With the end of the financial year fast approaching, every business owner should take time to assess their financial situation and assess whether the business is ready for tax time. It is an ideal period to review the previous 12 months and develop strategies and plans for the future.
Capital losses
Selling poor-performing assets may enable you to bring forward a capital loss that can be offset against any capital gains made throughout the financial year.
Write off bad debts
Bad debts can be deducted against taxable income if they are written off before 30 June, provided the debts have been previously included in assessable income.
Prepaid expenses
Small business entities and individuals not carrying on a business may bring forward deductible expenses such as rent, repairs and office supplies that cover a period of no more than 12 months.
Company tax cut
The small business company tax rate has been reduced from 30 per cent to 28.5 per cent for income years commencing on or after 1 July 2015. The maximum franking credit that can be allocated to a frankable distribution will remain unchanged at 30 per cent on all taxable income, even if a small business is eligible for the 28.5 per cent tax rate. Eligible small businesses will need to monitor their franking accounts when paying dividends at year end.
Trust resolutions
Trustees of discretionary trusts must make and document resolutions in relation to how trust income will be distributed among beneficiaries before 30 June.
Defer income
Businesses that return income on a cash basis may benefit from delaying the 'receipt' of the income until after 30 June. Businesses that return income on a non-cash basis may benefit by delaying the issuing of invoices until after 30 June.
Employer contributions
Ensure all superannuation guarantee contributions for employees are up-to-date and contributions are paid to the employees’ funds before 30 June to claim a current year tax deduction.
FBT for work-related devices
From 1 April 2016, an FBT exemption will be allowed for small businesses that provide their employees with multiple portable work-related electronic devices, even where the devices have similar functions.
Primary producers
From 12 May 2015, primary producers can immediately deduct the costs of fencing and water facilities. The cost of fodder storage assets can also be deducted over three years.
Under $20,000 asset write-off
Small business entities (turnover under $2 million) can write off purchases less than $20,000 immediately (in the year of purchase), if the item was purchased after 12 May 2015. The Coalition government announced an increase to the small business turnover threshold to $10 million from 1 July 2016, meaning businesses with between $2 million and $10 million turnover may wish to defer non-essential asset purchases until after 1 July 2016.
Write-off obsolete stock
Write off slow moving, old and damaged stock by 30 June for an immediate tax deduction. Stock must generally be physically disposed of for income purposes to receive a deduction; however, a deduction may be claimed for obsolete stock still on hand in certain circumstances.
Start-up expenses
From 1 July 2015, small business entities starting up a business are entitled to immediately deduct a range of expenses associated with starting a new business. The deductible expenses include professional, legal and accounting advice, and government fees and charges.
Andrew Graham, national head of business advisory, RSM Australia
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