Tax Planning - some hints and tips - for businesses

With the end of the Financial Year just around the corner it's important to ensure you have your tax planning under control. Below are some hints to ensure you are prepared for the end of the Financial Year:

  • Ensure your Superannuation Guarantee is paid before the 30th June. Did you know that unless your last quarter Superannuation is actually paid before the end of the Financial Year you cannot claim it as a tax deduction in this Financial Year? And more importantly that unless it is paid by the due date (28th July) it is not claimable in the next financial year? So make sure the contribution is made before the 30th June and you will get to claim the tax deduction in this financial year. If you are thinking about additional savings via Superannuation again this needs to be done before the end of the FInancial Year. You can contribute $25,000 each per year and claim a tax deduction in your business for the contribution (unless you are over 50 where you can contribute $50,000 each). You can also contribute additional amounts that won't qualify for a tax deduction but we will leave that for another newsletter
  • Write off Bad Debts. In order to claim a deduction for a bad debt you must ensure this amount is written off prior to the end of the Financial Year. Writing off a bad debt means that you are loosing out on that exact amount of money from your bottom line profit. Instead of just writing debts off we suggest reviewing your Accounts Receivable and ensuring you have exhausted all avenues of collection before writing this debt off. Do a Stock Take! It's important at the end of the Financial Year that we have the correct value of your trading stock. This is both for taxation purposes as well as cashflow and planning purposes. Without this it is very hard to determine just how your business has performed for the last year.
  • Spend - if there are things you need in your business (consumables not equipment such as magazine subscriptions, stationery etc) that you would have to buy in July or August we suggest purchasing these in June so you can claim the deduction this financial year. Be careful here. There is no need to go out and spend money to get a tax deduction on things that you don't need. After all that is just a waste of money!
  • Defer Income. Be smart with your invoicing. Billing large amounts on the 30th June will sure make your figures look good but if you are on an accruals for accounting you will need to pay tax on that billing this Financial Year. Look to defer until 1st July or later if possible Review your Plant and Equipment.
  • If you have assets on your register that you no longer use make sure you write them off before the end of June. Sale of Assets - make sure you get your timing right. If you are going to make a capital gain on the sale of an asset and you don't have any carried forward losses it may be wise to defer this sale until next financial year. You also need to watch the 12 month date for those of you who qualify for the 50% discount.
  • Directors Fees / Bonuses - If you are looking to pay a Bonus to your staff or Directors Fees to yourself if your business is structured through a Company you need to ensure the commitment to pay these is made prior to the 30th June. The good news with Directors Fees is that the business can claim a deduction this Financial Year and if you don't actually pay the fees to yourself until next Financial Year you won't need to declare the amounts in your personal tax return until next year when they are paid.
  • Dividends - If you want to pay Fully Franked Dividends to yourselves it is important to ensure you have paid enough tax in the Company to match the level of dividend you want to pay.
  • Review your position -Timing can be the most important thing when looking at an overall tax strategy. You may have a lower taxable income therefore tax rate this year and know that you will have a much higher tax rate next year. If this is the case you may want to bring forward income and defer making additional super contributions etc until next Financial Year when your tax rate will be higher.

The above are just some broad hints and tips for reducing your tax liability this Financial Year, but as suggested in the last point reducing tax this year at the expense of deductions next year may not be the best strategy. As always there is never one strategy that suits everyone so it's important to ensure the strategy you are adopting is the best for your circumstances. And more importantly reducing tax is not the ultimate aim here! Making profits is........