The SME’s Guide to EOFY

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.

4. Deductions

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!  

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Della Nicholson

Della Nicholson Accounting is a boutique accounting firm in Wynnum Manly, Brisbane. Specialising in accounting & taxation services, bookkeeping, web based software and e-commerce. We concentrate on providing superior personalised service to clients and producing high quality services in a timely manner. We would genuinely love your business. Call us today +617 3396 8868. Member of the Institute of Chartered Accountants in Australia, Registered Tax Agent, Registered ASIC Agent, Taxation Institute of Australia Chartered Tax Advisor.

2016 Federal Budget Wrap Up

Business 

1. Reduction of company tax rate

The company tax rate will be progressively reduced to 25% over 10 years.

Currently, the company tax rate is 28.5% for companies with turnover less than $2 million, and 30% for all other companies.  From 2016/17 financial year the tax rate for companies with a turnover of less than $10 million will be reduced further to 27.5%.   

Although the increased threshold will not apply for the purposes of accessing existing small business capital gains tax concessions there are a number of other small business concessions which are worth having.

2. Tax breaks for other non-company businesses

So the next change will potentially apply to you if you operate your business as a sole trader, partnership or trust.  The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016.  The current cap of $1,000 per individual for each income year will be retained. 

3. Simplified depreciation rules

From 1 July, small business depreciation rules will be expanded to include business with turnover of less than $10 million (previously the turnover threshold was $2 million), meaning access to:     

  • Simplified depreciation rules, including the immediate deduction for asset purchases costing less than $20,000 until 30 June 2017, and then less than $1,000   
  • Simplified trading stock rules, giving the option to forgo an end of year stocktake if the value of stock has changed less than $5,000
  • Simplified method of paying PAYG instalments which reduces risk of getting your estimate wrong and penalties being applied
  • Option to calculate GST on a cash basis (once a business’s turnover reached $2 m you were required to account for GST on an accruals basis)
  • Small business FBT concessions and immediate deductibility of professional expenses which will apply from 1 July 2016.

4. Division 7A

The Government intends to amend laws in relation to Division 7A (ie. related party debit loans).  The new rules are intended to improve the operation of Div 7A and will include:

  • A without penalty voluntary disclosure and self correction mechanism for taxpayers whose arrangements have triggered Div 7a but are non-compliant
  • New safe harbor rules to provide certainty and compliance for taxpayers
  • Amended rules, with appropriate transitional arrangements, regarding complying Div 7A loans, including having single a compliant 10 year loan duration and better alignment of the minimum interest benchmark with commercial transaction.

Superannuation 

The government proposed changes are based in part on recommendations in the Murray Review and to address

1. Extension of the superannuation surcharge to high income earners

From 1 July 2017, the government will extend the 30% tax rate for concessional contributions (ie. SGC, salary sacrifice & personal deductible contributions) on behalf of individuals with income over $250,000 (previously $300,000)

2. Limiting excess balances

Concessional Contributions
From 1 July 2017 the annual concessional contributions cap has been reduced to $25,000.  Concessional contributions consist of the total compulsory SGC, salary sacrifice and personal deductible contributions that are received by your fund from either you or your employer during the year. 

The Government will also introduce catch-up concessional superannuation contributions by allowing unused concessional contribution caps to be carried forward on a rolling basis for up to five years for those with account balances of $500,000 or less. This will allow those with lower contributions, interrupted work patterns or irregular capacity to make contributions to make ‘catch-up’ payments to boost their superannuation savings.

Non-concessional (after tax) contributions
With effect from 3 May 2016, the current $180,000 a year limit (rolling 3 year $540,000 limit) will be replaced by a life time non-concessional cap of $500,000.   Non-concessional contributions consist of after tax contributions and are neither taxable income of the fund or tax deductible to the contributor.  

3. Transition to retirement & super pensions 

Income from super-based pension accounts will be taxed as accumulation accounts (15 per cent), not as tax-exempt superannuation funds in the draw-down phase which is currently the case.  This effectively removes the generous existing tax incentive for most people under 60 to commence a transition to retirement arrangement.

There will be a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts. This puts a limit on taxpayer support for tax-free retirement phase accounts.

4. Removal of work test for over 65's

Currently, there are minimum work requirements for Australians aged 65 to 74 who want to make voluntary superannuation contributions. Restrictions also apply to the bring-forward of non-concessional contributions. In addition, spouses aged over 70 cannot receive contributions. None of these restrictions apply to individuals aged under 65.  The Government will remove these restrictions and instead apply the same contribution acceptance rules for all individuals aged up to 75, from 1 July 2017.

5. Contributing to your spouses superannuation

The current income threshold which applies to the superannuation spouse tax offset (whether married or de facto) will be lifted from $10,800 to $37,000.  The contributing spouse will be eligible for an 18 per cent offset worth up to $540 for contributions made on behalf of their spouse. 

Individuals and Families

  • The threshold at which the 37% marginal tax rate threshold for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016. 
  • Removal of the 2% Temporary Budget Repair Levy on taxable income over $180,000 from 1 July 2017
  • The low-income thresholds for the Medicare levy and surcharge will increase from the 2015/16 income year.
  • The pause in the indexation of the income thresholds for the Medicare levy surcharge and the private health insurance rebate will continue for a further three years from 1 July 2018. 
  • Income tax exemptions will be provided for ADF personnel deployed in Afghanistan, the Middle East and in international waters.
1 Comment

Della Nicholson

Della Nicholson Accounting is a boutique accounting firm in Wynnum Manly, Brisbane. Specialising in accounting & taxation services, bookkeeping, web based software and e-commerce. We concentrate on providing superior personalised service to clients and producing high quality services in a timely manner. We would genuinely love your business. Call us today +617 3396 8868. Member of the Institute of Chartered Accountants in Australia, Registered Tax Agent, Registered ASIC Agent, Taxation Institute of Australia Chartered Tax Advisor.