No business owner wants to pay more tax than they legally are required to. It is important to review your situation to determine that cashflow sweet spot between paying tax and spending money to reduce tax.
This time of the year is also crucial for businesses to set new goals for the financial year ahead. It is always great for a business to establish good financial habits as this will have a positive impact in the short term and long term. With an election around the corner, you may want to be comfortable in your overall tax position before potential changes are introduced.
In order for all businesses to be ready for the end of financial year, it is recommended that you consider some of the following:
To be able to claim a deduction for super contributions made to employees, ensure the super is paid before the due date for each quarter’s payment. If you want to claim a deduction for super owing in June it is ideal that it is paid before month end in order to obtain the deduction that financial year.
As well as ensuring all employee superannuation is paid on time, it is beneficial for owners to also look at their personal superannuation contributions. If you are wanting to claim a deduction this year, it may be wise to make this contribution prior to 30 June 2019.
When making these contributions it is important to note that a maximum of $25,000 per taxpayer in total contributions is allowable each financial year. This may be a combination of both personal contributions and SGC, or the business may wish to top up the maximum threshold and claim a deduction.
This time of the year is always good to review your receivables/debtors in your business. If you are still chasing invoices from the prior financial year, now is the time to write these off to be eligible for the tax deduction. Note to remember – also make the GST adjustment for these written off amounts.
Completing a stocktake at the end of the financial year is essential in determining the correct value of your closing inventory. However it is also a good tool to work out any obsolete or damaged stock that the business could be carrying. This means that stock that is obsolete or damaged can be written off or reduced in value for tax purposes and claimed as a deduction.
When valuing stock you have the choice of using three methods; cost, replacement or market sale price. Choosing the lower value reduces your assessable income.
Knowing the Small Business Concessions
If you are carrying on a business that meets the definition of a ‘small business’, there are a number of tax concessions available:
- Instant Asset Write Off
The increase of the instant asset write-off threshold has gone from $25,000 to $30,000. The threshold applies on a per asset basis which allows eligible businesses to instantly write off multiple assets. This increase will take effect 2 April 2019 to 30 June 2020. There was a bill announced on 13 February to increase the current threshold from $20,000 to $25,000 however this bill has not yet passed.
- Immediate deduction for business start-up costs
If a business has incurred professional fees and/or legal fees for starting a business, you may be entitled to an immediate deduction for these expenses.
- Prepay some expenses
As a small business, you are entitled to claim a deduction for any prepayment of expenses up to 12 months. You may wish to pay for these before 30 June.
- Delay or bring forward invoicing
If you think this year’s income will be higher than next year, review and postpone some of your invoicing to fall into the next financial year. You need to consider the cash flow affect on this, as it can also delays collection of these funds. Alternatively, if you think next year will be higher, you may wish to bring forward any invoicing into the current financial year.
- Company Tax Rate
In the 2019 financial year, the tax rate for a company considered a small business (that has an aggregated annual turnover threshold of less than $10m) has a tax rate of 27.5%. This has remained the same from the previous financial year.
Reward Your Staff
The end of the financial year can be stressful for some small businesses including their staff. So it can also be a good time for employers to reward their key staff for the contribution and hard work throughout the year. If you decide to do this via a bonus – ensure that they are quantified and documented in a properly authorised resolution prior to year end to enable a deduction to be incurred where they are not paid until the next financial year.
Ensure your documentation is in order
If you have taken or plan to take money from your business that wasn’t via wages or a dividend, you need to have the right documentation in place to avoid unwanted taxes. PJT Accountants can assist you with this.
To ensure you tick all the boxes on what is required to claim a tax deduction, ensure you talk to us. Our team will review your situation and provide advice on what you need to do to meet the legislative requirements to put you in the best position for you and your business.