With the end of financial year approaching fast, it's time to get things in order.
Whether it's making sure you claim deductions for your home office, to taking advantage of recently announced budget measures, Lockwood and Ward have you covered.
Here are our top 10 tips for minimising your tax bill this year:
Most small business owners and operators have some knowledge of the deductions they can claim at tax time, but it is important to make use of all the deductions at your disposal.
For some, this may mean bringing some expenses, such as repairs and maintenance, forward so they are incurred before June 30.
Small business owners can also consider prepaying monthly costs such as rent, electricity, wages and utilities for no more than 12 months' of these expenses in order to bring forward deductions into the current income year.
Taxpayers who operate a home office should take care that they are eligible to claim any running and occupancy costs related to their business. If you are unsure of this, consult one of our professional advisers today.
Making sure your superannuation is in order around tax time is a "no brainer".
For the current year, the maximum concessional contribution individuals can make to their super fund is $25,000, although the limit increase to $35,000 for those who were aged 59 or over on June 30, 2013.
Taking advantage of the full concessional limit could save an average small business up to $21,000. However, it's important to make sure any contributions made now are received in time. Remember to submit contributions at least a week in advance to allow for processing delays.
3. Superannuation payments for employees
It's also important for employers to get super contributions for employees in order.
Bringing forward June quarter Superannuation Guarantee Charge payments one month early can be beneficial if your cash flow allows for it.
Super contributions are only deductable when paid. Consider paying these before June 30 and bring forward the tax benefit by a whole year. The tax savings could be significant depending on the size of your payroll.
From July 1, employers will also be able to register for the federal government's new SuperStream program, which will require super contributions made electronically to be submitted in a standard data set.
However, employers should note that the commencement date for the scheme has been pushed back. Businesses which employ 20 staff or more now have until June 30, 2015 to be set up for the scheme, while smaller businesses have until June 30, 2016.
4. Capital gains tax
If your company has made a capital gain in the current financial year, it's worthwhile looking at ways to minimise the tax on those gains.
Say you sold an asset during the year, making a capital gain, but at the same time, have other assets such as shares where on paper, there is a capital loss. In this case, you should consider selling those losses in the current financial year to offset the gains from other assets.
Capital loses can only be offset against capital gains, so there is no use paying tax on a capital gain this year only to have a capital loss next year that might never be used.
5. Family trusts
The use of trust structures has come under increasing scrutiny from the Australian Tax Office in recent years, so it's important to understand your obligations.
Businesses that operate through a trust structure should prepare a forecast for the trust's profit and loss for the current financial year to estimate the expected taxable income for the trust as of June 30.
The trustees should then resolve to distribute income from the trust to its beneficiaries before June 30, and formally document the resolution. Failing to make a valid resolution can mean that the income of the trust will be distributed to default beneficiaries, if there are any under the deed, or the income will be retained in the trust, resulting in the trustee being taxed at the highest marginal rate. In short, failing to make a valid resolution could mean a higher tax bill.
Pay careful attention to the cut-off date as some trusts require a resolution to be made by June 28 or earlier. And trusts with corporate beneficiaries may come with Division 7A requirements.
6. Division 7A
Small businesses should pay careful attention to loans made to directors at this time of the year. It's essential for a business to have the correct arrangements in place if loans are being made to directors so as not to trigger the "punitive" Division 7A dividend rules.
This applies especially for any loans arising in the June 30, 2014 income year, you should consider whether you will repay this loan prior to your tax return lodgement date or whether you need to put the loan under a complying Division 7A agreement.
For those that already have Division 7A in place, you should ensure you have calculated your minimum repayment and ensure the minimum yearly payment is made prior to June 30, 2014 in order to mitigate any unintended Division 7A consequences.
7. Beware of changes to instant asset write-off rules
Small businesses should also be aware of the potential changes to concessions for asset purchases.
While businesses were previously able to claim instant write-offs for asset purchases up to the value of $6,500, the federal government has indicated its intention to reduce the concession rate to just $1,000.
But this is where it gets tricky. The legislation is still being considered by Parliament as it is tied to the appeal of the mining tax.
This means that businesses which purchase an asset now, and claim the full $6,500, may be required to submit an amended assessment down the track, depending if the new rules are backdated to the intended start date of January 1, 2014, or if they will be prospective.
8. Debt Levy
Another area in which recent changes to government policy may affect your tax bill is the government's proposed debt levy.
The government announced in its budget a plan to increase the top marginal tax rate by 2% for taxpayers earning about $180,000 per year. Some shareholders in private companies may want to bring forward payments of dividends to the current financial year to ensure the income from the dividends is not subject to the debt levy.
Salary sacrifice arrangements may also help high-income taxpayers avoid the debt levy, as the fringe benefits tax rate is not increase until April 1, 2015. Individuals may also be able to use salary sacrificing to reduce their cash salaries to below $180,000.
9. Bad Debts
We recommend small businesses write off any bad debt they have not been about to recoup in the current financial year. However, it's important to document what the debts are and the efforts you have made to recover them.
This could be in the form of accounting entries processed before year end or some alternate form of written record such as a minute. The debt also must have previously been included in your assessable income. If you're a small business and only recognise income when you're paid, such as cash basis, then you won't previously have included the debt as assessable income and therefore won't be eligible to write it off as a bad debt.
10. Obsolete stock
If you have any obsolete stock, now is the time to get rid of it!
Lockwood and Ward accountants recommend writing off any old, damaged or obsolete stock by June 30, as the value of the write-off provides an immediate tax deduction. And for any stock that is now worth less than cost price, consider valuing it at a lower market value to reduce your tax bill.
If you require further advice, please contact us on 02 9299 7044 or at firstname.lastname@example.org.