The end of the financial year is now just weeks away. So it’s time for business owners to get their end of year tax planning checklist together to ensure that they achieve the best tax outcome possible.
Tax planning should be a year-round event, but there are always some last-minute items that need to be attended to.
Here’s a list of seven essential tax housekeeping items to start thinking about:
1. Trading stock
If you have any stock that is old, damaged or obsolete, then scrap it and write it off before June 30.
The written-off amount forms an immediate tax deduction. Also start to review your stock in terms of the appropriate valuation method.
While this is often cost price, it doesn’t have to be. You can value stock at the lower end of cost, replacement or net market value.
You may have stock that you don’t want to scrap but may be worth less than its cost price. The market value approach will give you the tax saving into this year.
2. Bad debts
Write them off before June 30 and take the tax deduction. They should be written off in your debtors’ ledger and recovery action should have ceased.
3. Depreciation and your asset register
Have a look at your asset register and write off any plant or equipment that has been scrapped: doing this will give you the tax benefit into the current year.
4. Bonuses and director’s fees
If you are planning to pay bonuses or director’s fees make sure that these are declared before June 30. They don’t have to be paid before June 30 to take the tax deduction but the company does need to be legally committed.
This is normally achieved by a director’s resolution approving the bonus or fee. Do this and the company takes the deduction into this year.
The recipient does not need to declare it on their personal return until the year of actual receipt.
5. Prepayment of expenses
If you are a Small Business Entity for tax purposes then you can take advantage of the prepayment rules. Expense prepayments for up to 13 months’ service, made in June, will qualify for deduction into the current year.
Make sure that you make your superannuation payments before June 30. The funds need to be receipted by the super fund to be eligible for current-year deduction.
Where you have SGC payments for staff for the June quarter, if you can pay these before June 30 you will take a current-year tax deduction.
7. Trustee appointments of income
If you operate through a trust structure make sure you determine the appointment of income to beneficiaries before June 30.
This is an area that is under the Australian Tax Office spotlight at the moment.
We’ll cover some more tax planning tips in the coming weeks, but start work on these ones. After all, there’s no point paying more tax than you have to.
Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.
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