Australian SMEs are faced with "increasing costs while attempting to spend less this quarter", according to the latest Westpac-Melbourne Institute SME Index! To help you prepare we wanted to offer up our top 15 tips ahead of the coming end of financial year.
1. Consult your accountant
Many businesses underestimate the added value their accountant or financial advisor can provide. This interaction should go beyond mere compliance and tax return submissions and include growth and cash-flow strategies … so call me maybe!
2. Review business structures
The end of the financial year is also a great time for business operators to take stock and review their structures. Some SMEs may also be eligible for capital gains tax relief when changing the legal structure of their business, as a result of changes included in the 2015 federal budget and legislated for earlier this year. Under the change, eligible small businesses will have access to an optional rollover provision when they transfer an active business asset to another small business entity as part of a genuine business restructure. However, to qualify, the “ultimate economic ownership” of the asset much not change.
3. Take advantage of the $20,000 asset write-off
Businesses with annual revenue of up to $2 million can take part in the government write-off scheme for plant and equipment purchases. The accelerated depreciation measure applies to all asset purchases up to the value of $20,000 and can significantly reduce the amount of tax a business will pay. However, this only applies to acquisitions from May 2015 to June 30, 2017, after which the limit will revert to $1000.
Small business operators should make use of all the deductions available to them at the end of the financial year. Deductible expenses could include the costs associated with running and occupying a home office or expenses such as repairs and maintenance. Some business owners will also choose to pre-pay monthly costs such as rent, electricity, wages and utilities. If you have travelled throughout the year, check if any of the expenses occurred during these trips are deductible and meet the relevant requirements.
5. Write off bad debts
Ensure you write off any bad debts and prepare minutes documenting the debts and all efforts you have made to recover them, otherwise they cannot be claimed as deductions. This action also enables adjustments for any GST charged on the invoice.
6. Comply with your superannuation requirements
Getting organised on the superannuation front is a must. Super is not tax deductible until it has been paid, so it is important to ensure all super contributions for employees are completed by the end of the financial year.
7. Understand how to manage cash flow
Review your cash-management processes and adopt the most appropriate funding solutions. It’s a good time of year to plan for the future and make sure that all appropriate steps are taken in terms of managing cash flow.
8. Record Keeping
Take some time to ensure all your records are in order. It’ll help your tax agent prepare your tax return, by providing details of your business income and expenditure and make sure you claim all the appropriate deductions and entitlements.
9. Review depreciables
Make sure you also set aside time to review your business’ depreciables before the end of the month. Each year the ATO publishes a taxation ruling about the effective life of assets and this can be used as a guide for business owners when calculating the depreciation rates of their assets.
10. Claim self-education expenses
If you’ve spent money on self-education this year, make sure you claim that expense on your tax return. Claimable expenses can include: course fees, textbooks, stationery, student union fees and depreciation of other study-related items such as computers and printers.
11. Manage capital gains and losses
Businesses that have made a capital gain in the current financial year should also consider if there are ways to minimise the tax on those gains. For example, this could include selling assets that have an unrealised capital loss, such as shares, as a means of offsetting against the capital gains.
12. Company tax rate changes
The federal government also used this year’s budget to outline plans to phase in a lower company tax rate over the space of 10 years, starting with a cut from 30% to 27.5% for some SMEs. Last year the government introduced a 1.5% tax cut for small businesses turning over less than $2 million annually, bringing the corporate tax rate down to 28.5% for those businesses, and in May said it would drop the corporate tax rate to 27.5% for SMEs turning over up to $10 million.
13. Check your logbook is in order
The ATO appears to be paying more attention to logbooks that are used to document car expenses, whether by business owners themselves or as part of a fringe benefits package for employees.
14. Pay on time
Once your tax bill is finalised, do what you can to pay it on time. The ATO has previously said making prompt payments is the best way for SMEs to avoid penalties. And if there is some reason why you are not able to pay your bill on time, contact the ATO.
15. Plan ahead
Starting a new financial year is an opportunity to get your business into shape, do your research, talk to an expert and plan to make next financial year your best ever!