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Small Business Tax Tips

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It may only be March, but June 30 will be here before you know it. Do not leave it until the last minute to enact your tax planning strategy, start planning now so you are well prepared to minimise your tax before it is too late.

From 1 July 2016, to be classified as a small business, either as a sole trader, partnership, company or trust, the entity must:

– operate a business for all or part of the income year; and

– Have aggregated turnover less than $10 million.

As rules for small business taxation changes, the following is current as at 16 March 2022. The federal budget is due to be delivered March 29th, so from that date, there could be more small business tax incentives to consider.

1. Get your books up to date

This is an important first step as we like to all think we are making considerable profit for the year, but you can never be sure until you are up to date. I commonly get clients to get their books up to date to a certain point in time, say 28 February or 31 March. From there, we look at how well they performed for the final few months of the previous financial year and together, we try and predict how the balance of the year will go.

This is where we can uncover if to that point in time, you have purchased assets that can be immediately written off, expenses that have been prepaid, provisional tax instalments that you have made amongst many other things and whether there is a need to enact a tax planning strategy for that year.

We would not only just consider your business position but the tax position of you, your spouse, and your family, if need be, as personally or via another entity, you may have also made a capital gain which has got to be taken into account.

2. Prepay business expenses

As a small business, you can claim paying business expenses where the payment period covers up to 12 months and ends in the next income year. Common expenses that fall under this category are as follows:

– Business insurance premiums including public liability, business vehicle, professional indemnity, workers compensation (depending on State or Territory), equipment, etc.,

– Business vehicle registration

– Licensing fees

– Software subscriptions

– Business premises rent (subject to landlord approval)

– Interest on business loans (not as common these days)

– Marketing expenses

– Accounting & bookkeeping services

For the above, contact your service provider, broker, etc., to see if you can prepay these that can help save your business tax.

3. Pay your employees super prior to year end

This isn’t just for small business but super contributions payable on employee wages are only deductible when they have been cleared by the receiving employee’s superannuation fund (shortly after the payment leaves your bank account).

With Superstream in place, you have got to allow some time to process the super payments report, submit the details and pay so with that in mind, you should allow at least five business days (possibly more) to clear. The suggestion then being to make payment at least a week before 30 June.

This may not be practical for every employer as the last pay period of the financial year might not fall until the final week but perhaps you can be clever with payroll and have the final pay run processed early to get the super liability sured up. Can still pay your employees their regular wage when they are due.

Please also note that if you overpay super that the employee is liability to be paid, you may find it challenging in being able to recoup the overpayment.

4. Immediate write off of business assets

Until 30 June 2023 (unless repealed earlier), a small business can immediately claim a deduction for a business asset that is acquired, installed and held ready for use prior to the end of the financial year. Business assets can include vehicles that are commercial, or passenger vehicles used for business.

(*Warning – be careful of the private use factor of passenger vehicles, it may end up costing more in the long run in Fringe Benefits Tax if purchased via a company or trust.)

The challenge at this point, given the supply chain issues globally, the asset you may order today may not arrive and be ready for use by 30 June 2022 if you are aiming to claim in the 2022 financial year. If the asset is ready after 30 June 2022, the asset can still be claimed in the 2023 financial year due to the extension to 30 June 2023. This rule is irrespective of whether you have paid for the asset in full prior to the 30 June 2022 deadline.

It should be noted that the asset must be purchased and used by the trading entity in carrying on its business. This means that it cannot be acquired in a non-trading entity and hired to the trading entity, nor can it be purchased by the trading entity but hired out to another entity. This arrangement is common for those who have setup their entities where one entity trades and another entity holds the assets that the trading entity uses. There may be some exceptions to this rule so best to discuss this with your Accountant.

A point to note

It is important that if you claim so much expenditure adopting some of the tips above, amongst other tax saving techniques, that it may not be worthwhile reducing your taxable income so far down that you are paying no tax or incurring tax losses. It may open a tax mismatch where one year, you are paying no tax but the following year, you are paying a much higher tax, higher than you otherwise would have if the deductions were spread over a couple of years. This is why when considering tax planning/saving measures, it is extremely important to discuss the tactics with your Accountant.

Scott has been a partner of an accounting firm as a registered tax agent since 2015 and has been a tax accountant and business advisor since 2007.

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