10 tasks for an easier end of financial year
As June 30 rolls around for another year, many of us find ourselves thinking about how we were going to be so organised for this end of financial year...so we're making it easy for you this year. Here's our top 10 tips for saving your business cash and making sure you don't pay more tax than you need to.
1. Write off bad debts
An oldie, but a goodie. You know times are a little tougher when you have a little celebration when clients pay, and following the GFC, just about every business has some debts that are unrecoverable. If you've tried everything to get payment and are sure that all hope is gone of ever seeing the money, you can write-off the debt this financial year and claim it as a deduction.
2. To stocktake or not?
Here's a little news to bring a smile to some faces. You may not have to do a stocktake! If your business has a turnover of less than $2 million, you might be able to use the simplified trading stock rules if the difference between your opening stock balance and your closing stock balance is less than $5,000.
For everyone else, sorry, you still need to do a stocktake. However, you can use the stocktake to your advantage by taking care of any obsolete or damaged stock. Once identified, you can choose to value the stock at the lower of cost, replacement, or market sale price. This means that you can write-off and claim as a deduction stock that is completely obsolete or damaged if it has no value in the market.
3. Have you made profit on your assets?
If your business has made a profit on the sale of an asset during the year, you're likely to have to pay capital gains tax. If you haven't entered into a contract of sale yet, you may want to defer the sale contract until after the end of financial year. That way you can defer the capital gains tax until next year.
Conversely, if your business has any CGT assets which are worth less than what you bought them for, think about selling them before the end of financial year. You can use the loss to offset against any capital gains you made during the year, reducing the tax you have to pay. Make sure you enter into the contract of sale before 30 June though, to benefit from this.
4.Make the most of plant & equipment deductions
If you operate a small business with a turnover under $2 million, you might be able to 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 & equipment that has no value and you are unlikely to use in the new financial year, you might be able to claim the remaining tax written down value.
5. Check your investment allowance to make sure it's eligible
There was so much talk about the investment allowance, and much advertising surrounding business-to-business products. Depending on the size of your business, the Investment Allowance offered an additional deduction of up to 50% on the purchase of deductible assets for use in your business. However, there were conditions:
First, you needed to have purchased (or entered into a contract to purchase) the asset by 31 December 2009.
Secondly, you need to have used the asset by 30 June this year to claim in this financial year. Note that you only have until 31 December this year to use the asset, otherwise you cannot claim the Investment Allowance.
The ATO is likely to be taking an interest in Investment Allowance claims to make sure the correct amount is claimed and that the asset meets all the conditions. Ensure you have the paperwork to back up your claim.
6. Pay bonuses or directors' fees
If you are planning on paying bonuses to your employees or Directors' fees, you can claim the deduction this financial year if you let the people receiving the payments know before 30 June, and you have a minute noting the the fee or bonus will be paid. The payment, however, does not have to be made this year. In fact, if the payment is not made until July, the person won't have to declare it until the following financial year.
7. Make the most of related entities
If you’re charging management fees between related entities, make sure the fees are raised pre 30 June (and minuted) to claim the deduction this year. You also need to make sure that the charges are commercially reasonable as this is an area that the Tax Office is looking very closely at.
8. Bring forward purchases you are going to buy anyway that are deductible
If you know what you need to spend money on in the new financial year, bring it forward to this year to claim the deductions this year. For example, you might need repairs to be done, want to replenish your stock, or need to make trade gifts or corporate donations. It’s not always necessary to pay for the items this financial year, as long as you have the invoices and purchase orders for this financial year to support the deduction.
For small businesses with a turnover under $2 million, if you prepay expenses this financial year, the prepayment might be fully deductible this year as long as the prepayment is for something that is for 12 months or less and ends by 30 June 2011.
9. Cash payments from the company
If you have paid any cash to Directors or shareholders or paid any expenses on their behalf then these ‘debts’ need to be repaid to the company by the lodgement date for the company’s tax return or an agreement needs to be in place to repay the debt. If existing agreements are in place make sure that the minimum repayments due by the end of the financial year have been made. If the payments are being made from distributions, the dividends need to be declared and documented before the end of the financial year.
10. Pay Super contributions this year
You can pay your employees super contributions for the June quarter before the end of June, provided you have the cash. That way, you can claim the deduction for the contributions this year, rather than waiting until next year.
If you're the Director of the company, you can also top up your own super contributions. Just make sure you don’t breach the contribution cap limits.
Superannuation contributions are deductible in the year that the contribution is received by the trustee. Be sure to check how long your payment method takes to process – if you’re paying just before the end of the financial year the payment may not be received by the Trustees until the new financial year – therefore, the deduction for the contribution cannot be claimed this financial year.
You can save a lot and often defer the tax you need to pay if you get your timing right. If you want to know how you can take advantage of any of our top tips, talk to us today.
Quote of the month
"Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"
Kerry Packer speaking at a Senate enquiry.
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