With the end of the financial year just around the corner we highlight below the main points worth considering this tax time.
It is worth noting that we would always recommend having a detailed look at the best tax strategy overall for your business as a whole. In the interest of time and ease of reference, here’s what we recommend for businesses in different situations…
1. Business Has Taxable Profits
If the business is forecast to earn taxable profits, consideration should be given to the following:
- Are there brought-forward tax losses that can be offset against current year profits?
- Is it worth considering paying additional salaries to the directors/owners (review in conjunction with personal tax position)?
- Receive additional tax deductions by making employer contributions to super. NB: super contributions limited to $27,500 and must be physically received by the super fund before 30 June. Furthermore, this option should be considered in conjunction with current cash balances and future working capital requirements.
- Can the business prepay any expenses e.g. rent, insurance?
- Can the business delay sending out sales invoices until 1 July? Note that this is purely for timing benefit only
- Is it worth delaying the sale of assets to defer the capital gains to the following year?
- Small Business Enterprises (SBE) can receive an immediate asset write-off for asset purchases up to $150,000. Again, this option should only be considered in conjunction with working capital requirements.
- Are there any specific debts that should be written off as unrecoverable?
- Ensure super liabilities are paid and received by the employee’s fund before 30 June
2. Business Has Taxable Losses
Even if the business is expected to make tax losses, there are steps you can take to reduce your overall tax liability, namely:
- Reduce salaries paid to directors/shareholders, thereby reducing the tax losses in the business, whilst minimising tax paid by the individual
- Forward date sales invoices to 30 June (where possible)
- Push back expenses to 1 July (where possible)
3. Rental Property Owners
Leading up to 30 June rental property owners can optimise their EOFY tax position by:
- Prepaying interest – interest paid prior to the year-end can be claimed as a deduction
- Depreciation Report – getting a report can add thousands of dollars worth of deductions to your rental property claim
4. Other matters worth bearing in mind include:
- Future plans for the business, including forecast performance for current and future years. It’s easy to get stuck in the weeds of your business. Now is the time to look ahead to make sure you are venturing into the new year on solid footing.
- Have you received a ‘loan’ amount from your private company – i.e taken money out but not paid a salary or director fees or declared a dividend. If so you may need to take some urgent action by 30 June to avoid some harsh tax consequences imposed by Division 7A of the Tax act. Please talk to us if you are in this position.
- Franking account balance and whether it is worth declaring dividends
- Current cash balance and forecast working capital requirements. We cannot stress enough how important this is. As important as it is to make sure all loose ends are tied up prior to financial year end, it’s critical to ensure that you’re looking ahead and planning for sustainable growth. If you operate through a trust ensure you make a trustee resolution to distribute the trust income by 30th June.
Planning for EOFY is crucial and it’s worthwhile speaking to a qualified tax agent to ensure that your tax affairs and your tax planning is in order. Can we help?