Countdown to tax time – Make a Plan with Holmans Accountants
With many changes to the tax system planned for July 1, a lack of attention (no tax plan) now may cost you tens of thousands of dollars down the track.
Tax planning should start as early as possible not just in the last hours [of June 30]. Having a tax plan in place before 30 June will enable you to make strategic decisions to maximise your returns come tax time.
Some deductions require plenty of forward planning. For example, contributions to super funds are recorded on the day they are received by the fund, not when paid. If your tax planning usually consists of last minute strategies before midnight on June 30, it might be time to think ahead.
The end of the tax year is now just around the corner. Now’s a good time to take a look at both your expected taxable income (essentially your business’s assessable income, minus any allowable deductions) for the current financial year 2018-19; and your projected/expected taxable income for 2019-20, as they will help guide your tax planning strategy.
Tax planning is as much about planning for the expected tax liability and quarterly instlament amounts, as it is about looking for ways to reduce tax. Those taxpayers who have received a large quarterly instalment ‘out of nowhere’ will know what we mean.
It is also about planning for new legislative requirements such as ‘Single Touch Payroll‘ which is mandatory for all businesses from 1st of July.
Anticipating a higher income this financial year?
Options for consideration may include the following:
- Reviewing and postponing some invoicing for the current tax year, if appropriate.
- Reviewing your debtors and writing off any unrecoverable debts.
- Prepaying a selection of next years expenses (such as insurance, rent, or subscriptions to professional associations) in the 2018-19 financial year. Up to 12 months of the following year’s expenses can be deducted in the current tax year.
- Taking advantage of the instant asset write-off (enabling you to deduct assets you purchase for your business costing less than the associated threshold, whether the asset is purchased new or second-hand). This opportunity will be available until 30 June 2020. Thresholds have changed over the past year so check with Holmans for full details.
- Topping up your superannuation contributions (check limits first).
- If applicable, deducting any start-up expenses – such as obtaining legal or accounting advice on your business structure, and fees in relation to establishing the structure (eg. ASIC company registration fee).
Anticipating a higher income next financial year (2019-20)?
Options for consideration may include the following:
- Purchasing any required equipment or business assets. If you decide to purchase business assets, you should base this decision on the needs of your business. For example, you might need to purchase a vehicle for deliveries to help expand your business operations in order to achieve business goals, or because it is in line with your business plan.
- If it’s appropriate to do so, bringing forward any invoicing into the current financial year for scheduled work that will be carried out early next financial year.
- Paying your expenses as they are due, rather than pre-paying them in advance during the current tax year.
- Delaying related party wages till lafter 30th June.
Additional tax tips for small business owners
Instant asset write-off vs depreciation
Take advantage of the government’s improved instant asset write-off which affects those with an annual turnover of less than $10 million.
GST cash accounting
This means accounting for GST on a cash basis rather than accruals, so you pay GST to the ATO when you actually collect it, not when you issue your invoice. GST cash accounting in certain circumstances is also good for improving your cash flow.
Small business restructure rollover
This tax planning strategy is useful in situations where you may be looking to change from a family partnership to a family trust or company. If you’re a small business entity (SBE), you can transfer an active asset of your business (such as goodwill) to another SBE as part of a genuine business restructure, where there is no change in the underlying ownership of the assets. This means no capital gains will be payable. However, state transfer tax might still apply.
Is your return correct and current?
Having accurate and current information is another important aspect of tax planning that can help you maximise your deduction and allow you and your accountant to make informed tax decisions. This includes:
- Ensuring the log books for your business vehicle are up-to-date. You’ll need to start a new log book if your current one is more than five years old or your vehicle usage has changed significantly. You could also consider investing in one of the many mileage tracking digital apps available.
- If your business carries stock, do your stocktake as at 30 June 2019.
NB: If your estimated closing stock (and opening stock) is less than $5,000 you do not have to do a stocktake.
- Accounting for the private use of business assets, such as motor vehicles, when claiming GST on expenses. For example, if you’re claiming 100 per cent GST on motor vehicle expenses but 20 per cent of the vehicle’s use was private, you’ll need to adjust your annual GST private apportionment claim to factor in this personal use.