It's July and you're scrambling over your tax return after the end of financial year (EOFY) 20017/2018. Don't worry, we're all doing the same. Here are some tips we've learned while filling out our taxes that can help assist you.
For related articles, read What to Deduct as a Small Business in 2017/2018 Tax Return and 2018/2019 Budget Benefits for Small & Medium Businesses.
If you’re short on business essentials, don’t forget to stock up before EOFY and capitalise on the $20,000 instant asset write-off.
This applies to Australia’s favourite businesses, the backbone of our economy – small businesses turning under $10 million or less.
There is no cap on the number you can claim, but there are some rules. To get the deduction, the asset(s) must produce income for your business, and must have been purchased between 7.30pm on May 12, 2015 and 11:59pm on June 30, 2018. They also need to have been installed and ready for use before the end of the financial year.
The bill is being debated in the Senate during July to determine if a further extension is warranted.
Large Ticket Deductions
For SMEs that need new infrastructure, IT architecture, vehicles or other large ticket items, tax deductions are available as well. Assets that cost $20,000 or more can still be claimed as a 15 percent deduction in the first year – regardless of when they were acquired – and a 30 percent deduction each year after the first.
Recover Startup Costs
Small to Medium Enterprises (SMEs) are on the rise in Australia, with the number of actively trading businesses increasing annually to 2.24 million over the last four years – which includes 2.1 million small businesses operating in Australia.
One of the biggest headaches facing new SMEs and startups is the fees associated with commencing operations, but there are ways to recover some of those costs. If your enterprise started up in the last financial year, you can claim the costs of establishing your business – from accountants and lawyers fees, through to borrowing and government fees.
Most SMEs in Australia require small business loans to support their initial costs, which can attract tax breaks.
If the money is being borrowed to make an investment that will produce assessable income – otherwise known as ‘gearing’ – you are usually entitled to claim a tax deduction for the interest on the borrowed money. This won’t apply for all small businesses, but large loans may be needed for anything from property to commercial kitchen equipment.
The Early Bird Gets the Deduction
You may prepay your interest for up to 12 months, and some little birds may whisper this is a good idea right now.
Prepaying your interest will let you lock in the interest rate for the next financial year to bring forward your tax deduction. Rates are at historic lows right now, by the way, as the Reserve Bank of Australia (RBA) has left the official cash rate on hold at 1.5 percent since August, 2016.
Assess Your Equipment and Inventory
They’ve been good to you, but they’re definitely overused, and probably overvalued too. We’re talking small business equipment, particularly the kind you find in a busy kitchen.
Review your inventory levels and determine stock that’s significantly overvalued (hint: it’s probably that thing you use everyday, for every customer). Remaining trading stock can be valued for tax purposes at cost, market value, or replacement value. You will just need to provide reasons why it’s obsolete to your business, or evidence you tried to sell it. As a small business wheeler and dealer, hopefully you’ve become acquainted with Gumtree and eBay. How you value trading stock can have a massive impact on your tax bill.
Write Off Bad Debt
Most small business owners are managing debt which can be a difficult task, but EOFY presents an opportunity to ease some of that burden.
If you haven’t been able to recoup bad debts in the current financial year, you can write them off, provided the documentation and recovery efforts are made very clear and they had previously been included under assessable business income.
This is very time-sensitive. Bad debts must be written off before the end of June, not when you’re doing your tax return months later.
Increase Your Super Fund Contributions
It is possible to reduce your tax liability while also improving the quality of your retirement at the same time.
Small business owners can get their business to contribute up to $25,000 into their personal super fund, taxed at just 15 percent in the fund, and then claim a deduction for the contribution.
Information and around the clock support and advice on superannuation is available here.