With 30 June fast approached, its time to have a little think about your year end tax position. Some businesses have had a shocking financial year, while others have had one of the best ever. It’s been amazing to talk to clients and friends and hear how they have coped and thrived over the past year. But as we head towards the end of the financial year, its now time to start thinking about what your year end financial position looks like. Here are 9 1/2 year end tax tips for businesses to consider now, in order to get yourself prepared for year end. We also have year end Tax Tips for Individuals, which includes advice on working from home deductions.
1. Bring forward deductions, push back revenue
Its a perennial comment, but important. Make sure you bring forward deductions and, where possible, push revenue into next year. Review your trading stock and make sure you formally write off any items that are slow moving or obsolete. Same with bad debts, review your outstanding invoices and if an amount is not recoverable, formally write it off. Its useful to make a note of why you’re writing off a balance. It could be that its over 90 days and the client is no longer contactable – whatever the reason make a note of it.
2. Don’t forget prepayments
Another one for businesses with turnover less than $50 million. Determine whether there is an immediate deduction for prepayments. If you have prepayments due soon, make the payment this side of 30 June, rather than waiting for 1 July.
3. Full expensing of purchased assets
Introduced as a COVID-19 measure, it allows businesses with less than $5 billion in aggregate turnover to immediately deduct the cost of a new asset in place prior to 30 June. For businesses with turnover less than $50 million, they can also deduct the cost of second hand assets. This measure is due to end in 2023 (and I suspect the government won;t renew it for budget reasons), so make sure you fully utilise this measure.
The full expensing of assets is primarily a cashflow question. It’s very useful when you have planned capital acquisitions in the pipeline. You can also combine it with the Loss Carry Back Rules (see below).
4. Superannuation contributions
Superannuation is only tax deductible when its paid. That is, either paid and received into the superfund or paid if the Small Business Superannuation CLearing House is used. Therefore, if you want your superannuation to be tax deductible in the current year, you need to make sure it has been paid well prior to 30 June – I would suggest 28 June at the latest.
5. Loss carry-back rules
Another temporary COVID measusre and allows eligible companies (and only companies, not trusts or sole traders) to carry back losses incurred in with 2020, 2021 or 2023 to either 2020 or 2019. That is, if you paid tax in 2019 and had a loss in any of the years from 2021 to 2023, you can reclaim some of that prior tax paid in the current year. There are a few catchs with this (especially if you have paid a franked dividend at any time in the past), so seek advice.
A great year end tax tip is to combine the loss carry-back rules with the immediate expensing of assets, especially if you’re considering a large capital acquisition.
6. Trust distrubitons and dividends
The days of fixing up a 30 June dividend or trust distribution paperwork sometime in October are long gone. In order to be legally valid, a dividend or trust distribution must be made prior to 30 June. Back dating paper work is also illegal (its fraud), so make sure you get this in order prior to the end of the month.
If you have a family trust tax election in place, be conscious of who you are distributing income to. Ensure all distributions remain within the family tax group.
It’s something you should be planning with your accountant or tax advisor now.
7. Loans to shareholders and associates – Div 7A
Loans to shareholders are very common amoung privately held businesses. However, there are very stricty anti-avoidance rules around them. Essentilly, the ATO views a loan from a private company to a shareholder as an unfranked dividend, unless certain steps are followed. This includes documenting the loan and making minimum yearly repayments on the loan.
8. Single Touch Payroll Changes
Most businesses are now reporting on single touch payroll. From 1 July 2021 the remaining various exemptions from STP fell away, including for micro employers (less than 4 staff) and closely held employees (think owners and family members). That means, unless you have execptional circumstances, you will be reporting all payments made to directors, family members and beneficiaries of discretionary trusts.
Don’t forget that finalisation of STP reporting to the ATO is required by 14 July.
The 1/2 tax tip
And the final year end tax tip?
Get your tax planning in order. Your business is constantly evolving and changing – make sure your tax structures keep up with it. I usually start by asking clients what their long term goals are. Is it growing the business and pulling dividends out or is a sale sometime in the next few years on the cards? Each of these require a different business structure to be efficient for tax purposes.