12 End Of Financial Year Tips for Small Businesses
Correct for the 2021 and 2022 Australian income years
The end of the current financial year is the perfect opportunity to save as much money as possible. Our expert tax accountant team has carefully selected 12 tips to help you do just that. By following them, you’ll ensure that you’re spending smarter and that your business starts the next year in an even stronger financial position. Whether your business exists as a sole trader, partnership, company or trust, these are the 12 smartest things you can do to legally minimise your tax. And what business owner wouldn’t want to do that? So, let’s get started –
Tax tip #1: Claim the enhanced instant asset write-off
The instant asset write-off scheme allows most Australian businesses to immediately write-off the cost of assets they buy (up to a threshold limit), rather than having to depreciate them over several years. Our tax consultants guide their clients to make use of the write-off, because that allows you to reduce your business income and therefore reduce the amount of tax your business is required to pay.
Tax tip #2: Take advantage of temporary full expensing
The second tip our tax consultants recommend is taking advantage of temporary full expensing, which is an enhancement of the instant asset write-off scheme mentioned above. The scheme is a federal government initiative, designed to try and offset the business impact of COVID-19 restrictions. If your business has an annual turnover of less than $5 billion, you can write-off the full cost of any new asset purchased after October regardless of its value. If your annual business turnover is less than $50 million, you can also write off the full cost of any second-hand assets bought after this date. The temporary full expensing scheme will be in place until the end of the financial year.
Tax tip #3: Use the temporary loss carry-back rules for company returns
If you have a company with an annual turnover of less than $5 billion and you have made a loss this financial year, you can claim a refundable tax offset against the tax you paid in the year before and/or the coming financial years.
Tax tip #4: Maximise your tax-deductible business expenses
Our tax consultants help you claim every eligible tax-deductible business expense, which reduces your income, and subsequently, the amount of tax you need to pay. Here are some of the most popular examples of common business expenses you can deduct include:
- Marketing/advertising costs
- Business motor vehicle expenses
- Business travel
- Staff wages
- Phone costs
- Rent on your business premises
- Interest on business loans
- Equipment repairs and maintenance
- Insurance
- Depreciation on assets that you can’t immediately write-off
Tax tip #5: Prepay future tax-deductible expenses
If you have any inevitable future tax-deductible expenses, you could pre-pay them in the current financial year to reduce your tax obligation. For example, you could pre-pay your next year’s insurance premium or pay some of your rent in advance, if you lease your business premises.
Tax tip #6: Keep records of all your tax-deductible expense claims
You need to be able to prove all your business expense claims if you are ever audited by the Australian Taxation Office (ATO). The ATO conducts numerous audits each year to ensure compliance with Australia’s tax laws. You are legally required to keep business expense records for up to five years from the date your claim is lodged. Records can be printed (e.g. receipts) or saved electronically. Either way, make sure they are stored securely, organised and readily accessible in case you need them.
Tax tip #7: Keep your business and personal expenses separate
This will help to make tax time as quick and pain-free as possible. There’s nothing worse than having to spend time working out which expenses are business-related and which are personal at the end of the financial year. And if you hire someone to do it for you, it could cost you money unnecessarily. The easiest way to keep your business and personal expenses is to have separate bank accounts for both. This will make it easier come tax return time, where your tax accountant will have all the information they need in one place.
Tax tip #8: Delay receiving income if you can
Our tax consultants recommend delaying invoicing your customers as the end of the financial year gets closer. If you can afford to delay sending invoices until after June 30, you’ll delay paying tax on that income this financial year.
Tax tip #9: Take advantage of simplified trading stock rules
If you sell products and have an annual turnover of less than $10 million a year, you can take advantage of the ATOs simplified trading stock rules.
This means that you won’t have to conduct a time-consuming end of financial year stocktake if the value of your inventory has changed by less than $5,000 this financial year.
Tax tip #10: Defer or minimise any capital gains tax (CGT)
You can defer any CGT liability you may have on the sale of any of your business assets if you delay the sale until after June 30. If you will have to pay CGT this financial year, you can minimise the amount by ensuring that you:
- Calculate the correct cost base for your asset.
- Bring forward any capital losses that you may have had in prior years to offset current capital gains. There is no time limit for bringing forward a past capital loss.
- Don’t sell an asset you buy within 12 months. If you do, you aren’t eligible for the 50% CGT discount that applies when an asset is held for more than a year.
- It’s worth checking to see if any of these apply to you to save on taxes.
Tax tip #11: Budget for your tax payments
It’s important to plan ahead for your tax obligations, just like you should for all your other business expenses. Make sure that your cash flow will enable you to make your quarterly PAYG installments on time if you have staff, or your monthly/quarterly GST via your business activity statements.
Tax tip #12: Set up a more tax-effective business structure for the future
Different business structures pay different rates of tax. For example, sole traders and partnerships pay tax at individual marginal rates. You can potentially lower the rate of business tax you pay by setting up a company or discretionary family trust. The company tax rate for small businesses in Australia is 26%. This is lower than the marginal tax rate for individuals earning more than $45,000 per year, although there is no tax-free threshold for companies like there is for individuals.
There are also costs associated with setting up and maintaining a company structure, so the tax benefits need to outweigh these costs. It’s best to seek professional advice to see if setting up a company structure for your business would be financially worthwhile.
A discretionary family trust allows you to distribute business income to other family members who have lower marginal tax rates. You can use this arrangement to reduce the amount of tax you need to pay. A trust can also help you to protect your assets against any future claims from creditors.
However, as with setting up a company, setting up and managing a trust incurs costs. Again, it’s best to seek professional advice from a tax accountant to see whether the tax benefits would outweigh the costs for your specific circumstances. Remember, the ATO conducts regular audits to ensure businesses are paying the correct amount of tax, and they have sophisticated data-matching technology to detect all your income sources.
Teaming up with an expert tax accountant
These tips are just a few of the ways My Tax Accountant helps businesses and individuals get the most out of their tax returns. We’re not just affordable tax return agents for individuals, but are experts in tax dispute advice and any other tax related services a business may require. Get in touch with a member of our team today, and we’ll help your business stay on top of your tax responsibilities.
Disclaimer: This document should not be interpreted as tax advice. All information is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.