Tax planning for your small business is something you should always be thinking about. And don’t just think about tax planning as a way of claiming more tax deductions, it’s also a really effective way to clean up your business operations ready for a new financial year. And with financial year-end almost here, there are some really important questions that you should cover off.
It’s important to review your unpaid invoices (debtors list) as small businesses can claim a deduction for old debts which are not recoverable.
Unless you are a sole trader operating on a cash basis, generally income is assessable when an invoice is issued. This means you might want to hold off invoicing clients until July so that it is taxable in the next financial year.
It’s important to review your list of assets as small businesses can claim a deduction for the remaining value of any asset which is no longer used.
If your business carries stock (for example if you are a retail business), then a stocktake is generally required to be done before year-end. During your stocktake, identify unsaleable and damaged stock as, if disposed or gifted to charities, these are able to be written-off and claimed as a tax deduction.
Small businesses can claim a deduction for the entire purchase price (up to $1,000), rather than having the deduction spread over several years. So purchasing new equipment now means you can get a tax deduction this financial year.
However, please note that the legislation confirming this new threshold of $1,000 has not yet been passed by Parliament. Although the ATO confirmed the change from $6,500 to $1,000 threshold prior to 31 December 2013, it will depend on the composition of the new Senate from July.
If you are paying yourself or your staff a bonus you need to think about whether you pay it in this Financial Year (this month) or early next year. Paying the bonus this month, will mean you can claim a tax deduction for the payment this financial year.
If your small business is a company, you need to consider if the company will be paying a dividend this financial year or next. Declaring a dividend next month means you have an additional year to pay the tax on it. You can read more on taking money out of your company here.
Generally if the director or shareholder owes the company money and there is no agreement in place, the loan must be repaid by the lodgement date of the Income Tax Return for that year. Ignoring these issues could result in an unfranked dividend paid to the shareholder (which means you will effectively be taxed twice, both in the company and in the shareholder’s tax return). Make sure you get your tax planning around this right so you’re not caught out!
If your small business is trading through a trust, the trustee will need to determine which beneficiaries are receiving a distribution and what proportion of the income before year end and prepare a minute resolving this.
If you pay your staff super contributions after 30 June (even though payments are not due until 28 July), then you will not be able to get the tax deduction until next financial year. You can only claim a deduction for superannuation when the payment is received by the superannuation fund, so get in early with these payments to ensure you receive the tax deduction this financial year.