Preparing For 2015/16 Tax TimeJune 3rd, 2016
It’s that time of the year when businesses across Australia collate their records and review their accounts in preparation for tax lodgment. While tax time is typically seen as a laborious time, it’s actually a great opportunity to find tax savings and avoid costly mistakes. Resolve to get your tax return lodged sooner rather than later this financial year, and use these tips to maximise your deductions and reduce tax-time stress.
Avoid simple mistakes
The ATO estimates it contacts 350,000 people each year about tax return mistakes, many of which are easy to avoid. Omitting income, providing the wrong TFN, spelling errors, and wrong bank account numbers are some of the most commonly seen mistakes. These can lead to delays or other issues with your tax return, so if you’re processing any of the paperwork yourself, double check your work and avoid simple mistakes.
Know your deductions
Your tax specialist will know about all of the possible deductions you can claim for your business, but you can also be proactive about making sure your company is taking advantage of all possible deductions. Some of the main deductions for small and medium sized enterprises to keep in mind include:
- $20,000 instant write-off – Any business with less than $2 million in aggregated turnover is eligible for instant asset write-off for any depreciating assets purchased for less than $20,000. Some types of assets are excluded, but otherwise both new and secondhand assets can be claimed.
- Cost of managing tax – The fees you pay your tax agent for preparing your tax return are deductible, so don’t forget to claim for the costs of preparing last year’s tax return this year.
- Home office – If you run your business from home sometimes or all the time, don’t forget you can claim for the costs of maintaining your home office, including internet expenses.
Maximise and check super contributions
As a business owner, you could save quite a significant amount of money if you maximised your super contributions to the extent allowed by the contribution caps. Contributions are taxed at 15 per cent, in contrast to the relevant personal income marginal tax rates.
At the same time, make sure your employee super contributions are in order for the tax period. If possible, and where your cash flow allows for it, you could look into bringing forward quarter Superannuation Guarantee Charge payments one month early to save more on your tax bill. Note you will need to make contributions in a standard format under the SuperStream program.
Review how trading stock is valued
When it comes to trading stock, businesses have the option of valuing it as a year-end cost, market-selling value, or replacement value. A decrease in value is a deductible item, and you can choose to use different valuation methods for different types of stock each financial year. One method might allow you to bring forward deductions, while another could put off the deduction until next year. If the stock is obsolete, don’t forget to write it off in full.
Process employee bonuses
Bring employee bonus payments forward if possible, so you can maximise your deductions without waiting another 12 months to take advantage of them. Note that PAYG needs to be withheld for bonuses, as they will be calculated differently depending on whether the bonus relates to work performed for the whole year, or for a specific pay period.
Prepaying expenses is easy strategy if your cash flow allows for it. Pay off as many expenses as you can so you can claim the expense in this year’s return, instead of having to wait for another 12 months.
Bad debt write-offs
If you have any old debts that are recoverable, seek advice on whether you can write these off. You’ll need to document the debts and what you have done to try to recover the debt. This might include reminder notices, phone calls, and other measures. Note that the debt will need to have been included in your business’s assessable income for you to be eligible for a write-off.
Check your depreciables
The months leading up to tax lodgement is the ideal time to review your depreciable items with your tax agent. You can use the ATO’s guide for ruling the effective life of assets to show how your depreciables differ. This can help you reduce your tax bill if you can show why your asset depreciates faster than what is outlined in the ATO’s guide.
Lodge and pay on time
While all companies aim to lodge and pay on time, it’s not unheard of for companies to miss the deadline. Lodge on time and pay promptly to avoid costly penalties. If you don’t pay on time interest will be charged, and if your debt remains outstanding for a period of time the ATO could take action against you. Always let the ATO know immediately if you are having trouble making payments on time, as there could be ways to make more manageable repayments.
Plan ahead for the next year
Take the opportunity to talk about your tax agent about your tax strategy for the coming financial year. This can be particularly beneficial if you’re planning to make major changes to your business, make a large purchase, hire extra staff, or scale up or down in any way. You can also think about the ways your tax records can be improved, or consider a new record-keeping system for better data collection in the coming year.
There also could be legislative changes on the horizon that could affect your industry and your business. For example, the 2016/17 Budget includes a number of tax changes that are likely to affect your business. Talk to your tax advisor about these changes, and how you can plan ahead to minimise your tax bill in the next year; lay out your tax strategy ahead of time, and coordinate your business practices accordingly.
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