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Tax Matters - Tax Strategies for you and your business!
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Inside:
Every small business owner knows the stress that comes with the end of financial year.
A lot of valuable time and energy gets poured into getting your paperwork in order and making sure that you’re minimising your tax bill as much as possible.
The good news is that there is still time to sort things out, and with this checklist you can feel confident that you are on top of your tax:
If you’ve been organised this year then you deserve to give yourself a big pat on the back! However, taxpayers who have fallen behind on any record keeping, are advised to take any necessary steps to get up to date, including seeking external assistance. Record keeping is critical and it is imperative to stay on top of your responsibilities.
Unfortunately, there will be times that a client does not pay you for work that has been completed. This is known as having a bad debt and it is an extremely frustrating situation for any business owner.
A small consolation can be found in the fact that bad debts are tax deductible. In the event that you have a bad debt, it should be formally written off in your financial records. You will then be able to claim it as a deduction against your taxable income. It may also be necessary for you to provide the ATO with proof that you have taken reasonable steps to recover the amount.
These changes may be from the last financial year, and, therefore, require you to take certain steps in the next few weeks. There may also be additional changes that will be announced in the upcoming May Budget. It is important to be aware of any impending changes as they may influence your tax strategy and decisions as June 30 approaches.
Retailers and wholesalers are required to undertake a stocktake at the end of each financial year. However, if your annual turnover is less than $2 million and the difference in value between your opening and closing stock can reasonably be estimated to be less than $5000 then you are exempt from this requirement.
The end of financial year is a good time to think about your capital gains and losses for the year.
Timing and planning are everything when it comes to minimising your CGT bill and making the most out of your investment returns.
Capital gains tax (CGT) is incurred when a taxpayer disposes of an asset, for example, commercial and residential property, shares, units in unit trusts or collectables. Where the asset is sold for a price that is higher than the cost base (which may be calculated based on the purchase price, associated costs and indexation) the difference is considered to be a capital gain. Where an asset is sold at a loss (for a smaller amount than it was originally purchased), a capital loss may be incurred.
Capital losses can be used to offset capital gains in a financial year. It is also possible for taxpayers to carry capital losses forward to subsequent years if they do not have capital gains against which they can deduct them at the time.
Here are some strategies to reduce your CGT liability:
As detailed in the article above, there are a number of CGT concessions that are available to small businesses. These concessions can be extremely effective in reducing your CGT bill, and, in some circumstances, may even reduce it to nil.
Taxpayers who do qualify for any of the CGT concessions are in an advantageous position when it come to paying their tax bill.
In years where you have incurred a significant capital gain, you may care to consider disposing of another asset that will yield a capital loss. In the event that an underperforming asset will not have a positive turn around, disposing of it before the end of financial year will allow you to use the capital loss to offset your tax liability from any capital gains.
Instead of disposing of an asset that you expect to make a capital gain on this year, you may care to consider postponing the disposal if you expect to have a lower taxable income next year. For example, you may be planning to take some unpaid leave or have disposed of multiple assets in the current year.
If you are planning on making any new investments or disposing of assets, it always pays to plan your CGT strategy in advance. Careless timing can cost you a huge amount on your tax bill.
You can carry forward capital losses from previous years to offset capital gains in the current year. The real offset value of capital losses diminishes, so if you have incurred a significant capital loss you may care to consider bringing forward the sale of an asset that you expect to make a capital gain on.
It is essential for all small businesses to have an effective record keeping system in place.
Having your records in good working order will significantly reduce the stress that comes with the end of financial year, and will ensure that you make the most out of all of your potential tax savings.
Well organised records carry the additional benefit of allowing you to review your finances easily, potentially showing you where you may be losing out unnecessarily.
Records that you must keep include:
You will need all of your income details and expenses in order to prepare your activity statements and your annual tax return. These records may include invoices, cash register tape, receipts and records that indicate the breakdown of personal and private use of an asset.
This includes bank statements, loan documentation and records of any cash deposits.
At the end of financial year you will need to be able to provide the ATO with a list of all of your creditors and debtors, as well as a spreadsheet detailing all of your depreciating assets, your capital gains records and your stocktake details.
As the end of financial year approaches, it pays to start thinking about whether or not you will be able to make any additional personal contributions to your super.
In addition to topping up your retirement nest egg, you will also benefit from some generous tax breaks.
Recently, there has been a lot of discussion surrounding the future of these tax concessions so if your financial situation is permitting, it might be worth considering maximising your contributions as soon as possible.
Self-employed Australians can claim a tax deduction for contributions made to an eligible superannuation fund.
However, taxpayers who are both employees and self-employed may only claim super contributions as a tax deduction where they have derived less than 10% of their assessable income from employment.
These contributions are considered to be part of your concessional contributions cap.
Deductible superannuation contributions can offset an unusually large taxable income, for example, if you have made a significant capital gain from the disposal of an asset.
In a salary sacrificing arrangement, your employer will hold back part of your gross (before tax) pay and contribute it to your nominated superannuation account.
The contributions to your super account are taxed at the flat rate of 15%, which is typically much lower than your marginal tax rate. Salary sacrificing into your super reduces your total taxable income, thereby reducing your tax bill.
Where your spouse is a low-income earner, you can make superannuation contributions on their behalf in order to receive a tax offset of up to $540.
In order to qualify for this offset, your spouse must have an assessable income that is less than $13 800 per annum, making it an option worth considering where a family member is taking time out from the workforce.
As an added benefit, their superannuation savings won’t suffer from their contributions break. Furthermore, the money will work hard due to compound interest and low tax rates.
Do I have the necessary records for all of my superannuation contributions and accounts?
What is the total amount that I have contributed this year (including my super guarantee amounts)?
Can I make a contribution for my spouse? And is this an effective tax minimisation strategy?
Were there any contributions from the previous financial year that I can super split into this current financial year?
Should I consider making any additional contributions before the end of financial year (concessional and non-concessional)?
