Practical Tips for End of Financial Year (EOFY) at 30 June
Running a small or medium-sized business may result to you having no time to plan. But with the end of financial year just around the corner, it’s imperative that you should look at tax planning strategies to ensure that your finance and tax records are in order. If you haven’t done so by now, don’t panic as there is still time before 30 June. Preparing early for the EOFY can allow your business to access possible tax savings opportunities you can apply to your business. Below are some practical tips for your small business during the EOFY.
Take advantage of the $20,000 write-off on depreciating assets
If you run a small business, you can claim an instant tax deduction from the equipment or machinery that you installed before 30 June. The cost of the purchase must be $20,000 or less and you must be considered a small business. This also applies to vehicles that are ready for business use before the said date. For more information, have a read of the ATO link here.
Maximise the $25,000 cap on superannuation contributions
If your company funds permit, you can consider making voluntary super contributions before 30 June in addition to the superannuation guarantee (9.5%) for the 2018 financial year. The current cap on concessional contributions is at $25,000 for the 2018 financial year. You can claim a tax deduction for any voluntary super contributions up to the cap.
Here is a table on the important dates to ensure the superannuation is deductible in the 2018 financial year.
For superannuation contributions based on income earned during the 2017-2018 tax year:
|Close of Business Date*||Employee Contribution Year||Employer Tax Deduction Year|
|30th June 2018||Included in 2017-2018||Deductible in 2017-2018 tax year|
|28th July 2018||Included in 2018-2019||Deductible in 2017-2018 tax year|
|After 28th July 2018||Included in 2018-2019||Non-deductible|
Mark bad debts at 30 June
Assess your current outstanding invoices and determine which of them you believe have no chance of getting paid despite your efforts in collecting the debt. You can write off these bad debts at EOFY to reduce your income for the year. If you report your income on an accruals basis this will mean you can get a refund on the GST as well as an income tax deduction.
Prepay bills for up to 12 months
Your prepayments of bills related to services for the next 12 months are tax deductible in the year you paid them. These prepayments can include your office utility bills, insurance policies, professional services and office rent. Make sure to pay these bills before EOFY so you can claim the tax deduction.
Bear in mind that if you own trading stock, it is always a good idea to do a stocktake at 30 June. Stocktake is an internal control procedure which helps businesses confirm their stock and make adjustments when required. Businesses should write off any obsolete, lost or damaged stock through a stock take. A high stock value compared to COGS can mean that the stock is slow-moving which is not preferred by most businesses.
Understand the tax consequences of shareholder loans (Division 7a)
Many small business owners do not know the tax implications of Division 7a in their companies. Essentially, money provided by a private company to its shareholders (or their associate e.g. spouse or children) would be treated as dividends to the shareholder at the EOFY. This can also include you accessing money from the company for personal use. Many shareholders believe that the money drawn out are loans from the company to the shareholder but special conditions must be met to ensure they are loans (not dividends). If the amount is not a loan and is not fully repaid by the required date, the loan may be treated as dividends and ultimately, as income in the shareholders personal tax return. This can affect the shareholders tax payable significantly.
Have a watch of this explainer video by the ATO:
With all these EOFY tips, don’t forget that the most important task is to lodge your income tax return and pay your tax on time. It may be an obvious advice, but it’s one that most business owners tend to forget especially when they’re too busy running their business.
To ensure you’re maximising your tax opportunities available to your small business, speak to Box AS today.