1st January, 2015
With the end of the financial year (EOFY) fast approaching, I’ve outlined some valuable last minute tax tips and strategies to reduce your tax bills.
If you are a small business, you are entitled to claim an immediate deduction for “individual” assets costing less than $6,500 GST exclusive.
A small business is defined as one where the turnover of the business, including connected entities and affiliates, is less than $2 million per annum (GST exclusive). The turnover for either the current financial year or the previous financial year can be used to determine if you qualify as a small business.
Did you know that this immediate write-off applies equally to the purchase of new and second hand assets which are used in your business?
If multiple assets are acquired costing less than $6,500 in total, you are entitled to an immediate write-off for each asset. For example, if you buy four laptops each costing $2,000, the business is entitled to claim an immediate deduction for the entire $8,000 even though the total cost exceeds $6,500.
Similarly, small businesses are not required to aggregate individual assets costing less than $6,500 which form part of a set, when applying $6,500 threshold. For example, if you buy a boardroom table costing $6,000 and 5 matching chairs each costing $200, your business would still be entitled to claim an immediate deduction for the entire $7,000.
A requirement for claiming the tax deduction this financial year is that your business needs to start using the asset or have it installed ready for use by 30 June. Otherwise, the deduction is deferred until the 2013-14 financial year.
READ: Last minute tax tips
The concessional (or tax deductible) superannuation cap for the 2012/13 year is $25,000 for all individuals regardless of age. This cap also applies to self-employed individuals who can claim a 100 percent deduction where they satisfy a 10 percent test.
Note that employer super guarantee contributions and salary sacrifice contributions are included in the $25,000 cap. When a concessional contribution is made which exceeds the amount, the excess is taxed to the fund member’s account at an effective rate of 46.5 percent.
This should be avoided at all cost. Check with your super fund on the amount of contributions received so far this financial year before making any extra contributions. In order to obtain a deduction in the 2013 financial year, the contribution must be received by your superannuation fund by 30 June 2013.
Care needs to be taken when last minute contributions are made by cheque or electronic fund transfer (EFT) to ensure that the deduction can be claimed in the current financial year.
If a fund receives your contribution by cheque by 30 June 2013, the deduction is allowed in the current financial year as long as the trustee banks the cheque within three business days and the cheque is not subsequently dishonored.
When the contribution is by EFT, the date taken into account is the one when the amount was credited to the bank account of the fund and not when the transfer was done.
Unless the contribution is made between linked accounts of the contributor and the fund (held at the same bank), the deduction may be deferred to the next financial year if the funds are not credited to the super fund account by 30 June.
Given that 30 June falls on a Sunday this year, it is advisable that contributions by EFT to another financial institution be made by mid-afternoon on Wednesday 26 June to ensure the funds appear in the super fund account by the Friday 28 June, being the last business day of the financial year.
If you are a small business, you can claim an immediate deduction for certain prepaid business expenses where the payment covers a period of 12 months or less that ends in the next income year. The most common expenses that you should consider prepaying by 30 June 2013 include lease payments, interest, rent, business travel, insurances, business subscriptions, etc.
Note that your business must be able to make the prepayment under the relevant contractual agreement to get the immediate tax deduction this financial year. You cannot simply choose to prepay the expense.
All businesses have the option of valuing trading stock on 30 June 2013 at the lower of actual cost, replacement cost, or market selling value. Furthermore, this valuation can be applied to each item of trading stock.
For example, if the market selling price of stock items at year-end is below the actual cost price, you can generate a tax deduction by simply valuing the stock at market selling value for tax purposes.
Also, in situations when stock has become obsolete at year-end (such as seasonal clothing), your business may elect to adopt a lower value than actual cost, replacement cost, or market selling value to get a further tax deduction.
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 the 2012/13 year as long as the debt is declared bad by 30 June 2013.
Your business will need to show that it has made a genuine attempt to recover the debt by 30 June to prove that the debt is bad. It’s preferable that this decision is made in writing (for example, a directors minute for a company).
Your business can also claim back the GST paid on debts that have been written off as bad, or the debt has been outstanding for 12 months or more.
EOFY is a very busy time for most business owners. Act early and avoid the stress of using a manual system and simplify your processes by considering a cloud accounting system. If you’re looking for a reliable and easy to use accounting software, LiveAccounts is now available at a low monthly subscription.
Alternatively if you’re after a solution that will grow with you over time, AccountRight Live is also available at a low monthly subscription. This solution is used by many small businesses (SMEs) with simple accounting needs. Give it a try – it’s free for 30 days.
During this EOFY 2013 it is important to meet all your tax and compliance obligations. Visit MYOB’s Tax Changes Information section, aimed to assist startups and small businesses (SMEs) to stay on top of their game with tax changes and tips this financial year.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced tax agent as each small business’ circumstance will vary for end of financial year.
Source: Australian Biz, MGR Accountants