With the new financial year almost upon us, many small businesses will be looking to indulge in a little last-minute tax planning to reduce their tax bill or increase their tax refund.
And why not? Now is a great time to bag a tax deductible bargain and minimise the cash flow impact before you lodge your tax return sometime after 1 July.
The small business $20,000 instant asset write-off is particularly valuable at this time of year. As a reminder, businesses with a turnover of less than $2m can purchase capital assets with a cost (net of GST) of $20,000 or less and claim an immediate 100 per cent deduction for the cost of that asset, rather than writing it off over several years, as used to be the case.
As we near the end of the tax year, though, a bit of caution is required. In order to claim the deduction, you need to not only make the purchase but the asset acquired needs to be installed ready for use by 30 June. So, going into a store on 30 June and acquiring, say, a computer which won’t be delivered to your business until sometime in July simply won’t cut it. That computer needs to be in your office, out of its box and set up ready for action before midnight on the 30 June.
The tip is, then, don’t leave it to the last minute and don’t purchase something which is out-of-stock and won’t be back in store until July!
As for other time sensitive tax tips, try these:
• Pay super contributions early
Employers have to pay superannuation contributions within 28 days of the end of the quarter. So, June contributions must be paid by 28 July. However, if your cash flow enables your business to make pay those contributions by 30 June, you can accelerate the tax deduction. Be careful though: contributions must be actually paid, cleared in the business bank account and received by the employee’s super fund before 30 June for a tax deduction to be available.
• Pre-pay expenses
Small businesses can get an immediate tax deduction for certain pre-paid business expenses. The basic rule is that a deduction is available for expenses that cover a period of no more than 12 months. That covers expenses such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges and bookings for seminars or business trips. Those payments must be made by 30 June.
• Write-off bad debts
No business wants to be in a position where they can’t recover outstanding debts but we have to be realistic and acknowledge that it does happen. The good news is that if your business has to write-off a debt, a tax deduction is available for the amount of the debt written-off. At this time of the year, it makes sense to go through your debtors list and if there are any you believe can’t or won’t pay, make sure you write-off those debts by 30 June to claim the deduction this year. Be sure to keep a paper trail of this process.
Mark Chapman, H&R Block director of tax communications, writing on behalf of H&R Block and Officeworks.
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