With the end of the tax year approaching, it is time to take action to minimise business tax liability, according to H&R Block director of tax communications, Mark Chapman.
He shares his top tips for end of year tax planning with Appliance Retailer, starting off with temporary full expensing.
“This means that you can score an immediate tax deduction for the costs of capital assets and with many businesses offering End of Financial Year promotions, now is the time for your businesses to take advantage by acquiring some much-needed assets to build your business and, at the same time, reduce your taxable profits,” he said.
The tax break works by offering an immediate deduction for all capital assets against profits for the year. There is no ceiling on the cost of assets that can be acquired and provided turnover is less than $5 billion, businesses are eligible.
“Temporary full expensing runs through until 30 June 2022 but from a tax-planning perspective, purchases immediately before the end of the financial year always make the most sense so now is the time to take the plunge,” Chapman said.
“While now isn’t the ideal time to make large capital purchases for many retailers, if your business needs to invest in new capital equipment and has the cash flow or borrowing capacity to finance it, now is the time because generous tax breaks like this will probably never recur.”
Cash registers and other POS devices, delivery vans, store fittings and fixtures, computers, laptops, tablets, in-store security systems and accounting software, are among the items that can be claimed.
Businesses can get an immediate tax deduction for certain pre-paid business expenses.
“The basic rule is that a deduction is available for expenses that cover a period of no more than 12 months, such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges and bookings for seminars, conferences or business trips.”
Write off bad debts
No business wants to be in a position where they can’t recover outstanding debts, but it does happen sometimes, especially during an economic downturn.
“The good news is that if your business has to write off a debt, a tax deduction is available for the amount of the debt written-off. A debt that is unpaid and deemed to be a bad debt is an allowable deduction provided it was included as assessable income in the current or a previous income year,” Chapman said.
“At this time of the year, it makes sense to go through your debtors list and if there are any debtors on it who you believe can’t or won’t pay, write off those debts by 30 June to claim the deduction this year. The business must keep a written record to document that the debt has been written off.”
Employers have to pay superannuation contributions within 28 days of the end of the quarter.
“Ensure that all June quarter superannuation contributions are paid by 30 June to accelerate the tax deduction. Note that contributions must be paid, cleared in the business bank account and received by the employee’s super fund before 30 June for a tax deduction to be available. Any other outstanding amounts should also be paid before year end.”
The Golden Rule – Keep Records
Good record keeping is integral for efficient business management and will make life easier if question by the ATO.
Tax law requires that records be kept for five years, and they should include sales receipts, expense invoices, credit card statements, bank statements, employee records, vehicle records, list of debtors and creditors and asset purchases.
“Records can be kept on paper or electronically but should be easily retrieved. In our experience, businesses often stumble when asked by the ATO to verify transactions by providing supporting records, with the consequence that even ‘innocent’ businesses can find themselves stung by the tax man where they are unable to provide the requested evidence.”