1. Delay income and bring forward expenses
Where possible, and cashflow permitting, defer income until next financial year by holding off invoicing until after June 30. If your business uses an accrual accounting system, expenses like electricity or phone can be claimed even if they’re not paid prior to June 30. However Gavan Ord, Business Policy Adviser at CPA Australia, says businesses using a cash-based system can only claim expenses that have been paid prior to the end of June.
2. Prepay costs
Prepaying expenses that relate to a period no longer than 12 months out can boost your deductions. Eligible costs include professional subscriptions, business travel, insurances and loan interest.
3. Review debtors and trading stock
This is one of Bill Nussbaum’s favourite year-end planning tools. Writing off any bad debts by June 30 also lets you claim a refund of the GST paid to the Tax Office on the sale of these debts. Take a good look at stock, too. Nussbaum notes, “Where the market selling price of stock items is below the actual cost price, the taxpayer can generate a tax deduction by simply valuing the stock at market selling value for tax purposes.” Obsolete stock should either be valued at nil or scrapped prior to June 30.
4. Take care with new asset purchases
Last financial year small businesses could claim an immediate write-off for depreciating assets costing less than $6500. Adrian Raftery, author of 101 Ways to Save Money on Your Tax – Legally! says it was one of the best tax concessions around. Predictably, the rules are no longer so clear. The Abbott government plans to reduce the immediate write off down to $1000 (with items over this depreciated at 15% in the first year of acquisition, and 30% thereafter). However, at the time of writing (mid-February), legislation for this has not yet passed Parliament.
Just to add confusion, Gavan Ord says the legislation may not be passed until July – yet it could be backdated to apply from January 1, 2014. The same deal applies to car purchases. Last financial year businesses could claim an immediate tax break on the first $5000 of a vehicle’s purchase price. Under legislation yet to be passed, the entire cost price of a vehicle purchased after January 1, 2014 may need to be added to the depreciation pool.
The bottom line is to speak with your tax adviser before making a major business purchase ahead of June 30.
5. Boost your super
More than 25 per cent of self-employed people have no super savings, and adding to your super means saving on tax while building a nest egg. Your business can claim a deduction for pre-tax super contributions – up to $25,000 annually if you’re aged 59 and under and up to $35,000 if you’re aged 60-plus.
Paying employee super
If your employees are yet to nominate their preferred super fund, you’ll need to make their super contributions to a fund that offers a ‘MySuper’ product – a low-fee option that replaces existing default super funds. Your super fund should have contacted you by now to advise you about their MySuper products. Karen Wantling, Assistant Commissioner of Superannuation at the ATO, says if you haven’t heard from your super fund, you should contact them now. Check out the ATO’s MySuper page for more details.