We appreciate that tax planning and other end of financial year shenanigans are probably the least of your worries right now, but time stops for no business and it’s important to at least consider if anything needs to be done this side of 30 June to ensure tax time goes smoothly for you.
There are loads of things you could look at, but really, there are only a handful of things that are important from a tax planning perspective for most of our SME clients. Let’s take a quick look …
Superannuation is only deductible if it’s paid during the quarter it was accrued, or within 28 days of the end of the quarter, and you get the deduction in the financial year you make the payment. For this reason, we recommend that clients not only pay the super for the September, December and March quarters promptly at the end of each quarter, but that they also pay up all super obligations for the June quarter before 30 June. This means you’ll get a tax deduction for all 2020FY superannuation paid in your 2020 tax return and for anyone (everyone?!) using Xero, the cutoff date for the payment to be processed and approved is 24 June 2020.
If business has been good you might also want to look at increasing your superannuation contributions past the minimum amounts required under the Guarantee. Employers can currently contribute up to $25,000 each year per employee before the employee will get in strife for having too much in the way of ‘concessional contributions’ (i.e. contributions for which someone claimed a tax deduction). Everyone’s situation is different so it might be worthwhile speaking with a financial planner about this if you’re unsure of how much to contribute and what the fund should do with the funds once the contribution has been made.
Please note that there is currently a superannuation guarantee ‘amnesty’ on offer for anyone with unpaid super liabilities from anywhere between 1 July 1992 and 31 March 2018. The amnesty means you get a deduction where before there was none. Be wary here, failure to take up the government’s kind offer of amnesty could result in hefty penalties if they later discover you’ve not paid your super in full. More info here.
I’m often asked if it’s 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 absolutely, 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 business in a company structure a dollar spent saves you 27.5 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 an SBE (small business entity = turnover less than $10 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, though admittedly Paul is happy to be paid a year later.
- assets <$150,000 – any assets bought in the business that are under $150,000 can be deducted in full so if you’ve had your eye on a large purchase for after 1 July maybe consider bringing that forward. This threshold jumps around a lot, the current increase from $30,000 came into force on 12 March 2020 in response to COVID-19 and runs out at 31 December 2020 with, supposedly, the threshold going back to $1,000 from 1 January 2021.
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 how to better manage cash flow in your small business.
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. If you pay company tax on an accruals basis anything billed after 30 June will be taxable next year so it’ll save on this years tax bill. That said, if the work has been done and you’re due to be paid then you can’t fudge the numbers and push invoices into a later tax year, this item is more about thinking before invoicing in advance.
Hold stock? June is the ideal time to undertake a stock-take 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. Most of our clients are already on Xero, but for those of you out there who are not, Xero 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.
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. As always, if you have any questions, please get in touch, we’d love to help.