Having a tax plan in place before 30 June will enable you to make strategic decisions to maximise your returns come tax time.
Tax planning tips
The end of the tax year will soon be upon us with 30 June just around the corner. Now’s a good time to take a look at both your expected taxable income (essentially your business’s assessable income, minus any allowable deductions) for the current financial year 2019-20; and your projected/expected taxable income for 2020-21, as they will help guide your tax planning strategy.
If you are expecting to have a higher income this financial year, compared to your projections/expectations for the next financial year, you can talk to your accountant to consider:
- Prepaying some of your 2020-21 expenses (such as your rent, insurance or subscriptions to professional associations) in the 2019-20 financial year. Up to 12 months of the following year’s expenses can be deducted in the current tax year.
- Taking advantage of the instant asset write-off, which enables you to immediately deduct assets you purchase for your business costing less than the associated threshold (whether the asset is purchased new or second-hand). Thresholds have changed over the past few years, and will reduce to $1000 from 1 July 2020, so check the ATO website for full details.
- Reviewing and postponing some of your invoicing for the current tax year, if appropriate.
- Topping up your voluntary superannuation contributions.
- Reviewing your debtors and writing off any unrecoverable debts.
- If applicable, deducting any start-up expenses – such as obtaining legal or accounting advice on your business structure, and fees in relation to establishing the structure (eg. ASIC company registration fee).
If you are expecting to have a higher income next financial year (2020-21), you can talk with your accountant to consider:
- If it’s appropriate to do so, bringing forward any invoicing into the current financial year for scheduled work that will be carried out in the next financial year.
- Paying your expenses as they are due, rather than pre-paying them in advance during the current tax year.
- Purchasing any required equipment or business assets in this year. If you decide to purchase business assets, you should base this decision on the needs of your business. For example, you might need to purchase a vehicle for deliveries to help expand your business operations in order to achieve business goals, or because it is in line with your business plan.
Tip: Avoid spending on business assets for the sake of claiming tax deductions, In most cases, you’ll find yourself paying $1 to save 30 cents* in tax (*based on the most common business tax rate).
Additional tax tips for small business owners:
Below are some additional tax planning strategies to discuss with your accountant.
GST cash accounting
This means accounting for GST on a cash basis rather than accruals, so you pay GST to the ATO when you actually collect it, not when you issue your invoice. GST cash accounting is also good for improving your cash flow.
Small business restructure rollover
This tax planning strategy is useful in situations where you may be looking to change from a family partnership to a family trust. If you’re a small business entity (SBE), you can transfer an active asset of your business (such as goodwill) to another SBE as part of a genuine business restructure, where there is no change in the ownership of the assets. This means no capital gains will be payable. However, state transfer tax might still apply.
Instant asset write-off vs depreciation
You could take advantage of the government’s instant asset write-off which affects those with an annual turnover of less than $500 million.
- However as part of your tax planning you should compare which is better: instant asset write-off vs depreciation
In a nutshell; as businesses grow and make more income, there may be a greater benefit in not using the instant asset write-off, as you may lose out on on-going deductions and depreciation.
The ATO provides useful information on simpler depreciation for small business.
Is your return correct and current?
Having accurate and current information is another important aspect of tax planning that can help you maximise your deduction and allow you and your accountant to make informed tax decisions. This includes:
- Ensuring the log books for your business vehicle are up-to-date. You’ll need to start a new log book if your current one is more than five years old or your vehicle usage has changed significantly. You could also consider investing in one of the many mileage tracking digital apps available.
- If your business carries stock, do your stocktake as at 30 June 2019. NB: If your estimated closing stock (and opening stock) is less than $5,000 you do not have to do a stocktake.
- Accounting for the private use of business assets, such as motor vehicles, when claiming GST on expenses. For example, if you’re claiming 100 per cent GST on motor vehicle expenses but 20 per cent of the vehicle’s use was private, you’ll need to adjust your annual GST private apportionment claim to factor in this personal use.
If you have been affected COVID-19, the ATO can help by:
- giving you extra time to pay your debt or lodge tax forms such as activity statements
- helping you to find your lost tax file number (TFN) by using methods to verify your identity, such as your date of birth, address and bank account details
- re-issuing tax returns, activity statements and notices of assessment
- helping you re-construct tax records that are lost or damaged
- fast tracking any refunds owed
- setting up a payment plan tailored to your individual circumstances including interest-free period
- remitting penalties or interest charged during the time you have been affected.
Contact their emergency support line 1800 806 218.
If you have any questions about tax planning speak to your accountant. For general advice and guidance, contact our free small business advisory service.