The End of Financial Year is a time for businesses to get their things in order. With less than a week to go, it is worth implementing some of the tips below if you don’t already have a strategy in place. Remember, once it hits 1 July there is no way of reducing your tax liability.
The vital goal for businesses is usually to maximise income and keep expenses to a minimum. However, when it comes to tax time, the contrary counts. As a corporate tax payer you want to ensure that you minimise your income and maximise expenses in order to ultimately reduce your tax liability for the end of the financial year.
To do this, consider delaying sales invoicing until after 30 June if you are in profit. Although, if you expect higher income from 1 July, it might be worth bringing the sale forward. The same can be said for asset sales, but you should also take into account your expectations for future asset prices i.e. don’t postpone a sale if you expect the investment to fall in value. If you have sold any assets during the year and made capital gains, consider selling any loss-making assets. This capital loss will offset your earlier capital gains. Don’t forget – capital losses can only be offset against capital gains, income losses can only be offset against income.
In line with this strategy contemplate bringing forward any deductions. This involves writing off any bad debts, pre-paying any interest or insurance, paying any superannuation liabilities, and possibly adjusting inventory valuations.
Businesses with a turnover less than $10 million can also accelerate business deductions and receive an instant 100% deduction for assets purchased up to $20,000. It must be noted that this is only for depreciating assets, so if you need to make a large asset purchase for your business consider doing it before 1 July.
All employer superannuation contributions must be paid to, and received by the super fund before 30 June to be eligible to claim as a tax deduction. They must also be within the concessional contributions cap of $30,000, or $35,000 for those aged over 49. A majority of superannuation changes take place from 1 July; make sure you review and update your strategy to account for this. There is no positive in making a contribution now and missing out on potential tax saving opportunities for the end of the next financial year. For a detailed explanation of the new superannuation changes, have a read of our article “Changes to Superannuation from 1 July 2017 – the clock is ticking”.
When assessing these tips you must keep in mind that spending money for the sole purpose of gaining a tax deduction can be counter-productive. Care is needed to ensure you don’t sacrifice lost income or buy things unnecessarily. The business’ decision must be made primarily with a strategic plan in mind, and only secondarily factored by tax considerations. It is only through careful planning and management that businesses can dramatically improve their tax position.