With the end of another financial year just around the corner, Tanya Titman, Director of finance company Consolid8, offers some handy tips on how you can start organising your paperwork now and trim your tax.
It's that time of year again and businesses across the country are dragging out boxes of receipts, log books and forms to make the most of tax time and avoid being slugged with a hefty bill. Every dollar you save in tax is another dollar to reinvest in your business. Knowing what you can and can’t claim makes it easier to improve your tax position. Here are seven sure-fire ways to minimise your tax bill.
1. Super deals
Why pay up to 46.5 per cent in tax on your drawings out of the business when you can pay 15 per cent? All business owners, regardless of age, can put up to $25,000 per year into superannuation and it will be taxed at only 15 per cent. The big tip here is to get in your contribution paid on or before 30 June. Keep in mind this year 30 June lands on a Saturday. If an employer was to make an Electronic Funds Transfer they will need to set this up for Thursday 28 June 2012, to ensure funds are received by the superannuation fund in this financial year.
2. Know your concessions
If the turnover of your business is less than $2 million, you can get some great tax concessions, including:
- Depreciating low-cost assets in a general small business pool at a rate of 30 per cent.
- An immediate deduction for prepaying expenses up to 12 months in advance by 30 June (such as lease, interest, rent, business travel, insurances and subscriptions).
- The entrepreneur tax offset equal to 25 per cent of the tax payable of your business income if your annual turnover is under $50,000. This phases out once your turnover reaches $75,000 and will not be available after this financial year.
3. Hold off on invoicing
Sometimes it’s the things you don’t do that save you a bundle. If you have the ability to raise an invoice after 30 June, this will allow you to defer your tax liability to the following financial year and defer tax payable on that income for another year. The big tip here, of course, is to keep in mind your tax bracket for both financial years. You need to be sure you won’t be taxed at a higher rate on the deferred income.
4. Write off bad debts
For a business to get a tax deduction on its bad debts, it must physically write off the debt prior to 30 June. To write off a bad debt you’ll need to show it as income first. You also need to show that you have made a genuine attempt to recover the debt to prove that it is bad.
5. Time the sale of investmentsIf you're planning on selling investments, timing the sale could reduce the amount of capital gains tax you pay on the profitable sales or cancel out capital gains altogether.
6. Scrap stock
Makes sure you do a complete stocktake before 30 June. If you find obsolete or out of date stock that your business simply can’t sell, you can write it off before June 30 and get a tax deduction this year. This will give you a tax deduction equivalent to the tax written down value of the asset at the beginning of the financial year. And if your business’s aggregated turnover is less than $2 million, then you’re able to immediately write off assets costing less than $1,000 (increasing to $5,000 in 2012-2013).
7. Claim before spending a cent
Just because you haven’t paid for something doesn’t mean you can’t claim it. Businesses can get an immediate deduction for certain expenses that have been “incurred”, but not paid, by 30 June 2012, including:
- Salary and wages: claim the number of days employees have worked up to 30 June, but have not been paid until the new financial year
- Directors’ fees: claim a tax deduction for directors’ fees that are “definitely committed” to at 30 June and have passed an appropriate resolution to approve the payment.
- Staff bonuses: claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June where the business is “definitely committed” to the expense.
- Repairs and maintenance: claim repairs undertaken and billed by 30 June but not paid until the next financial year
A word of warning
These strategies need to be assessed in the context of a financial management plan. Prepaying expenses or voluntary contribution to your super fund will improve your tax position but could have a detrimental effect on your cash flow. Developing a financial plan in conjunction with your accountant will ensure your plans to ‘shrink the tax’ doesn’t leave you drowning in debt.And be sure to keep all receipts and invoices for any professional association expenses or union memberships, along with tools and equipment purchases, plus professional subscriptions, which are all tax deductible.
Keep an eye out in the forthcoming June print issue of My Business for more advice on how to best prepare for tax time and your end of financial year obligations.
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