14th May, 2019
You don’t have to spend big on your hospitality business to generate significant tax deductions this EOFY, writes Renae Smith.
A common misconception around saving at tax time is that you need to spend a lot of money to create greater tax deductions.
While spending up big on equipment may lower your overall tax rate – if not done correctly, it can mean you’re left with less cash in your bank account than you’d expect.
What then, are the best ways to save on your tax bill in the hospitality industry?
As is true for just about any aspect of life, knowing as much about your business, its structure and its entitlements is vital.
For example, do you know if you’re operating as a sole trader, a partnership, a trust or a company?
Each has their own tax entitlements and options, and unless you understand what you should be tracking, it’s very easy to pay more than you have to when it comes to EOFY.
This year, 30 June falls on a Sunday.
For payments to be deducted in your 2018/2019 financials, payments will have had to clear from your account before that date, meaning you should be wrapping up any payments you want to include well before the 30th.
The same goes with any superannuation payments you make for staff.
Settling those at least a week before the end of June is advisable so that you can ensure the funds have left your account before close of business on Friday, 28 June 2019.
While you’re not allowed to claim a full deduction for stock you have purchased that is not yet sold, you are able to value that stock at the current market price to sell it, which, for most stock, is a lot less than you paid for it in the beginning.
In any business, the words ‘stocktake’ usually evoke feelings of anxiety, yet there is a small business concession for stocktake that many companies are not aware of.
Most companies can estimate the value of their stock rather than having to complete a formal stocktake, although these estimates need to be justifiable if asked for by the ATO.
You also must make sure that the difference between this stock and last year’s stock is less than $5000, otherwise a formal stocktake must be done.
A lot of hospitality companies fall short when it comes to smaller expenses.
The smaller cash expenses of a few dollars here or there all add up over time.
If you’re popping out to buy paper for the printer, sticky tape or even emergency ingredients, make certain you keep track of these purchases, as you’d be surprised as how quickly they add up.
It’s also essential to understand what other expenses you can claim.
While you can’t claim costs for driving to work each day, ensuring you log the kilometres driven each time you use the car for work purposes is another way to get the most out of your tax deductions.
Ensure all of your wages, insurances, rent, power, gas, furniture, laundry, cleaning and marketing costs are tracked as these are fully deductible, as well as subscriptions, website fees, donations and the depreciating value of any goods that you own.
There are deductions for almost every aspect of a hospitality business and if you’re not fully aware of what you can claim, you’re almost certainly missing out.
Your tax and GST are either worked out on a cash basis, or an accrual basis.
As most hospitality businesses work on a cash basis, it’s essential to let your accountant know about any unpaid bills as of 30 June 2019, as they may be able to include these in the current year’s financial deductions.
If you’re unsure about whether you’re running a cash or accrual system, it’s time you got in touch with your accountant.
As we outlined above, knowledge is power.
Who better to download their knowledge to you than your accountant?
Accountants manage a variety of businesses and the more they understand about yours, the better they will be at providing the service that is right for you.
Sit down with your accountant and explain what you do, how you run your business and the current record keeping you undertake.
Be open to ideas and suggestions about how better to run the financial side of your business and take advice when it comes to restructuring, payroll or even record keeping.
A general rule is that if its business related, it’s deductible, but there’s usually a certain level of documentation required to ensure you’re able to claim the benefit, legally.
Being aware of the best way to manage your business financials will give you the power to make the right decisions and to avoid overpaying.
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’ circumstances will vary for end of financial year.