An entrepreneur once on BRW’s list of fastest growing companies has warned fellow business owners against a last-minute splurge on end-of-financial-year sales.
Ian Whitworth, founder of audio-visual group Scene Change and a regular speaker at industry events, said that while the lure of buying things for the business to reduce the year’s tax bill can be tempting, it can cost more in the long run if those purchases aren’t really needed.
“Cars, electronic gadgets and office accessories are common purchases simply because it’s the end of the financial year and there is an urge to generate tax deductions,” he said.
“Australians claim about $22 billion dollars annually in work related expenses and I suspect a portion of that was spent at the last minute purely in the hope of paying less tax.
“Applying personal tax return thinking to your business is an amateur mindset. It’s not a ‘tax deduction’, it’s an expense, and the more expenses you have, the lower your profit.”
That is not to say that legitimate purchase needs can’t be brought forward to enjoy the tax deduction, but that buying goods solely for tax breaks is an unwise financial decision, Mr Whitworth said.
“When businesses go under, it’s usually because the tax office has given up throwing them payment lifelines, whether it’s GST, income tax, withholding tax or staff super. Owners tend to spend all their money staying afloat and their tax obligations rise to a level they can’t recover from,” he claimed.
In case you missed it, the new financial begins this Sunday, 1 July, meaning that purchases need to be made before midnight this Saturday to be eligible for inclusion in this year’s tax return.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.