Tax Planning Tips

“…I am just sick of having no money left at the end of the month. Roy A. McDonald helped relieve my stress, worry and they dealt with the ATO for me. I am so glad they are on my side…”

Can you relate to the above comment? You’re not alone and we can help. We have put together an article on tax planning tips, which can help prepare your tax. There are a number of legitimate strategies that can help reduce this year’s tax bill. If you’re a small business with turn over of less than 10 million, then the first two strategies apply to you.

Under existing law, a small business is able to claim an immediate tax deduction for “individual” assets (including motor vehicles) costing less than the relevant instant asset write off threshold.

Different thresholds apply in the 2018/2019 tax year so make sure you check which one applies to your asset:

• $30,000 from 2 April 2019
• $25,000 from 29 January 2019 to 2 April 2019
• $20,000 before 29 January 2019

This immediate write-off applies equally to the purchase of new and second hand assets which are used in the business.

Claim deduction for pre-paid expenses

A small business can claim an immediate deduction for certain prepaid business expenses where the payment covers a period of 12 months or less that ends in the next income year. The most common expenses that you should consider prepaying by 30 June include lease payments, interest, rent, business travel, insurances, business subscriptions, etc.

Your business must be able to make the prepayment under the relevant contractual agreement to get the immediate tax deduction this financial year – you cannot simply choose to prepay the expense.

Make superannuation contributions by 30 June

The maximum concessional superannuation contribution limits for the 2018/2019 year are $25,000.

There are some issues related to these limits and you should give us a call on 03 9848 5933

If you are making a personal superannuation contribution, ensure you obtain the correct documentation from your superannuation fund to substantiate claiming the deduction before lodging your tax return.

Defer income & capital gains tax

If your business returns income on a cash basis then your income will be assessed as it is received. A simple end of year tax planning strategy is to delay “receipt” of the income until after 30 June. Here are some strategies

• Businesses that return income on a non-cash basis are generally assessed on income as it is derived or invoiced. Income may be deferred in some circumstances by delaying the “issuing of invoices” until after 30 June.
• Realising a capital gain after 30 June will defer tax on the gain by 12 months and can also be an effective strategy to access the 50% general discount which requires the asset to be held for at least 12 months.

In some cases, the capital gain can be further reduced to Nil under the small business capital gains tax concessions.

 Claim deduction for expenses not paid by 30 June

All businesses are entitled to an immediate deduction for certain expenses that have been “incurred” but not paid by 30 June including repairs, salary & wages, and staff bonuses and commissions. Does that apply to you?

Write-off slow moving or obsolete stock

All businesses have the option of valuing trading stock on 30 June at the lower of actual cost, replacement cost, or market selling value. Furthermore, this valuation can be applied to each item of trading stock.

For example, where the market selling price of stock items at year-end is below the actual cost price, the taxpayer can generate a tax deduction by simply valuing the stock at market selling value for tax purposes.

Also, in situations where stock has become obsolete at year-end (e.g. fashion clothing), the business may elect to adopt a lower value than actual cost, replacement cost, or market selling value.

Write-off bad debts

If your business accounts for income on a non-cash basis and has previously included the amount in assessable income, a deduction for a bad debt can be claimed in the current year, so long as the debt is declared bad by 30 June.

Your business will need to show that it has made a genuine attempt to recover the debt by 30 June to prove that the debt is bad. It’s preferable that this decision is made in writing (e.g. a company directors minute).

Your business can also claim back the GST paid on debts that have been written off as bad, or were not written off as bad, the debt has been outstanding for 12 months or more.

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Roy A. McDonald together with Lindale Insurances provides easy to understand and unbiased financial advice and accounting services. To maximise your cash flow – call us on 03 9848 5933