With the end of the financial year almost upon us, now is the time to make the most of your tax planning.
If you are like most business owners, chances are you are putting off thinking about your tax until after 30 June. However, you MUST act now. If you wait until after 30 June, it’s too late to take advantage of many steps that could improve your cash flow not only now but for the next financial year.
To see a benefit this tax time, anything you want to claim or write off needs to be done this side of the end of financial year and you can’t backdate anything. If you are audited and are found to have falsely claimed deductions or have backdated transactions, you could potentially face criminal charges or, at the very least, receive a hefty fine from the Australian Taxation Office (ATO).
I have one golden rule for this time of year: ‘tax deferred is tax saved’. It will always pay to defer your tax obligations until the following year to improve your cash resources.
Here are four key steps you can urgently take to improve your cash flow this tax time.
It might be difficult, but if your estimated profits are going to be high this year, try to prepay as much as you can, including paying your rent in advance and prepaying any fixed payments. This helps increase your tax deductions for the year.
Write off your old debts
There isn’t much time left, but a key step is to take a look through your debt ledger and write off old debts from the past six months or ones that you think won’t be recovered. This reduces your 2016-17 income, reducing your business’ tax. You will also be credited GST in your next BAS, as you will have been charged GST on the written off invoices but not actually received it from the customer.
Refer those written-off debts to a ‘no-recovery, no-charge’ debt collection agency. Any money ultimately recovered by them can then be added back into your income in the financial year in which the money is recovered.
Order purchases now but defer payment
For any large purchases you have in the pipeline, try to make the order and receive the invoice before 30 June to pick up the expense. This may sound counterintuitive but, if you negotiate deferred terms with your suppliers, you’ll receive the benefit this tax time rather than having to wait 12 months. That is, order and claim the expense now, but put off paying until the new financial year.
Obey the ATO
While it can be a benefit to push back payments to some of your creditors to ease your cash flow burden, the ATO is one creditor you don’t want to mess with. It far more extensive powers when it comes to collecting money it is owed and will act quickly and efficiently. In fact, the ATO is the largest liquidator of companies in Australia.
Whatever you do, don’t miss your BAS payments or you will be hit with hefty penalties. While the ATO will work with those who are making a serious effort to pay, they will be firm and harsh on those who are deliberately trying to avoid their obligations.
Planning your taxes in advance might be the last thing you want to do as you head towards 30 June but it will make a considerable difference to your cash flow. Most importantly, it will set your business off on the right foot for the new financial year and put you in good stead for a prosperous FY 17-18.
About the author
Roger Mendelson is CEO of Prushka Fast Debt Recovery, principal of Mendelson’s National Debt Collection Lawyers, and the author of ‘The Ten Mistakes Businesses Make and How to Avoid Them’ and ‘Business Survival Guide’. As a practising lawyer, he spent several years as a tax specialist.