25 February 2019
If you own a small business, we understand there are not many hours in your day free to think about tax. Despite it being several months away, tax time is a burden every business has to endure. Here at AR Advisors, we want to try and help you get ahead with some of our top tax tips.
Tax tips for all entities:
Check your depreciation deductions
If you are a business with annual turnover of less than $10 million, you can enjoy immediate tax deductions for individual assets costing less than $30,000. An asset of more than $30,000 will attract a depreciation rate of 15% in the first year with the balance being depreciated at 30% thereafter.
Pay staff bonuses
When paying employee bonuses, make sure it has been formally documented prior to June 30. This will enable you to apply for a deduction to be incurred.
Pay staff superannuation
Superannuation is usually only deductible on the date it is paid. If you’d like to claim a tax deduction for your employees’ June quarter super guarantee, you will need to ensure this is paid before June 30.
Write off any outstanding debts
If you use accrual accounting, you can generally claim a tax deduction on bad debts in the year they are written off.
Seek professional advice early-on
Most fees incurred when starting up a new business, such as accountancy or legal fees, can be deducted during the same financial year.
Tax tips for businesses:
Small business restructure rollover
Certain small business entities can change the entity they trade through without incurring an immediate income tax liability. These assets include all active assets in the business such as goodwill, trading stock and depreciating assets.
Tax tips for companies:
Check you’re paying the right company tax rate
If you’re company has an aggregated annual turnover of less than $25 million, you’ll most likely be paying 27.5% in tax. However, if your turnover is above this threshold or if you earn most of your income from passive investments, you’ll most likely need to pay the 30% tax rate.
Review any private company loans
Unless there’s an exemption, payments or loans to shareholders, the transfer or use of a company asset by a shareholder, or even the forgiveness of a shareholder’s debt can sometimes trigger an unfranked deemed dividend. However, if you are aware of these issues this can normally be managed by appropriate loan documentation.
Tax tips for trusts:
Make trust resolutions by EOFY
For discretionary trusts, trustees need to consider how the income of the trust is to be distributed to beneficiaries. The relevant documentation needs to be prepared and signed by the end of the financial year.
Tax planning for discretionary trusts
Assuming the deed allows, most trustees are able to stream franked distributions and capital gains to their choice of eligible beneficiaries. This can often create tax planning opportunities, however, this must be formally documented by the end of the financial year.
Prevent deemed dividends in unpaid trust distributions
If a distribution to a private company remains unpaid, it may be viewed as a deemed dividend. Ensure all trust distributions to private companies are paid in cash within the relevant time frame or ensure the appropriate loan documentation has been executed.
Tax tips for primary producers:
Make use of a Farm Management Deposit Scheme
Up to $800,000 can be deposited into a Farm Management Deposit (FMD), giving you access to this money in future years. An FMD is a commercial product that helps primary producers defer income into later years in order to smooth out income in a year with high profits.
Average out your income
Income tax averaging is a concession that allows primary producers to average out their income over the previous five years. This ensures primary producers aren’t adversely taxed in profitable years that are followed by less profitable years.
Maximise your write-offs
Accelerated depreciation claims are available for capital expenditure on water facilities, fodder storage and fencing assets, as well as horticultural plants and grapevines.
Final tip – get in touch!
At AR Advisors, we understand that the world of small business can be tough, and that getting your tax right can have a huge impact. That’s why our tax advice and compliance service is designed to make life as easy as possible when tax time comes around again. Our dedicated experts can help you make sure that you’re covering all the right bases. Get in touch today to find out more.
Note: Information on individual asset deductions has been updated since original publication from $20,000 to $30,000 to reflect changes in legislation.