Tax planning tips for business

As we draw close to the end of the financial year, it is a good time to review your strategies for minimising tax.  There are a number of effective ways to reduce the tax your business has to pay by just planning well.  Consider some of the following key tax planning tips for your business:

Accelerate deductions
Review your regular purchases (e.g. stationery, uniforms) and identify if any large purchases are scheduled early in the new financial year.  If so, consider making these purchases prior to 30 June to ensure the deduction can be claimed in the current financial year.

Small businesses can claim a deduction for prepayments up to 12 months in advance, so it may be worth paying in advance some expenses to accelerate the tax deduction.

Ensure all your employer obligations are met
Ensure your WorkCover, PAYG withholding and 9% Superannuation Guarantee Charge obligations have been met for all relevant employees.  Although superannuation contributions for the June quarter are not due until the 28 July, consider paying them prior to 30 June, providing your business has sufficient cash flow. You will obtain the tax deduction in the current financial year.

Review aged debtors for bad debts
If there are genuine bad debts relating to aged debtors that cannot be recovered, consider writing them off prior to 30 June and ensure GST is also adjusted accordingly. This will ensure that the tax deduction for the bad debt can be claimed this year.

Review your depreciable assets for obsolescence
If your business has held assets of property, plant and equipment for several years, they may currently hold no actual value or be obsolete.  Review your fixed asset register, identify appropriate assets and write them off prior to 30 June.

Review trading stock for obsolescence and current value
Consider how your business has valued trading stock and whether there may be a more appropriate method of valuation.  Available methods are: cost price, replacement price or market selling value.  The use of a different valuation method may allow a reduction in taxable income. In some cases, stock values may be increased to use up tax losses.

Also review your stocklist for obsolete or slow moving stock and consider whether it should be written off prior to 30 June.  Please note, that while a provision for obsolete stock is not deductible, specific stock written off is deductible.

Review trust distributions and prepare resolutions
The ATO now requires trustees to document proposed distributions to beneficiaries by the last day of the financial year.  When determining the distribution amount for each beneficiary, you should consider their expected taxable positions.  Please note, as of 1 July 2011 the maximum tax free amount that can be distributed from family trusts to minors has been reduced to $416. This would be further reduced by any investment income they have received such as interest or dividends.

Immediate write-off for assets up to $1,000
Small businesses can take advantage of an immediate write-off of assets of up to $1,000, that would otherwise be capitalised and claimed over several years.  From 1 July 2012, the immediate write-off limit is $6,500.  If you are a small business and intending to acquire an asset with a cost between $1,001 and $6,500, it may be worth deferring the purchase until July.

Defer vehicle purchases
An accelerated depreciation system for motor vehicles will apply from 1 July 2012, so it may be worth deferring any vehicle purchase until July.  The new system allows for an additional $5,000 deduction in the first year of ownership.

Published : 25 May 2012