We are only a couple months out from the next tax year-end so hopefully you have your tax planning in order. If you haven’t stayed on top of your tax throughout the year then buckle up and consider these tips!
You’ll need to act on a number of activities before your year-end (for most of us this will be June 30) so jump into gear to ensure you can increase your tax deductions:
- If you are a profitable small business with a turnover of under $2 million consider making some prepayments before June 30 to bring the deduction into this year. Make sure you keep in mind what this does to your cash-flow though!
- If you have any repair bills coming up then this is the best time to knock these over before June 30.
- Scrap any obsolete, damaged, or depreciated stock. if your stock has lost value then consider discount or getting rid of these items if it is taking up unnecessary inventory overheads or space . You also have the option to value stock at a the lower depreciated cost, market, or replacement value. Make sure you keep record of your approach and that you can prove what you have done.
- Get yourself stocked up for the coming year and take the deduction now by topping up any consumables now.
- Write off any bad debts (i.e. outstanding invoices that are not recoverable due to a customer credit issue). If you are not going to collect them, get rid of them. You need to have given up all action to recover to write off the debt. If you have, write them off in your debtors ledger and claim them as a bad debt.
- Pay annuity or super payments before June 30 including your June quarter SGC payment for your employees. if you don’t make the payments in time then you will have to wait another year before you can take the tax benefit so jump on this one straight away!
- Declare any bonuses or directors’ fees before June 30. You don’t have to pay these pre-June 30 but the company must be committed to the payment. Normally this will be achieved through a resolution of the directors.
- If you need to declare dividends to make appointment of trust income, pre-June 30 is the time to complete the formalities of these.
Also, make sure you watch out for any tax potholes. A good example of this is when you are operating your business through another entity such as a company or trust. This is quite common and makes good sense from an asset protection and separation perspective. However, a problem can arise when you incur expenses on an individual basis, on behalf of your business, and then seek to claim tax deductions for them. A common scenario of this is when there are interest costs on borrowings which ask the question who is entitled to the tax deduction? If the loan is in your individual name then you may want the tax deduction for interest paid at a personal level. You can only achieve this if there is a reasonable relationship between the interest incurred and income you derive from your business. Beware that simply earning salaries or wages from the business is unlikely to satisfy this. And if the loan is in your name then be careful about just having the company make the repayment and claim the interest deduction; here’s where you will get the best out of your accountant!