Previously I have written about the $20,000 instant asset write-off, but there are plenty of tips you can use to reduce the tax burden on your business.
Here are my top tips for end-of-year tax planning:
With the tax rate for small companies set to fall from 28.5 per cent to 27.5 per cent on 1 July 2016, if you have invoices set to go out just before the end of the year, it makes sense to defer issuing them until the start of the new tax year.
Not only will you move the tax liability on those invoices into the new financial year, but you’ll also benefit from the 1 per cent cut to the rate.
Small businesses can get an immediate tax deduction for certain pre-paid business expenses. The basic rule is that a deduction is available for expenses that cover a period of no more than 12 months.
This includes expenses such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges and bookings for seminars, conferences or business trips.
Write off bad debts
No business wants to be in a position where they can’t recover outstanding debts, but we have to be realistic and acknowledge that it does happen sometimes. The good news is that if your business has to write off a debt, a tax deduction is available for the amount written off.
A debt that is unpaid and deemed to be a bad debt is an allowable deduction, provided it was included as assessable income in the current or a previous income year.
At this time of the year, it makes sense to go through your debtors list and, if there are any that you believe can’t or won’t pay, write off those debts by 30 June to claim the deduction this year. You must keep a written record to prove that the debt has been written off.
Employers have to pay superannuation contributions for within 28 days of the end of the quarter. Ensure that all June quarter superannuation contributions are paid by 30 June to accelerate the tax deduction.
Note that contributions must be actually paid, cleared in the business bank account and received by the employee’s super fund before 30 June for a tax deduction to be available. Any other outstanding amounts should also be paid before year-end.
Get the right trading stock valuation
Trading stock can be valued for taxation purposes using different methods, either at cost, market value or replacement value. The only requirement regarding changing methods is that the closing stock value at the end of one tax year must become the opening trading stock value for the next year.
The provisions allow a choice to be made for each individual item of trading stock.
Changing the valuation method at year-end for tax purposes can either bring forward or defer an amount of taxable income, so it pays to look closely at the method adopted.
Businesses with an aggregated turnover of less than $2 million can also choose not to do a stock-take if the value of their trading stock has not changed, either up or down, by more than $5,000. In this case, include the same stock value at year-end as at the start of the year – that is, as if no change has occurred.
Damaged and obsolete stock can be written down or written off entirely and a tax deduction claimed.
Pay employee bonuses
If your business is looking to pay bonuses, put in place a properly executed bonus plan by 30 June to claim the deduction this year.
Typically, a deduction will be available for employee bonuses if the expense has been incurred before year-end, i.e. if the company has definitively committed itself to the payment (for example by passing a resolution) or has incurred a quantifiable legal liability to pay the bonus.
If the amounts of any bonuses are not calculated and authorised until after the end of the income year, no deduction is available.
Mark Chapman is the director of tax communications at H&R Block.