With the end of the financial year only a few days away, you still have time to take action to legally reduce your tax. Plus, there are many things that you as a business owner have to consider, and it is important to be aware of these issues and get everything in order before 30 June. The following list is certainly not exhaustive, but it offers a few helpful pointers which you can quite easily achieve within the final days of 2017 financial year.
Defer the Receipt of Income
This strategy will obviously be subject to the business having sufficient cash flow.
Defer the Timing of Income until post June 30 - Businesses that operate on an accruals basis (i.e. income is recognised when an invoice is raised), can delay raising invoices until after June 30 and thereby delay deriving assessable income until the new 2017/18 financial year begins. Another deferral opportunity is to delay raising invoices for Work in Progress (WIP) until after June 30 so the income falls into the next financial year.
If you operate on a cash basis, where possible, defer the receipt of the income until after June 30, 2017 (e.g. set term deposits to mature after June 30 rather than before 30 June).
Tax Tip: Companies with a turnover of between $10 million and $25 million may want to defer the recognition of income to the 2017/2018 financial year to take advantage of the lower company tax rate of 27.5% (30% in 2016/2017).
Bring Forward Deductible Expenses or Losses
To qualify for deductions in the 2016/17 financial year, taxpayers may bring forward expenses (i.e. incur the expenses before 30 June 2017). Small businesses and individual non-business taxpayers may prepay expenses up to 12 months ahead (i.e. pay tax deductible expenses relating to the 2017/18 financial year before June 30, 2017). This should only be done provided a commercial basis exists for doing so and cash flow permits.
- Superannuation Contributions (In addition, some individuals may be entitled to a Government Co-Contribution if they make a non-concessional contribution).
- Capital Gains/Losses - look at the timing of sale transactions.
- Prepayments - in certain circumstances expenses paid for before they are provided will be tax deductible. For example:
- Short term consumables such as office supplies and stationery;
- Unpaid workers’ compensation insurance premium instalments;
- Travel and advertising.
- Superannuation guarantee payments (due in July).
- Bonuses and Directors’ Fees that are confirmed and committed to by June 30 (as evidenced in Board minutes), may be deductible in 2016/17, even if these fees are paid after June 30.
- Accounts payable - If services have been provided to you, ensure that you have an invoice dated before July 1, 2017.
Buy a new business asset
The Government has extended the accelerated depreciation until 30 June 2018. This measure allows small businesses with an aggregated annual turnover of less than $10 million to immediately deduct each business asset that costs less than $20,000.
For Small Businesses
If your small business has a turnover of less than $10 Million should also consider these ideas for the current 2016/2017 financial year:
- Simplified Depreciation Rules - an immediate tax deduction of the balance of the Depreciation pool is allowed if the balance is less than $20,000 over this period.
- Simplified Trading Stock Rules (e.g. you can avoid an end of year stocktake if the value of the stock has changed by less than $5,000 - some basis must exist to regard stock to be valued less than $5,000). For tax purposes, a lower closing value for trading stock will generally result in a lower taxable income for that year. You can value the amount of trading stock on hand at June 30 as the lower of cost, market value or replacement value.
- Writing off Obsolete Stock plus Plant & Equipment, bad debt write-offs, paying the Compulsory Employee Superannuation payments by 30 June (that are not due until July 28) and bringing forward repairs and maintenance costs to pre-June 30.
- Start Up Business Costs - If you started a small business this year you could be entitled to an immediate deduction for start-up costs (e.g. legal and accounting advice) incurred in the 2017 income tax year.
ATO Tax Debt
Take care of any ATO debt you have as soon as possible. From 1 July 2017, the Government will allow the ATO to disclose to credit reporting bureaus the tax debt information of businesses that have not effectively engaged with the ATO to manage these debts. This may affect the business’s ability to acquire finances. The measure will initially only apply to businesses with Australian Business Numbers (ABN) and tax debt of more than $10,000 that is at least 90 days overdue and have not made arrangements with the ATO.
Ensure shareholder loans comply with Division 7A
A payment or other benefit provided by a private company to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A even if the participants treat it as some other form of transaction such as a loan, advance, gift or writing off a debt.
A payment or benefit that is potentially subject to Division 7A isn’t treated as a dividend if it's repaid or converted into a Division 7A complying loan by the company’s lodgement day for the income year in which the payment or benefit occurs.
Trust Distribution minutes
The trustee of a trust is responsible for managing the trust’s tax affairs, including lodging trust tax returns and paying tax liabilities arising from assessments made to them.
If a trustee makes beneficiaries entitled to trust income for an income year by way of a resolution, it will only be effective for determining who is assessed on the trust’s net (taxable) income if it is made by the end of the income year (30 June). Sometimes a trust deed will require a resolution to be made before the end of the income year.
We are Accountants in Melton who specialise in small business tax planning and advisory. Please get in touch with us to discuss the many ways we can assist you with legally reducing your tax liabilities. And join us on Facebook for regular tax tips and information to help accelerate your small business success.