7 end of financial year tax tips for small business owners

With the end of the 2022 financial year fast approaching, it is important to consider certain strategies which may benefit individuals and businesses in reducing their taxable income position. For the business to obtain the tax benefits in the current financial year, these strategies must be put into place prior to 30 June.

 

1. Do a stocktake

Obsolete stock is able to be written off. Valuing trading stock can be determined under a few methods, and ATO enables businesses to choose a different valuation method for each different item of stock. Undertaking an annual stocktake under each method, enables your accountant to select the most tax advantageous valuation. Talk to your accountant to learn about these different methods.

 

2. Debtors (otherwise known as accounts receivable)

Writing off a bad debt means you can claim a tax deduction for the amount (and potentially claim back GST if you had previously paid it to the ATO under the accruals GST method). You need to consider what debts are bad and have it recorded in your XERO file by 30 June. Speak to your accountant for guidance on this. Bad Debts should be allocated to a separate expense account on the P&L so you can see exactly what was written off each year, and so they can appropriately be disclosed at the relevant label in the income tax return.

 

3. Full expensing of depreciable assets (otherwise known as immediate write off)

Businesses continue to be able to claim an immediate tax deduction for the entire cost of depreciable assets in the year the asset was purchased and installed ready for use. In other good news, the government has extended this tax break for assets purchased and installed ready for use up until 30 June 2023, to assist businesses who continue to deal with the impacts of the COVID-19 pandemic. We emphasise the importance that for the immediate write off to apply, the asset must be installed and ready for use.

For example, if you are looking to purchase a truck, the truck must have been both paid for and received prior to 30 June, as it is not enough that the truck is merely on order and not yet delivered at 30 June. With widespread fixed asset shortages, we strongly recommend ordering these as soon as possible, if your business is requiring new plant and equipment. This will give the business the best possible chance to claim a deduction in the current financial year.

 

4. Pay superannuation early

Organise payment of employee’s June 2022 quarter superannuation prior to 30 June 2022. While the due date for this quarter is ordinarily 28 July, paying it prior to 30 June, will enable a tax deduction for the business is the 2022 financial year. Due to superannuation fund processing times, making the payment several days before 30 June is preferable, to avoid missing the tax deduction in 2022.

 

5. Bring forward expenditure

Prepaying business expenditure with an eligible service period of less than 12 months can be claimed as an upfront deduction and will not need to be apportioned over the period of service the expense relates to. This allows business to accelerate the timing of the tax deduction that would otherwise be deferred to a future financial period.

 

6. Deferring income

Excluding any income from the current financial year that you may have received but have not yet performed the obligation to earn that income, can assist in reducing the business’ current year taxable income. For businesses on an accruals basis, deferring the date of the invoice to after 30 June, will result in the business paying tax on that income an entire year later. This will however result in the due date of the invoice, and ultimate receipt of the cash being pushed out, and will hence have an impact on cash flow.

 

7. Home Office Expenses

The trend of full or partial working from home arrangements looks like it is here to stay. For the 2022 financial year, the ATO has again allowed taxpayers to claim under an all-inclusive short-cut method, where 80 cents is multiplied by the total actual hours worked from home for the entire tax period. The actual costs method is also available, however requires more stringent record keeping. Where business owners trading as either a sole trader or through an entity are utilising their residential home to undertake business, home office expenses claims can similarly be brought into the business as a tax deduction.

 

The lead up to 30 June is a critical time of the year for businesses to be talking with their accountant. Please feel free to reach out to Link Advisors, and we can have a chat to see how we can assist in optimising your business’ tax position.