Five ways small business owners can cut their tax bill
Tax law is complex, so it's always worth speaking to your accountant or registered tax agent to be clear on what your business can claim in the run-up to June 30.
With this in mind, here are five ways to make the most of year-end business expenses to trim your business tax bill.
1. Pay employee super contributions before June 30
Employee contributions owed under the superannuation guarantee (SG) can be paid quarterly, though some super funds, awards and private contracts require employers to pay more frequently.
As a guide, the Tax Office notes that super contributions accruing from April 1 to June 30 don't have to be paid until July 28. However, making payments before June 30 can supersize business tax deductions.
SG payments need to be received by each worker's super fund or the Small Business Superannuation Clearing House by June 30, but most funds request payments be made five to seven days before June 30 to be processed in time for the financial year cut-off.
"If you are bringing forward the contributions you may wish to check the timing of super paid last year to make sure you are not contributing 13 months or five quarters in bringing it forward, as you could push an employee over their contribution limit of $27,500. Otherwise, you may have upset employees," says Scott Harrington, director, business advisory at William Buck.
2. Prepay expenses
Bring forward tax-deductible expenses such as stationery and office supplies by stocking up and paying before June 30. Look for other expenses you can pay in advance such as insurances, subscriptions and rent, which may be claimed in the current financial year.
On the flipside, consider deferring income by holding off invoices until July 1. That way, revenue is included in the next financial year.
3. Organise repairs and maintenance
A leaky tap in the tearoom, a few chipped tiles in the toilets or a photocopier that's misbehaving should all be repaired ahead of June 30 so the cost can be claimed in the current financial year.
4. Review trading stock
The cost of goods sold is based on opening stock plus purchases less the value of closing stock. Small businesses with annual turnover below $10 million can follow simplified trading stock rules, which make a formal stocktake unnecessary if trading inventory didn't change in value over the tax year by more than $5000.
Even if your business ticks this box, it's worth casting an eye over stock to identify any damaged, obsolete or unsaleable inventory. By writing it off now, you lower the value of closing inventory, which can lift the cost of goods sold for the year.
5. Invest in new equipment
To get businesses spending on capital equipment during Covid, the federal government introduced a tax break known as "temporary full expensing" (TFE). It lets businesses claim the full cost of eligible capital assets instead of depreciating them over time.
The TFE works a bit like the instant asset write-off. A key difference is that the instant asset write-off was scaled back to $1000 from January 1, 2021, while the TFE has no limit on deductible asset prices. The exception is claims for passenger vehicles designed to carry less than one tonne and fewer than nine passengers. These have an upper limit for tax in 2021-22 of $60,733.
"Take care with respect to motor vehicles, as to be eligible the taxpayer needs to be using the car for the principal purpose of carrying on a business before they can access the rules," cautions Harrington. "You should also consider if fringe benefits may apply to a car purchased within an entity."
Businesses can use the TFE to claim an immediate tax deduction for fixtures and fittings, technology such as computers or EFTPOS systems, plant and equipment (including tools), office furniture and motor vehicles (including utes and vans).
To be eligible, businesses must have an aggregated annual turnover of less than $5 billion. If the equipment purchased is second-hand, annual turnover can't be above $50 million.
Any deduction you can claim under TFE must also be apportioned between business and private use - something that can especially apply to motor vehicles.
"Like any 'deal' make sure you consider all of the relevant factors, including whether the business has a commercial need for the asset and can afford the cashflow to purchase the asset," says Harrington.
Items claimed under TFE must be in place and ready to use by June 30, 2022. Pandemic-related supply chain issues can make this challenging. Fortunately, the TFE has been extended until June 30, 2023, so if you miss out this financial year there's always next year.
The end of the financial year can sneak up quickly, so be sure to speak with your tax professional early to know which business expenses you're entitled to claim.
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