What is the purpose of a Tax Planning for a small business?

A tax planning for a small business helps you to reduce the amount of taxes paid to the Government, and maximise your return. The tax planning will use beneficial tax-law provisions, such as allowable deductions, tax credits, applicable breaks, and will work on reduce your taxable income.

Who is considered as a small business?

A small business is a sole trader, partnership, company or trust that in an income year or part of it (1 July-30 June), operates as a business and has less than $10 million of the turnover threshold. The corresponding tax rate for a small business is 27.5%.

Tax Planning Tips

1) Immediate deduction for assets less than $20,000

Small businesses can immediately deduct the business portion of most assets if they cost less than $20,000, whether they are new or second-hand.

2) Paying employee superannuation

Business should pay employees’ superannuation contributions before 30 June 2019, to obtain a deduction and to avoid the Superannuation Guarantee Charge.  

3) Defer income

If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2019. This strategy pushes tax payable to future income years.

4) Defer investment income & capital gains

If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2019.The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date. This strategy pushes tax payable to future income years.

5) Small business concessions – prepayments

“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2019 and obtain a full tax deduction in the 2019 income year.

6) Bring forward expenses

Purchase consumable items such as marketing materials, consumables, stationery, printing office and computer supplies before 30 June 2019, to get the deduction this income year.

7) Write-off bad debts

Review your Trade Debtors listing and write-off all bad debts BEFORE 30 June 2019. Prepare a management document listing each bad debt, as evidence that you have written off these amounts prior to year-end and enter these into your accounting system before 30 June 2019. You will obtain a deduction for this.

8) Repairs & maintenance

Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2019, to get the deduction this income year.

9) Investment property depreciation

If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.

10) Contributions caps superannuation

Make sure that you don’t contribute more than the annual concessional contribution cap of $25,000 for all the individuals, or there is a risk being subject to an excess contributions tax of 46.5%. You must deposit the contribution to the Fund by 30 June 2019.

11) Low value pool

Assets which have been written down to where their value is quite low, can be pooled together and depreciated at a higher rate.

12) Obsolete stock

You can write-off obsolete trading stock with no value and claim a tax deduction this year.

13) Tax losses

Check if your company has any tax losses carry forward from prior years. These will be able to be offset against this year’s income.

14) Tax consolidation

If you’ve got a few companies that are part of your group, you may want to consider consolidating them for tax purposes before the end of the year. The resultant single tax entity allows you to offset profits and losses from the different entities.

15) Private company (“DIV 7A”) loans

Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2019. Current year loans must be either paid back in full, or have a loan agreement entered in before the due date of lodgement for the company return, if not, that fund will be treated as an unfranked dividend under Division 7A.

16) Year-end stocktake / Work in progress

If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2019. Review your listing and write-off any obsolete or worthless stock items.

17) Lease arrangement

If you are considering to purchase a new asset, entering into a one or two year lease arrangement can offer a much larger up front tax deduction compared with financing the purchase using a chattel mortgage, or even paying for the asset in cash.

18) Tools of trade / FBT exempt items (Fringe benefits tax)

For small businesses, the purchase of items like handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones are exempt from Fringe Benefits Tax (FBT).

19) Keep records for an efficient business management

In case of any dispute with the ATO, you must keep relevant records such as sales receipts, expense invoices, credit card statements, bank statements, employee records (wages, super, tax declarations, contracts), vehicle records, log books, lists of debtors and creditors, asset purchases.

More Information

The information provided is of a general nature only, so if you need a professional advice for a successful tax planning for your business contact our Precent Tax and Accounting Services team for more information at (+61) 2 8317 1281, or send us a message to [email protected].