Tax planning strategies for business 2010

As the end of the financial year is fast approaching we provide some tax planning strategies for business that you should consider prior to 30 June 2010.

Also see our tips for personal tax

Prepay expenses

Prepaying expenses before year end can enable you to maximise your deductions for this year and decrease your current tax liability. This strategy works well where expenses due early in the new financial year can be paid now (subject to Australian Taxation Office rules on the value and the period of prepayment).

The following items can be considered for prepaying:

	Office supplies - Stationery, printer supplies, cleaning products and other office items.
	Recurrent bills - Utilities, subscriptions, rent and insurance.
	Equipment purchases - If you will be buying new equipment, consider purchasing these by 30 June 2010. Depending on the amount of the asset, you may be able to claim these purchases outright or claim your depreciation earlier.

Pay superannuation contributions

For a business to receive a tax deduction in the current year for superannuation contributions made on behalf of their employees, the contributions need to be received by the employees' superannuation funds by 30 June 2010.

If you are self-employed you may be able to reduce your tax liability by making a deductible contribution to your superannuation fund by 30 June 2010. There are rules associated with these contributions but we would be pleased to advise you.

Staff Bonuses and commissions

Businesses can claim tax deductions for bonuses and commissions that are owed and unpaid at 30 June 2010 when there is a commitment to pay the expense.

Provide tax free minor benefits

Employers can provide minor and infrequent benefits valued less than $300 to employees. Gift vouchers can be a good alternative to bonuses as they are tax free to the employee and exempt from Fringe Benefit Tax.

Stock and consumables

As the taxable income of a business is affected by the value of its stock at the end of the financial year, a decrease in the value of inventory due to damage or obsolescence can result in extra business deductions. Furthermore, businesses have the option of valuing trading stock on 30 June 2010 at the lower of actual cost, replacement cost or market selling value. This means that you may be able to generate a tax deduction by adopting a different method of stock valuation. For example, where the market value of stock at year-end is below the actual cost price, using the market value will result in a lower stock valuation and a reduced tax liability.

You may also consider extra incentives for customers to help move slow moving stock so that your stock on hand is reduced.

Deferring income and capital gains

If possible, invoices should be issued after 30 June 2010 to defer the recognition of income and the associated tax liability.

Also consider postponing the sale of investments until after 30 June 2010 as this will defer tax on any capital gains by 12 months.

Review debtors - Write off bad debts

Bad debts should be written off by 30 June 2010 to claim a tax deduction in current financial year. To be deductible, the debt would need to have been previously included as assessable income for all businesses accounting for income on an accruals basis and must be non-recoverable. There must also be physical evidence that the debt has been written off such as a book entry or a decision made in writing at a board meeting. GST paid on bad debts where the debt has been outstanding for 12 months or more can also be claimed back.

Private company loans to shareholders

Loans to shareholders and associates from companies should be repaid by 30 June 2010. Any amounts outstanding at this date will be treated as deemed dividends unless they are governed by a written agreement or repaid by the time the company’s income tax return is lodged.

If you believe you will have amounts owing to your company at 30 June 2010, please contact Saward Dawson and we can arrange for a loan agreement to be prepared.

Published : 2 June 2010