With the end of the financial year fast approaching, you’re probably starting to think about your small business tax return. While you still have some time until you have to lodge your return, it’s a good idea to start tax planning as early as possible.
These tips will help you put tax-effective strategies in place so you can keep more of your earnings in your pocket.*
1. Take advantage of the instant asset write-off.
From 12 March 2020 until 30 June 2020, the instant asset write-off threshold is $150,000 (up from $30,000) for businesses with an aggregated turnover of less than $500 million. This means you can purchase an asset of up to $150,000 until 30 June and claim a deduction for the full amount on your tax return, rather than partially writing off the asset based on its depreciation rate.
From 1 July 2020, the small business tax write-off threshold will drop back down to $1,000 and only apply to businesses with an aggregated turnover of less than $10 million.
2. Prepay your 2020-21 expenses.
If you’re expecting to have a higher income in 2019-20 than 2020-21, you may want to consider prepaying some of your expenses – such as insurance, subscriptions or memberships – this financial year.
You can deduct up to 12 months of the following year’s expenses in the current tax year.
3. Make voluntary super contributions.
Pre-tax super contributions, known as concessional super contributions, are taxed at a rate of 15%. This is lower than the lowest income tax rate of 19% and company tax rate of 27.5%, and you can claim a deduction on contributions.
The concessional super contributions cap is $25,000 for individuals. If you plan to claim a deduction for your concessional contributions, you’ll need to provide a ‘Notice of intent to claim or vary a deduction for personal super contributions’ form to your super fund.
4. Defer income
Depending on your situation, you may be able to defer some income to reduce your taxable income for the 2019-20 financial year.
For example, if you delay sending an invoice until 1 July 2020, the invoice amount will count towards your taxable income for next financial year rather than this year.
5. Review your debtors.
You can claim a tax deduction on unrecoverable debts regardless of the year in which you invoiced them, as long as you can show that the debt was initially included as income and has been written off by June 30.
Document your decision to write off the debt, as this can be used as evidence that the debt was written off before EOFY.
6. Write off damaged or obsolete stock.
If your business holds stock, consider reviewing your stock valuation and writing off any stock that’s damaged or obsolete.
Complete a stocktake, and keep in mind that stock can be valued at either cost price or net realisable value (its expected selling price), whichever is lower.
Been impacted by COVID-19?
If your business has been negatively impacted by the COVID-19 crisis, the ATO may be able to offer assistance by:
- Giving you extra time to pay your tax bill or lodge tax forms such as activity statements
- Providing tax-free cash flow boosts of between $20,000 and $100,000 to eligible businesses
- Setting up a tax payment plan based on your individual circumstances, including an interest-free period
- Revoking penalties or interest charged for the period your business has been affected.
While these tips could help you maximise your small business tax deductions and boost your return, it’s a good idea to talk to a tax advisor or accountant who can offer professional advice tailored to your business.
Want a reminder of what you can claim? Download our handy infographic here.
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*We endeavour to provide accurate material for Australian businesses consistent with Australian tax laws; however, this material is for reference only and is not designed to be, nor should it be regarded as professional advice.