We are down to the last week. You’re only days away from June 30 and hopefully you have your tax planning in place.
Ideally it will have been an all-year event for you. But if, like many, you have left it to the last minute, here are some top tips that might lessen your tax pain.
You will need to act on all of these before June 30 and if you do, they will increase your tax deductions. Just don’t leave it until the last minute again next year.
- Write off any bad debts. 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.
- Scrap any obsolete or damaged stock. If it has lost its value then it may only be taking up space. You also have the option with all of your trading to stock to value it at the lower of cost, market, or replacement value.
You can make this choice on your stock item by item. You don’t have to use the same method for all of your stock. You do need the records though to prove what you have done.
- Make your super payments before June 30 including your June quarter SGC payment for your employees. Pay it before the month’s end and you get the deduction this year. Pay it in early July and you’ll wait another year for the tax benefit.
- If you are a small business entity with a turnover of less than $2 million and you know you are profitable, consider whether you should be making some prepayments before June 30 to bring the deduction into this year. Keep in mind the cashflow effect this will have.
- 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 have any repair bills coming up, get them out of the way before June 30.
- It might be worthwhile to top up the consumables in your business. Get yourself stocked up for the coming year and take the deduction now.
- 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 traps.
Some recent tax cases are a reminder of the risks you run if you don’t keep sufficient separation between personal and business. Get it wrong and you can lose valuable tax deductions.
The risk occurs 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.
The problem occurs when you incur expenses on an individual basis, on behalf of your business, and then seek to claim tax deductions for them.
The most common example of this is interest costs on borrowing.
The problem comes down to who is entitled to the tax deduction. If the loan is in your individual name, you may want the tax deduction for interest paid at a personal level.
You can only achieve this if there is a reasonable nexus between the interest incurred and income you derive from your business. And simply earning salary or wages from the business is unlikely to satisfy this.
If the loan is in your name, also be careful about just having the company make the repayment and claim the interest deduction. Your company could run into Division 7A problems and trigger an unexpected tax outcome.
Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.