The end of the financial year is upon us and it’s time to make sure your tax affairs are in order.
And with multiple tax changes for small business in this year’s federal budget, there are more opportunities than normal to maximise your tax savings before June 30.
SmartCompany has asked our resident panel of tax experts for their top EOFY tax tips—and even what to look out for in the year ahead.
So get comfy. Here’s SmartCompany’s top 20 tips for minimising your tax bill this year.
1. $20,000 asset write-off
It was one of the key parts of the $5.5 billion small business package included in this year’s budget and according to Theo Sakell, tax partner at Pitcher Partners, the $20,000 asset write-off scheme is “the big one” when it comes to minimising your tax bill before June 30.
The accelerated depreciation measure applies to all asset purchases up to the value of $20,000 for businesses that have annual revenue of up to $2 million. The scheme, which allows businesses to immediately write-off the full value of the asset, can be used multiple times and effectively reduces the amount of tax a business will pay on an asset faster.
Sakell reminds small business owners the scheme applies to all assets acquired after May 12, so it’s worth checking if anything you have purchased since budget night will fall under the scheme.
The legislation for this budget measure has been voted on and approved by both houses of the Federal Parliament and so small businesses can be assured the scheme will proceed.
Grant Field, chairman of accounting firm MGI, also reminds small business owners the $20,000 write-off scheme will be in place for three years.
2. A changing company tax rate
The House of Representatives and the Senate have also passed legislation for the 1.5% company tax cut for incorporated small businesses and the 5% tax discount for small businesses that are not incorporated.
Sakell told SmartCompany this represents an opportunity for businesses that have flexibility as to when they can record income.
“If you derive business sales income, you may be able to defer sales invoicing or bring forward sales invoicing in appropriate circumstances,” Sakell explains.
“If you are a small business entity, such income could be taxable at the lower tax rate—28.5% for a company and a 5% discount for an individual capped at $1000—in the 30 June 2016 year.”
Aside from taking advantage of the $20,000 asset write-off scheme, small businesses should make use of all other deductions at their disposal.
This could involve bringing forward deductible expenses such as repairs and maintenance into the current year or prepaying monthly costs such as rent, electricity, wages and utilities.
Other deductible expenses may include running and occupancy costs associated with operating a home office.
Sakell also recommends business owners seeking to claim work-related car expenses should make sure they record their odometer readings for June 30 and consider using a logbook to document all car expenses, while those who have travelled throughout the year should check if any of the expenses occurred during their trips are deductible and meet the relevant requirements.
“Super is an oldie but a goodie” at tax time, says Field.
Field says business owners should be aware that there has been a “slight increase” in the superannuation concessional contribution limit this year, from $25,000 to $30,000. The limit remains at $35,000 for those aged 49 and over.
Field says the savings to a “typical mum and dad business” that maximises its super contributions can be substantial, as contributions into your super fund are taxed at 15%, rather than closer to 50% if you are paying the top personal income marginal tax rate on those earnings.
“There’s still significant savings to be had by maximising your super contributions limits,” Field says.
And for those with a self-managed super fund, Field says “transferring surplus wealth into super can be an excellent tax strategy”.
Field says individuals can contribute up to $180,000 a year into superannuation as non-deductible contributions and it is possible to bring forward up to three years’ worth of contributions, which would give a total of $540,000.
“If a mum and dad each put $540,000 each into a self-managed super fund, that’s more than $1 million for the super fund to invest,” he says.
5. Superannuation for employees
It’s also important for employers to make sure super contributions for their employees are in order at this time of the year.
If your business’ cash flow allows it, bringing forward June quarter Superannuation Guarantee Charge payments one month early could be a worthwhile strategy, says Field.
“You will be paying this by July 28 anyway, so consider bringing it forward and paying it before the end of June,” Field says.
Businesses should also be aware of their obligations under the federal government’s SuperStream program, which requires super contributions to be made electronically in a standard data set.
Businesses with 20 or more employees previously had until June 30 to be compliant with the new system. However, the Australian Tax Office told SmartCompany this month it will give these businesses until October 31 to be fully compliant. After that time, businesses can expect to be contacted by the ATO if they are not SuperStream compliant.
Small businesses with 20 or fewer employees have until June 30, 2016, to become SuperStream compliant but SuperStream national program manager Phillip Hind told SmartCompany these businesses should not leave it until June next year to get organised.
“Please don’t leave it to June  because there will be a significant rush, resources will be strained and it might be problematic in that ‘pressure cooker’ environment,” Hind said.
“Get it done and out of the way.”
6. Dividend and income interest
Sakell also recommends business owners consider income earned through interest and dividends at this time of the year.
“For interest received around year-end, examine the timing of interest income closely for tax purposes as interest is typically assessable on a receipts basis,” he says.
The assessment of income from dividends is also important to consider.
“Dividends accrued may not be assessable at year-end if they are only declared but not paid,” Sakell says.
“Make sure you also take into account franking credits in your tax planning.”
7. Trust distributions
If you are the beneficiary of a trust, Sakell says it is important that your tax planning takes into account the expected tax distribution you may receive from a trust, as opposed to the expected accounting or cash distribution amount.
On the other hand, if you are making distributions to other entities or individuals from your trust, you need to make sure your resolutions to make the distributions are made and documented before June 30, says Field.
“One of the things that the ATO has been paying attention to in recent years is the issue around trustee obligations,” Field says.
“If you operate your business in a trust structure you need to decide and document how to distribute the income. Many trustees may not be aware they need to decide and minute who will be the beneficiaries.”
“Make sure that the beneficiaries you have identified are eligible under the trust deed before finalising your trust resolutions,” Sakell adds.
8. Family trust elections
For business owners that also have family trusts, Sakell also recommends reviewing your family trust election requirements to “protect bad debts, carry forward losses and franking credit flow-through”.
“Make sure all new trusts have made an election to be within the family group,” he says.
9. Division 7A
It is one of the biggest tax headaches but the complex Division 7A tax regulations are not something you can avoid at tax time.
Division 7A can affect loans made from a business to directors. The anti-avoidance measures are designed to discourage businesses from distributing loans to shareholders or their associates for personal use and enjoyment.
“You should review Division 7A before year-end to ensure that you do not inadvertently trigger a deemed, unfranked dividend to a shareholder or associate for any loans, payments or debt forgiveness transactions provided by the company,” Sakell explains.
10. Trading stock
Businesses have a choice about how to value their trading stock and that choice can help minimise a business’ tax bill.
“Where you hold trading stock, you can choose to value trading stock at year-end cost, market selling value, replacement value or obsolete stock value,” Sakell explains.
“This can have the effect of either bringing forward deductions or shifting the amounts to the following year.”
Field says it is important for business owners to know the method by which you value your stock can be changed from year to year and also between different items.
“You don’t have to have the same method for everything,” he says.
And Field says if the stock is old or obsolete, make sure you write it off in full.
11. Capital gains tax
If your company has made a capital gain in the current financial year, it’s worthwhile looking at ways to minimise the tax on those gains. This could include selling assets that have incurred a capital loss to offset those that have made gains.
Sakell recommends considering whether assets that were disposed of were held for over 12 months and thus qualify for the capital gains tax (CGT) discount.
“If the amounts are material, you may need to review whether the Australian Tax Office may treat amounts as being on revenue accounts and not eligible for the 50% discount,” he says.
12. Bad debts
Small businesses should also view the end of the financial year as an opportunity to write off any bad debts they have not been able to recoup in the current financial year.
But as is the case with many measures to minimise your tax bill, make sure to document what the debts are and the efforts you have made to recover them.
Bad debts must be physically written off before the end of June—not a few months down the track when you get around to doing your tax return.
Business owners should also make sure the debt in question had previously been included in the business’ assessable income. This could be an issue for cash-based businesses that only recognise income when they are paid. In these circumstances, the debt would not have previously been included in assessable income and therefore the business would not be eligible to write it off.
13. Employee bonuses
The end of the financial year is a good time for SMEs to sign off on any bonuses for employees.
Crowe Horwath tax partner Tim Holloway previously told SmartCompany the “fool-proof” way to make sure you record employee bonuses is to inform the employee in writing. However, the actual bonuses do not have to be paid before June 30. The important thing is a definite commitment has been made and there is a record of the commitment.
It may feel like you are running out of time but most businesses tend to organise employee bonuses within the last few weeks of the financial year.
14. Review depreciables
SMEs should make time this week to review their depreciable assets if they have not already done so.
The ATO publishes a taxation ruling each year about the effective life of assets and this can be used as a guide for business owners when calculating the depreciation rates of their assets.
However this ruling is just a guide and businesses are not obliged to follow it if they can show the life of a particular asset is different to what’s in the ATO ruling. For example, if you can show that the effective life of the asset is shorter than the ATO’s guidance, you may be able to increase the depreciation deductions claimed in your tax return.
15. Claim self-education expenses
Did you know business owners can claim back money they spend on self-education?
Paul Drum, head of policy at CPA Australia, previously told SmartCompany, self-education expenses can be claimed if the study is “directly related to either maintaining or improving your current occupational skills or it is likely to increase your income from your current employment”.
Claimable expenses could include course fees, textbooks, stationery, student union fees and depreciation of other study-related items such as computers and printers.
16. Know what’s on the ATO’s hit list
The ATO is upfront each year about what it will be paying close attention to at tax time.
Thilini Wickramasuriya, tax counsel at The Tax Institute, told SmartCompany work-related expanses are at the top of the ATO’s agenda this year.
“Be mindful that the ATO are currently very interested in taxpayers who access business assets for private use, particularly high-wealth individuals and SMEs,” Wickramasuriya says.
“The ATO will be playing close attention to any work-related expense claims, such as overnight travel, motor vehicle expenses for travelling between home and work, and the use of computers, phones and other electronic devices for work-related purposes.”
And as was the case last year, the ATO is also targeting payments to contractors in the building and construction industries as part of its compliance program. This means it will be closely reading business’ Taxable Payments Annual Reports.
17. Consider keeping your records in the cloud
Using online tools to organise your invoices, receipts and other relevant paperwork could not only save you time before June 30, it could also have longer term benefits for your business’ bottom line.
“You would be shocked at how many small business owners don’t properly track expenses, invoices and customers payments,” says Sophie Hossack, country manager at Receipt Bank.
“If you’re not keeping proper records that you can make sense of at a glance, it could be months before you realise you have outstanding invoices, or worse, miss payments altogether.”
Hossack says cloud-based productivity apps can help small businesses upload and keep track of receipts, bills and invoices and these tools can free up business owners to get back to running their business. These apps can also integrate into accounting software, which again can save time and money.
“Every small business owners pulls out their wallet and buys things on an almost daily basis,” Hossack told SmartCompany.
“They can claim back the 10% GST and the expense is tax deductible, but only if it gets into their books. That’s the beauty of accounting packages that link to your bank account or credit card—these transactions are automatically recorded.”
18. Pay on time
It may sounds obvious, but once you have finalised your tax bill, make sure you pay it on time.
Writing for SmartCompany last June, ATO deputy commissioner Steve Vesperman said paying promptly is the best way for SMEs to avoid any penalties.
“But if you can’t pay or lodge on time for any reason, don’t be afraid to ask us,” Vesperman said.
“We’re as keen as you are for your business to succeed and we have an enormous amount of experience and expertise to help you get back on track.”
“Always lodge your Business Activity Statement (BAS) on time, even if you have nothing to report and we encourage you to leave paper shuffling behind by lodging your BAS and other reporting online.”
19. Call a professional
Don’t hesitate to call on the help of a professional bookkeeper or accountant if you need to.
This is Hossack’s other top tip for the end of financial year. Hossack told SmartCompany “accountants and bookkeepers are trusted and respected allies to small business owners … and will save you time and money almost every time”.
“That said, the cleaner your records, the fewer billable hours you’ll have to pay,” Hossack says.
“Handing over a shoebox of records and expecting your accountant to turn it into a pristine set of accounts can be very expensive at $150 to $200 an hour.”
Hossack recommends getting everything in order yourself but then getting professional advice.
“I know how tempting it can be to save a buck and do it yourself, but when things get technical or taxes are due, save yourself the money, time and headaches and call in a trusted professional.”
20. Plan ahead for the next financial year
Looking ahead to the 2016 financial year, Pitcher Partner’s Theo Sakell says SMEs should pay close attention to the federal government’s tax reform process. He says the tax white paper is likely to canvas options for reform to superannuation, franking credits, negative gearing and capital gains tax discounts, among other areas.
“There’s likely to be more movement in the Division 7A area,” Sakell says. “Many businesses are run through trusts or borrow from them and they may look to simplify the trust area.”
Sakell says even the goods and services tax is “up for discussion”.
“Where that ends up is anyone’s guess,” he says.