Another year-end approaches and now is the right time to get your accounts up to date and to look at effective tax planning to minimise tax payable. Businesses have had a turbulent two and half years and are now facing new economic challenges of increasing costs in energy, fuel and freight charges, stock and labour shortages and wages growth, combined with rising inflation and increasing interest rates.
Tax time provides an ideal opportunity to ensure your tax affairs are in order, obtain essential professional tax advice from your tax accountant and see if you can improve your tax position to safeguard you for the future.
Strategies that are important for business are:
A key principal of tax planning is to defer income and bring forward expenses where possible. We recommend ensuring any income which has been declared in your records, but for which the product or service is yet to be delivered, be clearly identified as unearned revenue. This is because those amounts can legitimately be deferred for income tax purposes until the product or service is actually delivered. Similarly, it may be worthwhile considering whether you’re able to bring forward expenses such as a prepayment of interest or rent as these can potentially have a significant impact on your tax position.
It is important that debtors are reviewed on a regular basis. Your accounting software can assist you in monitoring your customers and overdue payments. Reports and regular reminders can be set up automatically in your accounting software. Businesses can claim a deduction for bad debts when various conditions are met. Examples include where the debtor cannot be traced, the debtor is in liquidation or receivership, there are insufficient funds or assets to satisfy the debt or there is little or no likelihood of the debt being recovered. A tax deduction may be available where bad debts are written off prior to 30 June.
Stocktakes should be performed routinely and ideally at least at the end of each financial year. Essentially, stocktakes can help identify margin creep, discrepancies in records or processes, fraud, old and obsolete inventory that may need to be written off, and ensures the stock on hand figure is accurate. The Simplified Stock Trading Rules provide eligible small businesses with the option of using simplified trading stock rules at end of the financial year. To see if you are eligible, please contact us, your Brisbane tax accountants so we can advise on your specific situation.
There are several ways you can depreciate your assets and many businesses use the simplified depreciation rules. Temporary full expensing allows eligible businesses to immediately deduct the full cost of eligible assets. The assets must be first held, and first used or installed ready for a taxable purpose by 30 June.
If you are a small business that chooses to use the simplified depreciation rules, you can apply the temporary full expensing rules, including the deducting of your small business pool at the end of the income years ending between 6 October 2020 and 30 June 2023. If you are unsure what taxation depreciation incentives apply to your business, please contact us and we advise you further on what is available for your business.
Some businesses look to improve their current year’s tax position by bringing forward the June quarter superannuation guarantee (SG) contributions before 1 July (not due until 28 July). The income tax deduction is only available in the income year the contribution is made. Super contributions are deemed to be made when the payment is received by the fund – as distinct from when it is paid. The majority of SG contributions are paid to a clearing house, so the business needs to allow for ample time for the payment to be received by the fund. The timing of the payment is crucial for the deductibility of the business.
In certain situations, it may be prudent for companies to resolve to pay directors’ fees or director bonuses in the current financial year, but not physically pay them until the following financial year. The aim of this is a degree of tax deferral, whereby a company commits itself to pay directors’ fees or bonuses in the current financial year and a deduction is claimed, but the company incurs no expense.
In order to claim a deduction in the current 2022 financial year, there must be a definite liability to pay the amount in question, and this liability must arise on or before 30 June. This can be achieved by the company passing a properly authorised resolution by this date. The amount of directors’ fees or director bonuses must actually be paid in the following months and at least by the end of the following income year. When those amounts are paid, for a deduction to be claimed, the standard PAYGW rules must be complied with.
Two new technology incentives were announced in the 2022-23 Budget for eligible expenditure incurred between 7:30 pm 29 March 2022 until 30 June 2022. However, these measures are not yet law and if the new Federal Government does not proceed with these, then you will not be able to claim the additional 20% deduction.
- Small Business Technology Investment Boost is an additional 20% deduction available for the cost of business expenses and depreciating assets up to $10,000 that support digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services
- Small Business Skills & Training Boost is an additional 20% deduction available for expenditure incurred on eligible training courses
Having the right tax planning strategy in place for your business can be the difference between a good year or a bad one so it’s important to get yours right. Discussing it with your tax accountant or business advisor and finding out what strategies are best for your business, gives you the peace of mind that you are dealing with experts in the industry. While it may be easier to ask a business friend for advice, speaking to an expert that understands the tax rules and all the latest changes, could save you time and money.
Your business success depends on how well you have planned and executed your management strategy. We have an experienced team of accountants, consultants and business advisors who work with you to plan your business growth. Our team offers ongoing hands-on support to make your vision happen. We have found that small to medium business that uses our business advisory and coaching services gain valuable insights that take their business in rewarding new directions and helps them discover weaknesses before affect profitability.