How to reduce your business tax bill before 30/06/2020?
For many small business owners, the end of each financial quarter signals added stress and a hefty tax bill.
Fortunately, there are plenty of simple and legitimate ways you can cut down on your small business tax bill while meeting all your tax obligations.
Here’s a list of what you can start doing now and what you can begin to plan for before the end of financial year.
1. Claim asset depreciation for FYE 30/06/2020.
The following concessions are available in relation to business capital investment for depreciating assets and apply from 12 March 2020 to all businesses with an annual aggregated turnover of up to AUD 500 million:
2. Make concessional superannuation contributions.
Concessional super contributions are taxed at a rate of 15%, which is likely to be lower than your income tax rate and you can claim a deduction on contributions. The general concessional super contributions cap is $25,000 for all individuals regardless of age, so it’s a good idea to make feasible contributions up to that limit before 30 June.
3. Keep a business vehicle logbook.
Maintain a logbook of your business vehicle use for at least 12 weeks during the year so you can accurately claim back vehicle expenses at tax time. Legitimate business use of a vehicle is tax deductible, so you should also keep all receipts and invoices related to vehicle expenses such as petrol and maintenance.
4. Defer income and bring forward expenses.
You can cut down on your tax bill by deferring taxable income to the next financial year. For example, if you delay invoicing until 1 July, the invoice amount won’t count towards your taxable income for the previous financial year.
5. Claim deductions for expenses not paid by EOFY.
You can still claim deductions for some expenses even if they haven’t yet been paid by the end of the financial year. These expenses include:
• Staff salary and wages – claim the number of days that employees have worked up to 30 June but have not been paid until the new financial year
• Staff bonuses – claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June if you are committed to paying the expense.
• Repairs and maintenance – claim repairs carried out and billed by 30 June but not paid until next year.
6. Write off bad debts.
You can claim a tax deduction on bad debts if you can show that the debt has been written off by 30 June, and if the debt was originally shown as income. Put your decision in writing (such as in meeting minutes), which you can use as evidence that the debt was written off before EOFY.
7. Claim a small business tax offset.
If you operate as a sole trader, you could be eligible to claim a small business tax offset on your tax return, which can reduce the amount of tax you pay by up to $1000 a year. When you lodge your tax return, the ATO will calculate your offset based on the information you provide.
While these tips from Elite Tax Advisory can help you cut down on your tax bill, remember that there's no one solution that fits everyone, and it’s a good idea to seek professional advice to make sure you’re operating as tax efficiently as possible and meeting all obligations.
We’re dedicated to providing timely and proactive solutions for all your small business tax return needs.
We can help you navigate the accounting and tax responsibilities that come with running a business, and lighten your workload and enjoy our competitive and agreed upfront pricing.
8- Gift and Donations:
In order to claim the gift and donation, you must ensure that you did not receive any tangible benefit from making the donation and has receipts to evidence the making of such donations.
Section 26-55 of the ITAA 1997 limits the amount of the donation deduction as the making of a deductible gift cannot create or increase a tax loss. Where the deductible donation amount exceeds this limit, you may elect to carry forward the donation deduction and claim this over a maximum of five years for certain gifts where the conditions of Subdivision 30DB of the ITAA 1997 are met.
Deductions to political parties are limited to $1,500.
Contact John from Elite Tax Advisory today about your business needs.
Phone: 0456 799 959
Email: [email protected]
Fortunately, there are plenty of simple and legitimate ways you can cut down on your small business tax bill while meeting all your tax obligations.
Here’s a list of what you can start doing now and what you can begin to plan for before the end of financial year.
1. Claim asset depreciation for FYE 30/06/2020.
The following concessions are available in relation to business capital investment for depreciating assets and apply from 12 March 2020 to all businesses with an annual aggregated turnover of up to AUD 500 million:
- Increasing the instant asset write-off by expanding the existing depreciating asset write-off so that it provides an immediate tax deduction for the cost of a depreciating asset, whether new or second-hand, which has a cost of less than AUD 150,000 (up from the existing AUD30,000 limit). This is a temporary expansion and was originally announced to apply to eligible depreciating assets that are first used, or installed ready for use, from 12 March 2020 up until 30 June 2020. On 9 June 2020, the Government announced a further extension of this measure until 31 December 2020, such that it will now apply to eligible depreciating assets that are first used or installed ready for use from 12 March 2020 until 31 December 2020. After this time, in the absence of any further relief, the asset threshold will revert to AUD 1,000 and the instant write-off will only apply to small businesses with an aggregated turnover of less than AUD 10 million.
- Backing Business Investment with an accelerated depreciation deduction for all newly acquired depreciating assets (and it will not apply to second-hand assets). This concession will provide a tax deduction of 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost. This measure will apply for approximately 15 months and will apply to eligible new depreciating assets acquired from 12 March 2020 and first used or installed by 30 June 2021. There is no limit to the cost of a depreciating asset that can qualify for this concession, and it will be relevant for assets acquired between 12 March 2020 and 30 June 2020 with a cost of AUD150,000 or more which are not eligible for the instant asset write-off.
- The cost threshold for which entities can access an immediate deduction for depreciating assets and certain related expenditure has been increased from $30,000 to $150,000 for the period 12 March 2020 to 30 June 2020. The turnover threshold of businesses eligible for the instant asset write-off during this period has also been increased to include businesses with an annual turnover of less than $500 million (up from the existing cap of $50 million).
- For assets purchased and installed ready for use between 1 July 2019 and 11 March 2020 the instant asset write-off will apply where the entity has an aggregated turnover of less than $50 million.
- The aggregated turnover test not only requires the calculation of the taxpayer’s annual turnover but also that of any affiliate or entity connected with the taxpayer at any time during the year.
- The amount of the deduction for the instant asset write-off is determined in accordance with when in the 2020 year the entity first uses the asset, or installs it ready for use.
For example, if the entity acquired the asset for $31,000 on 1 March 2020 and first uses and installs that asset on that same date, it will not be eligible for the instant asset write-off as the asset’s cost is in excess of the $30,000 threshold that applies to depreciating assets that are first used or installed ready for use on that date. However, if the asset had been acquired for $31,000 on 1 March 2020 and the asset is installed ready for use on 15 March 2020 that asset will qualify for the instant asset write-off as the prevailing threshold at the time that the asset was installed ready for use is $150,000.
- Where the entity is registered for GST, the threshold for the immediate asset write-off is calculated on a GST exclusive basis, as the entity will claim an input tax credit to the extent it is a creditable acquisition for GST purposes. Thus, if the asset was acquired by an entity for a GST inclusive price of $165,000 on 1 June 2020 it would be potentially eligible for the immediate deduction during the 2020 year as its GST exclusive price would be $150,000 (i.e. $165,000 X 10/11), which does not exceed the relevant threshold.
- Where the cost of the eligible depreciating asset is not eligible for the instant asset write-off, and the entity is a small business entity (i.e. aggregated turnover of less than $10 million), the asset can be allocated to the general small business pool and depreciated at a rate of 15% regardless of the date of acquisition during the 2020 year, provided the asset starts to be used or is installed ready for use during the 2020 year. Likewise, any second element costs incurred in the 2020 year exceeding the threshold and in respect of an asset that has been pooled in an earlier year will similarly be depreciated at a rate of 15%. For assets included in the pool at the start of the 2019 year the opening pool balance will be depreciated by 30%. Finally, where a balancing adjustment occurs, the asset’s termination value must be deducted from the pool.
- If the closing balance of the SBE’s general small business pool is less than $150,000 as at 30 June 2020 the SBE will be entitled to a full deduction for the amount of the pool’s closing balance.
2. Make concessional superannuation contributions.
Concessional super contributions are taxed at a rate of 15%, which is likely to be lower than your income tax rate and you can claim a deduction on contributions. The general concessional super contributions cap is $25,000 for all individuals regardless of age, so it’s a good idea to make feasible contributions up to that limit before 30 June.
3. Keep a business vehicle logbook.
Maintain a logbook of your business vehicle use for at least 12 weeks during the year so you can accurately claim back vehicle expenses at tax time. Legitimate business use of a vehicle is tax deductible, so you should also keep all receipts and invoices related to vehicle expenses such as petrol and maintenance.
4. Defer income and bring forward expenses.
You can cut down on your tax bill by deferring taxable income to the next financial year. For example, if you delay invoicing until 1 July, the invoice amount won’t count towards your taxable income for the previous financial year.
5. Claim deductions for expenses not paid by EOFY.
You can still claim deductions for some expenses even if they haven’t yet been paid by the end of the financial year. These expenses include:
• Staff salary and wages – claim the number of days that employees have worked up to 30 June but have not been paid until the new financial year
• Staff bonuses – claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June if you are committed to paying the expense.
• Repairs and maintenance – claim repairs carried out and billed by 30 June but not paid until next year.
6. Write off bad debts.
You can claim a tax deduction on bad debts if you can show that the debt has been written off by 30 June, and if the debt was originally shown as income. Put your decision in writing (such as in meeting minutes), which you can use as evidence that the debt was written off before EOFY.
7. Claim a small business tax offset.
If you operate as a sole trader, you could be eligible to claim a small business tax offset on your tax return, which can reduce the amount of tax you pay by up to $1000 a year. When you lodge your tax return, the ATO will calculate your offset based on the information you provide.
While these tips from Elite Tax Advisory can help you cut down on your tax bill, remember that there's no one solution that fits everyone, and it’s a good idea to seek professional advice to make sure you’re operating as tax efficiently as possible and meeting all obligations.
We’re dedicated to providing timely and proactive solutions for all your small business tax return needs.
We can help you navigate the accounting and tax responsibilities that come with running a business, and lighten your workload and enjoy our competitive and agreed upfront pricing.
8- Gift and Donations:
In order to claim the gift and donation, you must ensure that you did not receive any tangible benefit from making the donation and has receipts to evidence the making of such donations.
Section 26-55 of the ITAA 1997 limits the amount of the donation deduction as the making of a deductible gift cannot create or increase a tax loss. Where the deductible donation amount exceeds this limit, you may elect to carry forward the donation deduction and claim this over a maximum of five years for certain gifts where the conditions of Subdivision 30DB of the ITAA 1997 are met.
Deductions to political parties are limited to $1,500.
Contact John from Elite Tax Advisory today about your business needs.
Phone: 0456 799 959
Email: [email protected]
