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It’s Time to Think About Year-end Tax Planning

It’s Time to Think About Year-end Tax Planning

With the end of the tax year approaching, it’s time to take action to minimise the tax liability for your retail business. Here are my top tips for end of year tax planning.

TAKE ADVANTAGE OF THE SMALL BUSINESS $30,000 ASSET WRITE OFF

Assets costing up to $30,000 can now be written off immediately. The new $30,000 limit applies to any qualifying asset purchase made after April 2, 2019. In addition, more businesses can make a claim; previously available only for businesses with an aggregate turnover of less than $10 million, that turnover threshold increased to $50 million from April 2, 2019.

Amongst the items you could look at claiming are the following:
Cash registers and other POS devices
Delivery vans
Store fittings and fixtures
Computers, laptops and tablets
n-store security systems
Accounting software

DEFER INCOME

If you have invoices set to go out just before the end of the year, it makes sense to defer issuing those invoices until the start of the new tax year. Although the tax rate next year is the same as this year, you will defer the income tax liability by 12 months.

PREPAY EXPENSES

You 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. That covers expenses such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges on your retail premises 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 we have to be realistic and acknowledge that it does happen sometimes. 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.

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

PAY SUPERANNUATION

Employers have to pay superannuation contributions for within 28 days of the end of the quarter. Ensure that all June quarter superannuation contributions are paid by June 30 to accelerate the tax deduction. Note that contributions must be actually paid, cleared in the business bank account and received by the employee’s super fund before June 30 for a tax deduction to be available. Any other outstanding amounts should also be paid before year-end.

GET THE RIGHT TRADING STOCK VALUATION

Trading stock can be valued using different methods for taxation purposes, either at cost, market value or replacement value. The only requirement regarding changing methods is that the closing stock value at the end of one tax year must become the opening trading stock value for the next year. The provisions allow a choice to be made for each individual item of trading stock.

Changing the valuation method at year-end for tax purposes can either bring forward or defer an amount of taxable income so it pays to look closely at the method adopted.

Damaged and obsolete stock can be written down or written off entirely and a tax deduction claimed.

PAY EMPLOYEE BONUSES

If your business is looking to pay bonuses, put in place a properly executed bonus plan by June 30 to claim the deduction this year. Typically, a deduction will be available for employee bonuses if the expense has been incurred before the year-end, ie if the business has definitively committed itself to the payment (for example by passing a resolution) or has incurred a quantifiable legal liability to pay the bonus. If the amounts of any bonuses are not calculated and authorised until after the end of the income year, no deduction is available.

THE GOLDEN RULE – KEEP RECORDS

Good record keeping is your best friend for efficient business management and will also make life easier if the ATO ask you questions.

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 (wages, super, tax declarations, contracts)
vehicle records
lists of debtors and creditors
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 tax office to verify transactions by providing supporting records, with the consequence that even “innocent” businesses can find themselves stung by the taxman where they are unable to provide the requested evidence.

THE GOLDEN RULE – KEEP RECORDS

Good record keeping is your best friend for efficient business management and will also make life easier if the ATO ask you questions.

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 (wages, super, tax declarations, contracts)
vehicle records
lists of debtors and creditors
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 tax office to verify transactions by providing supporting records, with the consequence that even “innocent” businesses can find themselves stung by the taxman where they are unable to provide the requested evidence.

THE YEAR AHEAD

Year-end tax planning has its place but if we’re being honest, if you’re taking important financial decisions in the final few days of the financial year, you’re not really planning; you’re simply reacting to opportunity. So, by way of a new financial year resolution, make a diary note to organise a meeting with your accountant early in the new tax year to do some structured, longer term planning for the year ahead. Assess your business and personal financial goals for the year and understand what you can do to meet those needs. Whether that includes growing your business, improving productivity or planning for an exit, you need time and good advice to put the plans in place that will enable you to meet your goals.


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