More often than not, even the savviest startup is a little lacking with the need to keep financial records in order these days. Luckily, it’s a ways off from the end of financial year, so there are a number of things that can be done to maximise your return before that June 30 deadline.
Janna Fikh, principal of Fletcher Tax Accountants, deals specifically with small-to-medium sized businesses and believes the most important thing is having a good grasp of your current financial status at this time of year.
“The biggest mistake for business owners is to do nothing or not know where their business stands,” she explains. “It is important that all business owners have a grasp on the financial viability of their business during regular and consistent periods.
“If business owners are aware of their cash flows and results leading up to June 30, it may prove to be a huge advantage in performing end of year tax planning techniques which fall within the 2012 financial year.”
Fikh also warns against spending just to get a deduction – unless it’s something that the business needs anyway. She recommends asking yourself if you were going to buy that item anyway, or if you are really just picking it up for the deduction.
“Although the expense may be deductible, it is still a reduction of physical cash flow which can be used or saved for something more important,” she says.
Fikh has nine tips that she believes will help small business owners get the most out of their return:
1. Have a non-working or low-income spouse? Consider taking advantage of the superannuation spouse contribution tax offset whereby you receive an offset of up to $540 for contributing to your spouse’s eligible fund.
2. Planning on buying assets for your business? You may wish to wait till
July 1 to take advantage of favourable tax treatments, such as the instant tax write-off of the first $5,000 of any motor vehicle purchased, and an immediate write-off of all assets valued at under $6,500 (up from $1,000 previously).
3. Review your assets for any that are no longer produced, or out of date, before June 30. This has a significant effect on your overall trading profit and, as a result, your tax.
4. Claim a deduction for directors fees – this expense needs to be committed to before June 30 but can be paid post July 1. This ensures the deduction of the director’s fees hits your accounts and ultimately reduces your entity’s bottom line tax liability.
5. Worrying business results? Don’t delay, seek professional advice sooner rather than later before it becomes too late and you pay the price.
6. Reconcile all bank and credit card accounts at June 30. This action saves time and money when preparing your annual accounts.
7. If possible, consider paying your employee’s superannuation contributions for the June quarter before June 30, availing yourself the deduction within your accounts.
8. Have you taken any funds for personal use that have not been repaid? Make sure any adjustments or debt agreements are put into place before June 30.
9. Consider prepaying certain expenses if cash flow allows, thus reducing your overall profit within the yearly accounts, if desired.
David Prichard, a partner with ESV group, also strongly recommends getting in contact with your professional advisor as soon as you can, especially before June 30.
“As a matter of good housekeeping, but especially in the current environment, small business owners should focus on ensuring any bad debts are written off, not merely provided for, to achieve a tax deduction in the current year (not a future year),” he says. “This would also provide some GST relief.”
Prichard also recommends limiting how much cash you draw out of the business at this time of year, until you have a clearer picture of your position.
“One of the most common mistakes SME owners make is to view the cash of the business as being their cash, and they therefore draw out money to fund their lifestyle,” he says. “Where private companies are involved, this can result in adverse consequences unless the matter is appropriately managed.
“The Australian Tax Office (ATO) is a significant stakeholder in any business and therefore, when dealing with them, the appropriate care needs to be taken,” he adds. “SMEs often view a tax return as merely a collection mechanism for the ATO. However, a tax return is much more than this, and it’s important to address it as such.
“How the SME is viewed by the ATO is a function of how the return is completed. For example, if the return is partially completed or inconsistent in disclosures, then it can result in unwanted enquires from the ATO.”
Prichard’s top 5 tips
David Prichard, a partner with ESV group, has five tips that can still be done before June 30 to maximise your tax return.
1. When contributing into superannuation, ensure you understand exactly what you can contribute so that you do not exceed your thresholds, which could lead to tax being levied up to 93%.
2. Understand what you are trying to achieve long-term. If what you are considering as a short-term tax fix doesn’t fit in with your overall objectives, then don’t do it.
3. Pay your employee’s superannuation entitlements for the quarter prior to June 30 in order to claim the tax deduction in the current year.
4. Review your fixed asset registers to ensure you are claiming the maximum allowable depreciation amount, and consider writing off any assets that are no longer in use.
5. If you are a small business entity, expenses that you pay in advance (up to 12 months) can be claimed as a deduction in the current financial year.
David Henderson, business coach, chartered accountant, and founder of David Henderson Online has two items that every business owner should consider:
1. Remember, every dollar expended for tax strategies only saves you your marginal tax rate. So don’t spend money needlessly on something just for a tax deduction. Consider the tax deduction or timing of it as a bonus.
2. Keep in mind that tax happens every year – so don’t just think about this year. Think about the impact of any strategy on the future years’ income as well. For example, if your income next year is going to be higher (and push you into a higher tax bracket), then you may not want to bring forward expenses, or delay income, as overall this may increase your tax (decrease this year’s tax but correspondingly increase next year’s tax further).
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