Year End Tax Strategies for Business

All very legal and all effective when done correctly


All taxpayers are allowed to arrange their affairs in a manner that remains legal, but which minimises their taxation liabilities. So here are a few ways to minimise the tax you pay, and to leave a few dollars in your pocket.


Taxable income in a tax year is usually the net of assessable income, less allowable deductions for the year. If you can defer some of the income to a later year or accelerate planned expenditure so that it is claimed in this tax year, then you will succeed in reducing your current year’s tax.


DEFERRING INCOME


1. Cash or Accruals – Determine whether you should use the ‘Cash’ or the ‘Accruals’ system of accounting. Employment income is always on the cash method. On the cash basis, taxable income is the net of amounts that are actually received less amounts actually paid at year-end. The proceeds of pre – 30 June sales which have not yet been received (Accounts Receivable), are excluded from income for the current year. Businesses with sales less than $10,000,000 can choose which accounting method is appropriate for their business. Changing between cash and accruals can only take effect on the 1st day of July each year.


2. Unearned Income - Some businesses provide a service that lasts over a number of months, which might run past year-end. For example, an annual maintenance plan. While you invoice the annual membership upfront, you may not have delivered all of the service at year-end. You can exclude any income that you have received but not yet earned, effectively deferring the income until the next year.


3. Other Sales – Deferring a sale for a couple of days after June 30 pushes the income into next year so that tax is payable a whole year later. You can’t defer normal counter sales, but there may be some service or some stock sales that you might be able to invoice after 1st July. Selling a used car or machinery, can wait a few weeks.


4. Interest – For most businesses, interest earned is only assessable when actually received. If you are lucky enough to have a few term deposits, arrange to have them mature after 30 June rather than just before.


BUSINESS DEDUCTIONS


5. Bad Debts – Write off any bad debts before 30 June. Issue a credit note to remove the debt from your system and get back the GST.


6. Obsolete Stock & Slow Moving Stock – Obsolete trading stock can be written off; slow moving stock can be written down to net realisable value. Less stock = less taxable income for this year.


7. Stock Valuation – Stock can be written down from cost if the replacement value is lower.

Less stock = less profit = less tax.


8. Superannuation (Timing) - Employees’ superannuation contributions should be actually paid before 30 June to obtain a deduction this year, otherwise the deduction happens next year.


9. Superannuation (Not Deductible) – SGC super not paid by 28th of the month following the end of quarter is not tax deductible, ever. Make sure super is paid on time.


10. Superannuation (Co-Contribution) – Let’s look at some easy money. If you make personal super contributions (after tax – non concessional), the government also contributes up to a maximum of $500 if your income is $39,837 or less and reducing to nil at $54,837 and depending upon how much you contribute. It’s money for nothing, so you should take advantage of this ‘gift from the government’.


11. Superannuation (Contributions) – Business owners can lower the business tax by putting the maximum into your super fund. The limit is $25,000 per owner plus any shortfall if you contributed less than $25,000 in the 2020 or 2019 years.


12. Repairs & Maintenance – Bring forward maintenance expenditure. If an asset is due for a service, get it done pre-June rather than just after. For the sake of paying a few days earlier, you bring forward the tax deduction by a whole year.


13. Buy Plant and Equipment – In 2021, any plant and equipment that you buy can be immediately claimed as a tax deduction, rather than claimed over the life of the asset. If you are planning to buy equipment anyway, do it before 30 June.


14. Scrap Old Assets – Write off low value assets to get a tax deduction for their remaining value.


15. Home Office – If you do any work from home, you can claim tax deductions for some portion of telephone, internet, heating and electricity.


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16. Loans Treated as Dividends – Companies are not allowed to make loans or payments to their shareholders or associates. The full value of the loan may be treated as an unfranked dividend to the shareholder unless the loans are put on a legitimate footing, with proper loan agreements, interest being charged, principal repayments made and, in some cases, genuine security taken.


17. Trust not Paying Beneficiaries – If a trust has declared a distribution to a company beneficiary but not paid it in cash, complex tax issues arise. If you can, you should pay the entitlements back before you lodge the trust’s income tax return.


If you would like any information on the above tips, or any other tax matter, please contact the office on (03) 9585 7555 and ask for Noel May or Amanda Klye or email me at enquiries@mktax.com.au.