The end of a year (financial or otherwise) is a good opportunity to have a look at what you have done over the last twelve months to identify what worked and what didn’t. It’s also a good time to re-evaluate your business and personal goals to ensure that what you are targeting in the new year is still appropriate and you have a plan in place to achieve your goals.
For this reason, we are always busy in the first few months of the year working with our clients to review their business plans, establish their goals for the coming financial year and determine what we need to do to ensure that they are on track to achieve their goals.
However, an activity that often gets overlooked at this time of year is reviewing your business and determining if there are opportunities to maximise the tax benefits that are available to you in the current financial year.
Here is a list of items that you should be giving consideration to and taking action on prior to 31 March to ensure that you get the most tax benefits from your business:
Bad Debts
Have you written off all debts that you consider to be bad or that you believe you will not be able to collect? Individual debtor balances should be reviewed and actually written off in your debtor ledger prior to 31 March for them to be allowed as a deduction in the financial year. A debt is considered bad if a reasonable and prudent business person would be of the view it is unlikely that the debt will be paid. Factors to consider as the length of time the debt has been outstanding, the efforts that you have made to collect the debt and the information that you hold on the debtor. A debtor does not need to be insolvent for the debt to be bad, so you can still pursue the debtor for payment.
Employee Wages and Leave
An employer can obtain a deduction for employee related expenses (eg the following amounts that are owing at year end: holiday pay and bonuses) providing that payment is made within 63 days of balance date. This means that you are entitled to a deduction in the current income year if the payment is made to the employee on or before 2 June (for a 31 March balance date).
Fixed Assets
There are three key areas to consider when looking at assets at year end:
Assets no longer used in the business - For tax purposes, fixed assets can be written off if:
The asset is no longer in use by the business; and
Is not intended to be used in the future; and
The cost of disposing of the asset would be more than its disposal value.
Low value assets - Assets with a value of $500 (excl GST) or less can be written off immediately. This is providing that:
The asset is not an upgrade or part of a wider asset; or
The acquisition is not part of a wider acquisition of the same asset from the same supplier, with the same depreciation rate.
Purchases and sales of assets - A full month’s depreciation can be claimed for any part month that an asset is owned and used. It may be worth buying replacement assets on or just before balance date in order to obtain a full month’s depreciation deduction in the current income year. If you expect to make a loss on sale, consider selling prior to balance date. Similarly, if you expect to make a gain on sale, consider deferring the sale until after the end of the financial year.
Prepaid Expenditure
Certain types of expenditure can be claimed as a tax deduction in the year in which they are incurred regardless of the fact that the good or service will not be used until a future year, but only if they have been expensed in your financial statements. Some of these prepayment concessions have a dollar limit and/or a limit on the length of time after year-end. The following prepaid expenses can be claimed:
Trading Stock
You need to undertake a stocktake at the end of the financial year but before you do make sure you consider whether you have any obsolete stock. If you find you have obsolete stock then it is critical that it is either disposed of or valued using one of the prescribed methods (cost, discounted selling price, replacement price or market selling value if lower than cost) before year end. This ensures that the obsolete stock is valued at an appropriate amount at year end and the loss incurred on the stock is claimed in the current financial year.
Concessional rules apply to small taxpayers - If your turnover is less than $1.3m and you can reasonably estimate that you have less than $10,000 in trading stock , you can use opening stock value as your closing stock figure.
Repairs and Maintenance
Repairs and maintenance expenditure is generally only deductible to the extent that it has been incurred. You may want to consider accelerating repairs and maintenance expenditure to ensure that you can claim a deduction in the current financial year.
Donations
Cash donations paid to donee organisations or registered Charities can be deducted to the extent of the company’s taxable income. If the company is in a tax loss position, consider having the shareholder make the donation and claim the donation rebate.
Make sure you take some time in the rush to the end of the financial year to consider the items above and take any necessary actions to ensure that you maximise your tax deductions for the 2019 income year.
If there is anything you aren’t sure of or need a hand with, get in touch with the team at Thrive CA and we’ll help you get sorted before the end of the financial year.