Five small business tax tips you need to act on before June 30


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Use the $20,000 instant asset write-off

If you run a small business and have surplus funds as we head towards the end of the financial year, it makes sense to take maximum advantage of the $20,000 instant asset write-off.

This allows you to claim an immediate tax deduction for all capital purchases costing less than $20,000, rather than depreciating the cost over several years, as used to happen.

tax time small business

This is great for tech items such as computers, tablets and phones, as well as tools and equipment for tradies, office furniture and even motor vehicles.

The allowance is available to all businesses with an aggregated turnover of less than $10 million.

Recent research by Officeworks and H&R Block shows that many small businesses have never used the instant asset write-off (indeed, some still don't know it exists!).

If your business is one of those, take time to assess how some investment in capital assets could help you build productivity and profitability, head out to make purchases and make sure the items you buy are installed and ready for use by Saturday to lock in the deduction this financial year.

Defer income

If you're about to send out a bunch of invoices to customers before the end of the month, consider holding off until next week. Any invoices you send out from July 1 will fall into the next financial year so you will defer your tax liability on that income.

You may not actually save tax overall but you will move it into a different period and from a cash flow perspective that can be a very valuable benefit for small business.

That advice comes with extra emphasis for businesses with a turnover between $10 million and $25 million.

They will see their corporate tax rate fall from 30% to 27.5% (in line with the existing tax rate for businesses with a turnover of less than $10 million), so not only can they defer income they can actually make a real tax saving on income deferred into next year.

Prepay expenses

You can get an immediate tax deduction for certain prepaid business expenses.

The basic rule is that a deduction is available for expenses that cover a period of no more than 12 months.

That covers expenses such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges on your business premises and bookings for seminars, conferences or business trips.

Write off bad debts

No business wants to be in a position where it can't recover outstanding debts but we have to be realistic and acknowledge that it does happen sometimes. The good news is that if your business has to write off a debt, a tax deduction is available for the amount written off.

A debt that is unpaid and deemed to be a bad debt is an allowable deduction provided it was included as assessable income in the current or a previous income year.

At this time of the year, it makes sense to go through your debtor list and if there are any debtors who you believe can't or won't pay, write off those debts by June 30 to claim the deduction this year.

The business must keep a written record to document that the debt has been written off.

Pay employee bonuses

If your business is looking to pay bonuses, put in place a properly executed bonus plan by June 30 to claim the deduction this year.

Typically a deduction will be available for employee bonuses if the expense has been incurred before the year end - that is, if the business has definitively committed itself to the payment (for example by passing a resolution) or has incurred a quantifiable legal liability to pay the bonus.

If the amounts of any bonuses are not calculated and authorised until after the end of the income year, no deduction is available.

And finally ...

An extra tip, for free. Year-end tax planning has its place but, to be honest, if you're taking important financial decisions in the final few days of the financial year you're not really planning; you're simply reacting to opportunity.

So by way of a new financial year resolution, make a diary note to organise a meeting with your accountant early in the new tax year to do some structured longer-term planning for the year ahead. Assess your business and personal financial goals for the year and understand what you can do to meet those needs.

Whether that includes growing your business, improving productivity or preparing for an exit, you need time and good advice to put in place the plans that will enable you to meet your goals.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.