Smart EOFY Strategies 2016/17: Businesses
With the end of the financial year approaching, it’s a great time to make smart decisions about your business finances. Taking action before 30 June can open up more opportunities for you.
Write-off bad debts
To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt. It needs to be written off your debtors’ ledger by 30 June. If you don’t maintain a debtors’ ledger, a director’s minute confirming the write-off is a good idea.
Write off any stock that is damaged or obsolete. Complete a stock take (if you are not using the simplified trading stock rules) and remember that stock can be valued at the lower of cost, replacement, or net realisable value. You can use different methods for different stock items.
Review your asset register and scrap any obsolete plant
Check to see if obsolete plant and equipment is sitting on your depreciation schedule. Rather than depreciating a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June. Small Business Entities can choose to pool their assets and claim one deduction for the pool. This means you only have to do one calculation for the pool rather than for each asset.
Repairs, consumables (office stationery etc.)
To claim a deduction for this financial year, consider paying for any required repairs and replenishing consumable supplies before 30 June.
Pay June quarter employee super contributions
Super contributions are deductible in the year they are paid. The June 2017 quarterly superannuation guarantee payment is due on 28 July. However, some employers choose to make the payment early by 30 June to bring forward the tax deduction instead of waiting another 12 months.
Don’t forget yourself
Superannuation can be a great way to get tax relief and still build your personal wealth. Your personal or company sponsored contributions need to be received by the fund before 30 June to be deductible.
Capital gains and losses
Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses. These need to be genuine transactions to be effective for tax purposes. It may be possible to contribute assets with unrealised losses to superannuation in order to do this.
Directors’ fees and bonuses
Declare them before 30 June and providing the company is absolutely committed to them, you are entitled to the deduction even if they have not been paid. Again, a director’s minute is a good idea. The directors and employees only need to declare this income in the year of receipt, although they need to be formally notified of their entitlements by 30 June.
Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties then the transfer pricing rules need to be considered and the ATO’s documentation expectations will be much greater. This is an area under increased scrutiny.
Small Business Entities (SBE) with a turnover under $10m can claim an immediate deduction for prepaid expenditure provided the service period relating to the expenditure is less than 12 months and will end by the end of the next financial year. Non SBE taxpayers (Turnover over $10m) can only claim prepaid expenditure that is 1. Less than $1,000; 2 Required by Law; or 3. Paid under a contract of service such as salary and wages.
If you receive payments in advance of the goods and services being provided and you account for income on the accruals basis then there might be an opportunity to defer the inclusion of this income until a later year.
Deemed Dividends – Division 7A Loans
Minimum repayments need to be made by 30 June under the Division 7A Loan Agreement to avoid triggering a deemed dividend.
To reduce the interest payable, consider declaring dividend early in the financial year.
Purchase of depreciating assets – under $20,000
SBE taxpayers (turnover under $10m) can claim an immediate deduction for the purchase of a depreciating assets (such as plant, furniture, equipment or motor vehicle) that cost less than $20,000. The asset must be installed ready for use by 30 June to be deductible this year.
As always these tax opportunities should only be considered where they make commercial sense. Incurring expenses simply to claim a tax deduction often will not make sense from a commercial or cash flow point of view. If your require any further information or require specific advice regarding tax planning for your business please contact us on 1300 888 803.
This article is published by Navacue Accountants Pty Ltd. ABN 37 460 720 728. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decisions.