Year End Tax Planning Strategies

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With the End of Financial Year quickly approaching, it may be in your best interests to do a quick business check, see how your profit is looking, what you expect from the remainder of the year and see if there are any options available to you to get the best tax result possible.

For most businesses your entity structure will determine how profits are applied for tax purposes, for example:

Sole Trader – It is all on you
Partnerships & Companies – are going to flow with equity holdings
Discretionary Trusts – give you some scope for planning, although you should have determined how profits are going to be distributed prior to 30 June.

It is important to review what your taxable profit will be, the potential tax payable on that profit and consider tax planning. Tax planning should be an all year round event, but there are always some last minute items that can be attended to, for example;

1. Trading Stock – if you have any stock that is old, damaged or obsolete, scrap it and write it off prior to 30 June, the written off amount forms an immediate tax deduction. Review the valuation method of your stock on hand.

2. Bad Debts – review and write them off prior to 30 June to take the tax deduction (note; recovery action should have ceased for the debt to be written off)

3. Depreciation & your Asset Register – have a look at your depreciation schedule and write off any plant or equipment that has been scrapped. This will give you the tax benefit in the current year.

4. Bonuses & Directors Fees – If you plan to pay these make sure they are declared prior to 30 June. They don’t have to be paid before 30 June to take the tax deduction, but the business does need to be legally committed. The recipient does not need to declare in their tax return until the year of payment.

5. Prepayment of Expenses – if you are a small business entity for tax purposes you can make expense prepayments up to 13 months in advance and they will qualify for deduction into the current year.

6. Superannuation – Make sure that your super payments are made prior to 30 June. The funds need to be receipted by the super fund to be eligible for current year deduction. Assess, with an advisor, if it is in your best interests to make a personal superannuation contribution.

7. Self-Managed Super Fund – For those with Self-Managed Superannuation Funds, it’s very important we review the fund to ensure you have adhered to all pension withdrawal requirements, and you haven’t exceeded maximum contribution amounts. For all SMSF’s that are under are agent listing, we will be attending to this review for you over the next month. We will contact you with an outcome.

8. Large Purchases – If part of your plan it to purchase equipment or property be aware there are timeframes to consider:

  •  It can take up to a week turnaround time for the solicitor to prepare all documentation required for the formation of these entities, and for us to receive these from them.
  •  It can then take a further month turnaround time for the ATO to process all ABN, TFN, GST, PAYG Withholding and Fuel Tax Credit registrations for new entities. Whilst we can ask for a quick turnaround, the ATO service standard is 28 days.

Note: that even though the above are strategies for the businesses having a good year, if you are having a less profitable year, and expecting a good year next year, you can bring forward income into this financial year.

If you think any of the above may apply to you and you would like assistance, please contact our Office.

Author: Amy Wren