Business owners and managers should now be preparing the end of financial year, to make sure they don’t end up paying more tax than they need to. As a general rule, the best approach is to put off paying tax until another year, by finding ways to defer income until next financial year but claiming any expenses or deductions this year. However, any action must be taken before June 30 2012 to take effect this financial year. Some areas to consider include:
Small business tax changes
There will be a number of changes to small business tax in the next financial year which could affect planning now. For instance, the decrease in company tax for small businesses (i.e. those with turnover less than $2 million) to 29 per cent means that companies that pay dividends should consider doing so now, when they can still be franked at 30 per cent, rather than after July 1. In addition, the entrepreneur’s tax offset will be abolished from July 1 so anyone intending to claim the offset should do so before the end of the financial year. Other changes to depreciation rules include an increase in the small business instant asset write-off threshold, from $1000 to $6500, so it may be worth holding off purchasing an asset until after July 1 in order to access this higher threshold. In addition, the accelerated initial deductions for purchases of motor vehicles will provide an additional upfront deduction from July 1 so again, a delay in purchasing could be worthwhile.
Outstanding debts
Write off any outstanding debts owed to the business so a tax deduction can be claimed in this year’s tax return. The debt must be written off before June 30 2012 to qualify for this year – if done after June 30, for instance while preparing year-end accounts, it will need to be counted in next year’s return. The amount should already have been recorded as taxable income in a previous year’s tax return, and there should be records to show that the business has tried to recover the debt. These attempts should be continued, according to the tax office, and if the debt is later repaid, it is simply recorded as assessable income at that time.
Depreciation schedules
Businesses with a turnover of $2 million or more should review depreciation schedules to ensure there are no items listed that have been sold off, lost or disposed of, or may longer be worth anything, and which should be written off. If a depreciable asset has been sold, the amount written off should be reduced by any proceeds received.
Small business concessions
Businesses with a turnover of $2 million or less qualify as “small business entities” according to the tax office. These businesses can claim an immediate deduction for assets costing less than $1,000. They can also pool depreciating assets that cost more than $1,000 and then depreciate them at 15 per cent for the year in which they were purchased, and 30 per cent for each year afterwards (for assets with an effective life of less than 25 years).
Othertax benefits for small businesses include:
- business expenses that have been prepaid for up to 12 months are deductible in the year of the prepayment
- GST can be accounted for on a cash basis, and a deduction can be claimed for any GST paid.
Equipment purchase
There are different options for how equipment is taxed, depending on how it was purchased. They are: Finance lease payments, these are fully tax deductible during the lease, with the residual payment at the end of the lease capitalised and depreciated;
Operating lease payments, these are fully tax deductible during the lease; Outright purchase with borrowings, the interest on the borrowing and depreciation are tax deductible; Outright purchase without borrowings, the depreciation is tax deductible.
Stock valuation
Any stock that will still be held at June 30 should be reviewed and, if appropriate, revalued so that it is valued at either cost, market or realisable value, whichever is lower. Obsolete stock that has no value should either be valued at nil or scrapped prior to June 30. If stock has been made obsolete, make sure that records are kept to support this.
Employees
A deduction can be claimed this year for the quarterly superannuation contribution for employees, as long as the amount is paid in by June 30. Keep in mind that the tax office has ruled that the payment is counted when it is cleared by the superannuation fund. Also, if paying staff bonuses, ensure there are records to show that the bonus was agreed on prior to June 30 2012 so the deduction can be claimed this year.
PAYG instalments
Review PAYG instalment obligations in case it’s possible to reduce the instalment for the June quarter.