Despite the EOFY advertising screaming at us from car showrooms, computer re-sellers and office equipment suppliers, sometimes the last week of June comes as a bit of a shock.
While the ads seem to be getting bigger and noisier every year, they do serve a purpose: they help to focus on the reality of EOFY preparation. What do we need to do to get the best result at tax time?
It’s also an opportunity to understand what can be done to begin the new financial year in good shape, and is a good time to acquire assets which can drive the next phase of growth.
End of quarter checklist
The first prerequisite of EOFY planning is to get a full understanding of the financial position of the business. Ideally this will be readily transparent and available from the accounting system, without the need to spend days poring over statements and receipts.
Have all tax and superannuation liabilities been paid? If not, did you know that money borrowed to pay superannuation for employees can be tax deductible?
What about the debtors’ ledger? And has the business paid all of its suppliers?
To ensure full compliance, there is the annual withholding (PAYGW) annual report and payment summaries to prepare, and there might be fringe benefits tax issues for employees.
This process should also deliver some clarity on the profit and loss situation, and with that some strategic decisions need to be made.
If the business is showing a profit, something needs to be done with it.
Company tax for small businesses is currently at 27.5 percent. You don’t have to be a Packer to know that it’s a good idea to minimise your business tax where possible. Get your financial team to help you find the advantages for you and your business.
Don’t forget about super
Many small business owners and self-employed people ignore their superannuation and in many cases fail to pay into it, or fail to pay enough.
Small business owners can get a tax deduction for contributing up to $35,000 – subject to their age – to their super fund each year.
Under transition-to-retirement rules, small business owners have some flexibility in taking money out of their businesses for their own super, either through profit distributions or through dividends.
At accountancy group MGI Australasia, chairman Grant Field urges small business owners with self-managed funds to ask their accountants about “reserving.”
“This is when the trustee distributes funds to the SMSF before 30 June,” says Field, “and under the rules is then allowed to allocate them to individual members after 30 June, into the new financial year.
“In such cases, it may be possible to claim double deductions.”
Also consider capital purchases. Will you succumb the EOFY ads attempting to seduce you into buying a new vehicle or computer by 30 June?
In some cases, this will make good financial sense. It will enable the business to maximise its profit and can also be part of a growth strategy.
Know your tax breaks
Consider the $20,000 tax write-off.
Businesses with turnover of up to $2 million per year are able to claim an immediate deduction for new assets costing less than $20,000, replacing the previous rule where these assets had to be depreciated.
Unless the Government feels more generous, this rule expires on 30 June 2017, so can only be taken advantage of this year and next.
Accountant Grant Field’s message is for businesses to also check out if they are eligible for Research & Development tax breaks.
“Many companies don’t even know that what they are doing is R&D,” he says. “But most will be spending money on experimental solutions in their business, and these may qualify and enable the business to claim more.”
Small businesses with less than $2 million in turnover have access to a range of tax concessions and it is worth the time to go to www.ato.gov.au to check them out.
If the business has sold assets, for example, there are also capital gains tax concessions, and available concessions around Pay as you go (PAYG) instalments, GST and excise and fringe benefits tax.
Small business owners invest so much in their businesses. It’s worth also investing time when the EOFY rolls around to make sure the tax deadline can work in favour of the company, and not against it.