As 30 June draws closer, we’re almost at the end of the financial year. Yet this time is about more than just filing your taxes. It’s the perfect opportunity to tidy up your finances and review your operations or take advantage of ways to maximise savings and spending.
With a focus on SMEs and business owners, here are some top tips for EOFY 2022. No business is the same, but at least a few of the ten pieces of advice below should apply to your operations.
The Reserve Bank of Australia recently revealed its decision to increase the target cash rate to 0.35% (up from 0.1%) to help combat inflation. This will increase other interest rates and make it more expensive for businesses to borrow, and if you have variable-rate loans, you might find the rates rise straightaway. As a result, it may be necessary to change your budget or increase your prices.
The best way to proceed is to talk to a financial advisor to understand what the implications are and your options for you and your business.
In the last few years, the government has provided additional options and incentives for employees. Superannuation is one of the most significant tax deductions for many businesses, but you need to pay it before the end of the financial year to benefit now. So, make sure you’ve sorted out all your contractor payments and made any wage corrections from the past quarter.
Directors may also want to consider their own superannuation contributions — you can contribute up to $27,500, and money in a super fund is taxed at just 15%, which generally results in savings.
Under previous rules, a company that made a loss, could carry those losses forward to offset future profits, thus reducing their tax liability. Under new rules introduced to relieve business’ as they recover from the COVID pandemic, companies can now carry losses backwards. The benefit of this is the ability to potentially receive credits on previous years tax paid. Be sure to speak to your advisor about this.
Up until 30 June 2023, small businesses can fully expense (i.e. write off) assets purchased at an unlimited value. These assets must be fitted and installed prior to the EOFY in which you are claiming for. The items in question can be new or second-hand, and vehicles are included, but you must use them for business purposes. Note- Motor vehicles still have a limit of $60,733.
You might also want to check out our Quick tips to lodge your quarterly BAS
Tax deductions aren’t just for services or items you buy within the financial year. You can also claim deductions for certain prepaid expenses (as long as you’re not paying them more than 12 months in advance or after the end of the next financial year). This is a good strategy if you don’t think next year will be as profitable as last year was.
If you’re not already, the new financial year is also the perfect time to start tracking your expenses properly to make life easier in future. Instead of working everything out at the end of the financial year, it’s best to keep ongoing records using accounting software.
If you have tax debts to the Australian Tax Office worth more than $10,000 and with no payment arrangement in place, they could be reported to credit bureaus. This would affect your ability to obtain financing in the future, and possibly even jeopardise current arrangements.
There’s a simple solution: Review your ATO statement to figure out how much you owe and what to prioritise.
As well as clearing your own debt, don’t forget to chase up the money your customers owe you. If you find that you’re owed a lot of money you haven’t had time to chase up yourself, it might be time to consider outsourcing the job.
Also, if you have bad debt from customers that haven’t paid their invoices and will be unlikely to do so, be sure to write it off before the end of the tax year. This way, you can at least claim a tax deduction.
If your trading stock has changed by at least $5,000 over the last financial year, you need to carry out a stocktake (and you probably should regardless). If you have any obsolete, slow-moving, or damaged stock, you can write it off to save on tax.
To make tracking assets easier in the future, it may also be worth considering adopting software to handle the job for you. Asset management software means you can track everything and store the data in a central place, which boosts productivity and cuts costs in the long run.
Although we’ve mentioned a few specific tax deductions already, we didn’t make a complete list. It’s often surprising just how many regular expenses class as deductions, from training costs to travel to business meals to office supplies.
If you’ve been going back and forth over making a purchase or hiring a contractor to carry out a service, it’s worth taking the plunge before June 30 rolls around so you can benefit from the tax deduction upfront. However, always make sure there is a commercial purpose to your purchases. i.e don’t just buy things for the sake of a tax deduction.
A few additional schemes are in place this year, including a 120% tax deduction for training courses and a 120% tax deduction for digital adoption.
There are countless reasons for speaking to a tax agent or accountant, and some of them have been covered already. Finding a great accountant will help save a lot on your tax bill as well as being able to provide expertise and industry knowledge on government grants, and tax incentives which tend to change each year.
In addition to general advice about the best tax deductions to take advantage of, they can help you to review your tax structure. Sometimes, the optimal structure when you first started trading becomes less efficient as you scale, so it’s worth assessing regularly. Book a free 30 minute consultation to identify pain points and provide an accounting solution to meet each business’ unique needs.
Many businesses wait until the last minute to prepare for the end of the financial year, but getting ready in advance gives you a chance to review the best ways to maximise savings and spending.
If cash flow is holding you back from following any of the advice outlined above, it may be worth considering a business loan to hedge the difference. At Capify, we offer a great alternative to traditional banks for smaller businesses, especially as borrowing becomes tougher in these turbulent times. Kickstart the process by filling in our form to learn more.
Capify does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.