Year End Matters: Business
As the tax year winds its way to the end, the standard thought processes turn to those year end planning matters that should be dealt with. However, rather than leaving year end housekeeping until the end of the tax year, a more strategic and efficient approach is to incorporate these matters into your regular accounting and business processes.
Outlined below are a number of areas that may be of interest if you are considering refining your accounting and business processes, which can also produce tax savings.
Bad debts are an unfortunate part of being in business, however, to deal with them from a taxation perspective you need to formerly write them off and have the paperwork to support this. Waiting until year end to do this process not only increases work loads at the busiest time of the year, but can also adversely impact your cash flow as previously paid GST can be recovered.
Another important consideration is superannuation, which normally should be paid within 28 days of the end of the quarter to be deductible. However, this means that you pay tax on your superannuation accrual. Paying the superannuation on the final pay cycle of the year before year end eliminates this issue and does not adversely impact your cashflow.
Employee bonuses are another area where changes to internal processes can change your tax position. By aligning your employee contracts, timing of personnel reviews and communication of results, accrued employee bonuses that would otherwise not be deductible until the following year can be claimed as a deduction in the current year. PAYG withholding obligation in relation to accrued bonuses will not arise until payment.
Expenses that are incurred before year end can reduce your taxable income. As such, correctly calculating your accruals and having the evidence to demonstrate the accuracy may mean the difference between a deduction this year or next year.
Reviewing the fixed assets register and "scrapping" depreciating assets which are no longer being used before year end can reduce your taxable income.
As you may already be aware, the government has reduced the company tax rate for small businesses (turnover less than $2 million) from 30% to 28.5% for income years beginning on or after 1 July 2015. As a result of the reduction, small businesses should consider timing of income / deductions for tax purposes (ie 2014/15 year versus 2015/16 year), including timing of the $20,000 instant asset write-off. This can result in tax savings for small businesses of 1.5%.
Under the Federal Government’s R&D Tax Incentive, companies conducting R&D that turn over less than $20 million could qualify for up to a 45% refundable tax offset. “Research and development” activities need not include lab rats or Bunsen burners – if you are developing a new or improved product, process, services, device or material your business could be eligible.
There are a number of things that you will need to consider from an accounting perspective - especially if you’re a small start-up and not currently paying yourself very much – but a little planning now might set your business up for significant claims and benefits in the year ahead.
In addition to the items above, a number of other areas may be worth examining including depreciation methodologies, payment of withholding taxes, and stock valuations.
Should you wish to discuss how any of the above may be applicable to your business please contact your relevant ESV engagement partner on 9283 1666.Article by Sylvia Choi