Jason Cunningham
Entrepreneur

Jason Cunningham is a finance whiz, speaker and media personality that can be heard on SEN1116 and The Living Room on Channel 10

10 ways to reduce small business tax

Jason Cunningham
Entrepreneur

Jason Cunningham is a finance whiz, speaker and media personality that can be heard on SEN1116 and The Living Room on Channel 10

For many SMBs, the end of the financial year spurs spending to minimise tax. CPA and registered tax agent at The Practice, Jason Cunningham, puts together 10 things he’s seen that can lead to smarter tax planning. The views below are these of Jason and The Practice and not Telstra. Telstra does not endorse the content or material.

We’ve all been there.

Standing around the barbie, listening to someone go on about how little tax they pay.

But when you scratch the surface, you often find out the reason they’re not paying tax isn’t due to clever fiscal management, it’s because they’re not turning over as much as they’d like.

Paying tax is not necessarily a bad thing. For one, you get that warm inner glow from contributing to society, but more importantly, it means you’re making money.

For most people, tax is a significant outlay – so it makes sense to take steps to only pay your fair share. But too many people get caught up in the notion of ‘maximising their minimising’ – and in the effort to save a few dollars, perversely end up spending more.

Australia has a long history of tax minimisation – activities primarily focused on reducing tax, rather than generating a return or acquiring an appreciating asset. Over the years, Aussie businesses have tried many and varied ways to get out of paying their fair whack (within the boundary of the law).

But to what aim? The most a company will recoup on tax minimisation spending is 30c in the dollar (I’m excluding overseas multinationals); for individuals on the top marginal rate, that rises to 47c (less than half)).

Savvy small businesses should always focus spending on a primary income-generating purpose – the associated tax benefit should be secondary. I’d rather see my clients reinvest money back into their business or purchase assets that will appreciate and generate an income (such as property or shares).

That said, there are some simple, smart and legitimate ways business owners can reduce their tax bill.

Mobile phone and credit cards on desk
10 ways to HELP reduce your tax bill*
  1. Concessional superannuation cap. For people aged 49 years or over on 30 June 2014, the concessional superannuation cap (the money you can put into super before tax) is $35,000 per year, and $30,000 for those under 49. If you go over this limit, you’ll pay more tax, so I would consider putting in as much as feasible under that.
  2. Employee superannuation payments. It’s a good idea to ensure your employee superannuation payments have cleared your business bank account by 30 June.
  3. Asset depreciation. If your business turns over less than $2 million, depreciating assets (including motor vehicles) valued at less than $1,000 will be immediately deductible, and assets valued at more than $1,000 will be depreciated in one pool at a rate of 15 per cent in the first year, and 30 per cent in future years.
  4. Tools of trade / FBT exempt items. The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. Items include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones. I’d recommend trying to get these items before 30 June, if you can.
  5. Defer income. Where practical, I’d recommend considering deferring  further invoices and/or receiving cash/debtor payments until after 30 June. This will defer the tax on this income.
  6. Bring forward expenses. I would think about purchasing consumable items (e.g. stationery, printing, office and computer supplies) before 30 June. You can claim back on these on your tax return.
  7. Motor vehicle log book. It’s a good idea to keep an accurate and complete Motor Vehicle Log Book for at least 12 weeks (start date must be on or before 30 June). I also make a record of my odometer reading at 30 June, and keep all receipts/invoices for motor vehicle expenses throughout the year.
  8. Year end stock take / work in progress. If applicable, prepare a detailed stock take or work in progress listing as at 30 June. Once this is complete, I’d think about reviewing my listing and writing off any obsolete or worthless stock items.
  9. Write-off bad debts. I also think it’s wise to write off all Bad Debts before 30 June, with minutes of a directors’ meeting listing each bad debt as evidence these amounts were written off before year-end.
  10. Investment property depreciation. If you own a rental property, consider getting a Property Depreciation Report, so you can claim the maximum amount of depreciation and building write-off deductions.

Telstra has provided you with access to a range of articles and information which may be of interest to you and your business. The content of our articles does not constitute the provision of financial or taxation advice, and we strongly encourage you to seek independent professional advice or consider for yourself if this information is appropriate for you and your circumstances.
* Adapted from 2015 Business Tax Planning Strategies, ChangeGPS

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