just remember that you won’t be able to claim it next year so for some people it’s a little bit like robbing Peter to pay Paul …
- assets <$20,000 – any assets bought in the business that are under $20,000 can be deducted in full and current legislation has this $20,000 limit only lasting until 30 June 2017 after which point it’ll drop back down to $1,000.
Now is the time to review your debtors listing and write-off any debts that may have gone bad so you can claim the tax deduction this year. That said, be sure to exhaust all avenues of getting paid before giving up on your hard earned dollars – have a read here for some tips on cash management including best practice for issuing invoices and chasing debts.
Have a think about what work you have coming up over the next month or so and see what needs to be billed now and what could be billed in July. Anything billed after 30 June will be taxable next year so it’ll save on this years tax bill.
Hold stock? June is the ideal time to undertake a stocktake with a view to writing off any obsolete or damaged stock. It’s also a good general business practice to get into to ensure you don’t have dud stock hanging around or have too much money tied up in inventory.
Take a look at the assets you hold and see if anything needs to be written off. You may have old IT equipment hanging around that could be written off if it’s no longer in use or of any value.
The start of a new financial year is a perfect time to make the move to the cloud for all your accounting and business management software needs. We recommend Xero and find that it not only saves time (and hence money) on bookkeeping, but it also empowers business owners with real-time financial information about their business exactly when they need it. Read here about the benefits moving to the cloud can bring.
Tax debt reporting
From 1 July 2017 the ATO will be reporting businesses with tax debts of more than $10,000 that have been outstanding for more than 90 days without a payment arrangement to credit reporting bureaus. This could mean a black mark against your business’s credit report for up to 5 years. Find out more here.
The above are general comments only. All business owners should have a chat, however brief, with their tax accountant at this time of year to ensure that their business is in the best shape it can be from a tax perspective heading into a new financial year.
If you’ve got issues in your business you don’t seem to be able to get on top of, why not get in touch? Not only do we provide a full suite of bookkeeping and tax services here at Generate, but we’re also able to help with business coaching, strategy workshops, business plans and much more. You name the problem and I’m sure we can help.