Give yourself an EOFY check-up
1. Consult your accountant – now
The first big mistake many businesses make is failing to truly engage with their accountant or financial advisor. This interaction should go beyond mere compliance and tax return submissions to include growth and cash-flow strategies, according to Peter Langham, chief executive officer of business finance specialist Scottish Pacific. He believes owners of small and medium-sized entities, in particular, often focus on their work in the business at the expense of working on the business strategy. “So they can miss opportunities,” Langham says.
2. Take advantage of a $20,000 asset write-off
Businesses with annual revenue of up to $2 million can take part in a generous government write-off scheme for plant and equipment purchases. Alex Duonis, principal, tax consulting at business advisory firm Crowe Horwath Australia, says the accelerated depreciation measure applies to all asset purchases up to the value of $20,000 and can significantly reduce the amount of tax a business will pay. He warns, though, that it applies to acquisitions from May 2015 to June 30, 2017, after which the limit will revert to $1000. “So there’s quite an opportunity now to get that accelerated deduction,” Duonis says.
3. Maximise any other deductions
Aside from the write-off scheme, businesses should take advantage of other legitimate deductions. This may include bringing forward expenses such as office supplies, repairs and maintenance into the current year, or prepaying monthly costs such as rent, electricity, wages and utilities before 30 June.
4. Write off bad debts
Ensure you write off any bad debts and prepare minutes documenting the debts and all efforts you have made to recover them, otherwise they cannot be claimed as deductions. This action also enables adjustments for any GST charged on the invoice.
Langham says the key is to act now rather than waiting a few months until you do your tax return. “Do it before 30 June and look at your sales ledger and any possible delinquent accounts and make sure you provide for them in this financial year,” he says.
5. Comply with your superannuation requirements
Getting organised on the superannuation front is a must. Duonis notes that super is not tax deductible until it has been paid, so it is important to ensure all super contributions for employees are completed by the end of the financial year. “This is a good way of reducing your income tax bill,” he says.
Duonis says business owners should also consider making concessional contributions into their super fund to take advantage of tax benefits (contributions are taxed at just 15 per cent). The limit is $30,000; or $35,000 for those aged 49 and over.
The June 30 deadline is also approaching for employers with 19 or fewer employees to be using SuperStream, a standardised format for transmitting superannuation data between employers, funds, service providers and the Australian Taxation Office. Larger employers should already be using SuperStream.
6. Understand how to manage cash flow
Langham urges business owners to start the new financial year in a healthy cash position. This means reviewing your cash-management processes and adopting the most appropriate funding solutions.
“It’s a good time of year to plan for the business’s future and make sure that all appropriate steps are taken in terms of managing cash flow,” he says.
A common error, Langham observes, is injecting too much cash into superannuation to take advantage of tax breaks while not appreciating the potential impact on the business’s cash flow. Then the business can feel the pinch on 1 July.
“We see a lot of businesses that do their planning, spend the money and then realise their cash flow doesn’t support their strategy,” Langham says.
7. Check your trust obligations
The use of trust structures has come under scrutiny from the ATO, so it is important to understand your obligations. There is a requirement for the trustee to sign off on the distribution of income to beneficiaries before 30 June. Duonis says this is normally done by way of a distribution minute that may specify distributions on a percentage basis without dollar amounts being specified. If a valid distribution does not occur before 30 June, there is a risk that the accumulated income will be taxed to the trustee at a penalty rate.
“So clients who have those sorts of entities ought to be talking to their accountants now about where income goes this year,” Duonis says.
8. Consider any capital gains tax benefits
If your business has made a capital gain in the current financial year, it makes sense to assess the presence of any other capital losses that may offset those gains. For example, you could include selling assets that have incurred a capital loss.
One change of which many business owners may not be aware stems from the Small Business Restructure Rollover Bill 2016. The change allows small businesses to alter their legal structure without incurring a CGT liability, with the bill applying to the transfer of assets occurring on or after 1 July, 2016.
Duonis warns that any changes have to be of a genuine business restructure, not a move simply to get tax benefits.
“The bill didn’t get a lot of publicity, but it provides more opportunities for businesses to change their structure without tax charges.”
Words by Cameron Cooper
The articles represent the views of the authors and not necessarily that of the Bank. They are only intended as a general guide and do not represent tax advice you should seek independent professional tax or financial advice before acting on any matters set out in the articles.