There are a number of ways to reduce your tax bill. I’ve listed the top six you can use before 30 June 2014. The first two strategies apply only to small business taxpayers, while the rest apply to all businesses.
1. Instant write-off for assets reduced to $1,000 from 1 January 2014
Under the current law, your small business is able to claim an immediate tax deduction for ‘individual’ assets costing less than $6,500 ex GST, including individual assets that form part of a set. This immediate write-off also applies to the purchase of new and second hand assets which are used in your business.
Also, from 1 January 2014, you don’t have to aggregate the individual assets costing less than $1,000 which form part of a set, when applying the $1,000 threshold. For example, if you bought a team collaboration table costing $950 and five matching chairs costing $1,000 on 15 January 2014, your business would still be entitled to claim an immediate deduction for the entire $1,950.
2. Claim deduction for prepaid expenses
Your small business can claim an immediate deduction for certain prepaid business expenses where the payment covers a period of 12 months or less, and ends in the next income year. The most common expenses that you should consider prepaying by 30 June 2014 include lease payments, interest, rent, business travel, insurances, business subscriptions, and etc.
However you cannot choose to prepay any expense you like as you must be able to make the prepayment under the relevant contractual agreement to get the immediate tax deduction this financial year.
3. Make superannuation contributions by 30 June 2014
If you are self-employed and making a personal superannuation contribution, ensure you obtain the correct documentation from your superannuation fund to substantiate the deduction before lodging your tax return.
The maximum concessional superannuation contribution limits for the 2013/14 year are:
- Individuals aged 60 and over on 30 June 2014 have a $35,000 contribution limit
- Individuals aged 59 and under on 30 June 2014 have a $25,000 contribution limit
Where a concessional contribution is made which exceeds these amounts, the excess is taxed at an effective rate of 46.5 percent. In order to obtain a deduction in the 2014 financial year, the contribution must to be received by your superannuation fund by 30 June 2014.
4. Defer income and capital gains tax
If your business returns income on a cash basis, you will be assessed on income as it is received. A simple end of year tax planning strategy is to delay ‘receipt’ of the income until after 30 June 2014.
- Businesses that return income on a non-cash basis are generally assessed on income as it is derived or invoiced. Income may be deferred in some circumstances by delaying the “issuing of invoices” until after 30 June 2014.
- Realising a capital gain after 30 June 2014 will defer tax on the gain by 12 months. It can also be an effective strategy to access the 50 percent general discount which requires the asset to be held for at least 12 months. The date of the contract is the realisation date for capital gains tax purposes. In some cases, the capital gain can be further reduced to “Nil” under the small business capital gains tax concessions.
5. Write off slow moving or obsolete stock
You have the option of valuing trading stock on 30 June 2014 at the lowest value between the actual cost, replacement cost, or market selling value. Furthermore, this valuation can be applied to each item of trading stock.
For example, where the market selling price of stock items at year-end is below the actual cost price, the taxpayer can generate a tax deduction by simply valuing the stock at the market selling value for tax purposes.
Also, in situations where a stock item has become obsolete at year-end (e.g. fashion clothing), the business may elect to adopt the lowest value between the actual cost, replacement cost, or market selling value.
6. Write off bad debts
If your business accounts for income on a non-cash basis and has previously included the amount in assessable income, a deduction for a bad debt can be claimed in 2013/14 as long as the debt is declared bad by 30 June 2014.
Your business will need to show that it has made a genuine attempt to recover the debt by 30 June 2014 to prove that the debt is bad. It’s preferable that this decision is made in writing such as in an executive’s meeting minutes.
Your business can also claim back the GST paid on debts that have been written off as bad, or where not written off as bad, the debt has been outstanding for 12 months or more.
MYOB AccountRight accounting software helps you track your purchases and payments. Check out MYOB’s Tax Changes Information section, meant to help your business stay on top of the game with tax changes.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’s circumstance will vary for end of financial year.