Getting Prepared for Tax Time

Whether it’s your personal income tax or company tax, there are strategies you can employ to improve your position.

The aim is to bring forward deductible expenses into the current year and defer income until the following financial year, so that you reduce your tax liability.

Small business tax cut

The corporate tax rate for 2017-18 has been cut from 30 per cent to 27.5 per cent for businesses with a turnover of up to $25 million. The previous year this lower rate only applied to businesses with turnover less than $10 million.

While the new small business tax cut will provide some welcome relief, this year will be the last time you can qualify for an immediate tax deduction for purchases in your business worth less than $20,000.

Introduced in 2015, this tax break is due to expire on June 30, 2018 when it will revert to the original $1000 threshold (unless the deadline is extended or other changes are introduced). As a result, it makes a lot of sense to write off as much as you can in this current year before the concession disappears; next year an asset will need to be depreciated over its effective life rather than immediately.

Where to start?

Your first task should be to make sure your records and paperwork are in order. Consider doing a stocktake as well as summarising your company’s income and expenses over the year. Knowing where you and your business are right now will provide a sound launching pad for determining your end-of-financial-year tax strategies.

What’s more, looking back at the current year’s performance is a strong basis for working out what you want to achieve next financial year.

Plan ahead pay ahead

One of the key end-of-financial-year strategies is to pay ahead for a variety of expenses so you can bring them forward into the current financial year and offset any tax liability.

For instance, you might consider paying business insurance or personal insurance such as income protection up to 12 months in advance, assuming your insurance company allows such a prepayment. While you are at it, now is also a good time to check that your insurance suits your current needs. For instance, if your business has grown your current cover may prove inadequate.

You could also pay any annual subscriptions or professional body membership fees in the current year so that you can claim immediately.

It’s important to determine what deductible expenses you may have in your business. This might include costs associated with setting up a website or travel expenses, for example.

Other deductible expenses include some costs associated with investment properties. Be mindful though that there have been some changes introduced in the current year. For instance, you can no longer claim for plant and equipment in rental premises used for residential accommodation.

Boost your super

As the end of the financial year approaches, it’s a good opportunity to make sure you are maximising your super contributions through salary sacrifice or voluntary personal contributions. As of this year the maximum you can make as a concessional contribution is $25,000 regardless of age. If your employer’s superannuation guarantee payment falls short of this amount, it makes sense to top it up. The tax-free environment of super once you have reached the age of 60 makes it a very attractive investment.

If you have employees, then you need to ensure you have paid the minimum 9.5 per cent of their earnings to their elected super fund. This should have been paid at least quarterly during the year

Clear the decks

The end of the financial year is also a good time to review any outstanding debts to your company. If you think payment is unlikely, then it’s probably wise to write off the bad debt. You will need full documentation to prove you have made every effort to recover the money. Also, you must have previously included the sum in your assessable income.

You might also look at selling any obsolete equipment to free up some extra cash.

With time on your side, take this opportunity to review your business structure to make sure it’s still working for you. For example, are you better incorporating or setting up a family trust rather than being a sole trader?

Giving yourself time to assess your situation and pursue the most tax effective strategies is vital to a healthy business.

If you want to discuss your end-of-financial-year tax planning in plenty of time ahead of the June 30 deadline, then give us a call. The earlier you start planning, the more tax-saving options you have.

All figures in the article are sourced from www.ato.gov.au

Task Checklist

Business

• Itemise your income and expenses
• Summarise debtors and creditors
• Sell obsolete equipment
• Bring forward asset purchases to access the $20,000 instant write-down
• Review and pay insurance in advance
• Review your corporate structure

Personal

• Sort your receipts
• Ensure your income includes all sources including dividends and Centrelink payments
• Check claimable tax deductions
• Check for tax changes
• Check your super and take advantage of government co-contributions
• Review your investments and claim applicable rental property deductions