If you’re a franchise or any other small business, it’s that time of year to be looking at strategies to minimise your tax.
When you’re considering strategies to reduce your tax burden, always keep in mind that spending money to get a tax deduction is secondary to the primary purpose of spending which is to improve profitability.
Tax reduction strategies
$20,000 instant asset write-off
If your business has an aggregated turnover of less than $10 million, an immediate deduction is available for business acquisitions of less than $20,000, and depreciation pools of less than $20,000 can also be written off. The asset needs to be installed ready for use prior to 30th June, 2018
For instance, you might consider bringing forward some desirable technology upgrades.
Depreciable assets
It can pay to have to have a look at your depreciable assets prior to year-end to see if any assets are no longer being used. These can be written off and their remaining depreciable balance written off if they have been “scrapped”
Analyse inventory
The lower the value of closing stock, the lower the taxable income. It can be beneficial to carry out a detailed stock take to get an accurate stock figure. The value of trading stock can be reduced for obsolete or damaged stock.
Bad debts
To get a deduction for a bad debt in the current year, it needs to be written off in the ledger before year end. You need to have made reasonable attempts to collect the debt. It can pay to review your debtors’ list, especially for those more than six months old, and identify customers who have gone bankrupt or are in liquidation or are disputing the debt.
Super contributions
Thetax-deductible superannuation contribution limit for the current financial year is $25,000. This must be paid to the superannuation fund account by 30 June to get the deduction.
Super payments
While employee super for the final quarter is not payable until 28 July, it will not be deductible unless paid by 30 June. Be careful not to pay it after 28 July, as you will not get a deduction at all.
Prepayments
Prepaying deductible interest on loans for rental properties or business loans, rent of your business premises, lease payments for vehicles and equipment etc will bring next year’s tax deduction into this year.
However, no more than 13 months prepayment are allowed for tax purposes, and you should also be gaining some commercial advantage such as reduced interest, rent, etc for this arrangement.
Repairs and maintenance
If a repair or maintenance is going to be required sometime in the near future, then spending money before 30 June will get you a tax deduction this year.
Cash businesses
If you operate on a cash basis, make sure all your sales are properly accounted for. The ATO has a major focus on cash-based businesses which don’t declare all their turnover and use benchmarks and other third-party resources to estimate what your sales are.
Tax Office list
The Tax Office publishes a list of small business deductions. It might be worth having a look at it to see if you are claiming everything you are entitled to.
Consider restructuring
Although not necessarily a year-end tax strategy, there may be opportunities in restructuring which could assist with asset protection, income splitting, estate planning and commercial objectives. These may be best done whilst the Small Business CGT concessions and Restructure Rollover provisions are available, and it is preferable for these to be done at year end to simplify accounting etc. Speak to your accountant to see if you could benefit.
Take time to assess
It is reported that some of the most significant tax deductions get overlooked especially for the franchise industry you are in, so it’s worth taking the time now to assess what steps you need to take to minimise your tax for 2018.