Small businesses have different considerations to make at tax time compared to their larger counterparts. Here’s Adam Joy, CEO of the Australian Lottery and Newsagents Association (ALNA), with a rundown on what you should be focused on.
The close of another financial year once again marks the time to get the books in order for your tax submission. While most small businesses have the basics down pat, there are a few things SMEs will need to consider that will assist the smooth running of the submission process.
- Tax deductions should not incentivise spending
With the number of promotions targeting businesses leading up the end of financial year, you could be forgiven for thinking that it’s the best time to go all out. After all, you’ll get some of it back almost immediately through a tax deduction, right?
Some business owners may be tempted to spend some extra cash before the 30 June deadline, but they should think carefully before doing so. The usual rules of purchasing should apply: don’t spend extra on reductions or assets unless you can afford it and you need it. Just because businesses can get a deduction or an ‘instant’ write-off does not mean you are in the best financial position to do so.
One element businesses often forget is how a purchase might affect cash flow. My advice? Always work with your accountant on your cash flow and your taxation strategy. Don’t spend money unless you really understand your numbers, because you don’t want to be left in a bad cashflow position because you were lured by deductions.
- Don’t forget the instant asset write-off
The Australian Tax Office (ATO) has implemented an accelerated depreciation scheme where small businesses can immediately deduct the business portion of most assets, whether new or secondhand, if they cost less than $20,000 and were purchased and installed after 12 May 2015 and before 30 June 2018. You claim the deduction through your tax return, in the year the asset was first used or installed ready for use.
This was extended last year to SMEs with a turnover of less than $10 million, and once again committed in this year’s Federal Budget. Remember that the asset purchased must be used in the business for an income-producing purpose. For example, digital signage(such as LCD, LED, plasma displays, or projected images)for advertising and promotion. Digital signs can be found in public and private environments, such as retail stores and corporate buildings.
- Write off bad debts
Small businesses should also be looking to write off any bad debts that they have not been able to recoup in the 2017/18 financial year. This involves documenting what the debts are and the efforts you have made to recover them, which is essential evidence if the ATO asks if it is actually a bad debt. Bad debts must be physically written off before the end of June.
- Maximise your super payments
As of 1 July 2017, concessional contributions have an annual cap of $25,000. Concessional contributions are superannuation payments made before your income tax is taken out, including the super from your employer and your salary-sacrificed contributions. As contributions are paid before tax is applied, it means your super fund pays tax on the contributions at 15%. Make sure you maximise them without going over the threshold.
Also a reminder that super payments for staff are only tax deductible ifthey are paid during the current financial year. You’re required to pay super, and if it’s not paid by 30 June, no deduction. Even though you normally have 28 days after each quarter to pay, the June quarter must be paid in June to achieve the taxable deduction in that financial year. If you pay it 28 days later, in July 2018, it will fall into the 2018/19 financial year’s deductions.
Super needs to be paid to staff 28 days after the end of each quarter. For any quarter you miss that deadline, it’s not tax deductible. Businesses should make use of the newly organised superannuation amnesty and get their super in line, and fast.
- Square up your accounts
We’ve all heard the one about the business owner who cooked the books. Don’t try to get one over the ATO or you may be sorry. The ATO is much more aware of sneaky tactics and they are collaborating and using more data-matching than ever. For a small financial gain now, a transgression could cause you a long period of grief as the ATO then investigates all of your other dealings.
Also stay across what your tax accountant or accounts department is doing. Ensure you are aware what they are claiming and why. Trust your accounts person but verify their actions.
Taking care of the little things at the end of financial year can make tax time a whole lot easier, so pay attention to rules and deadlines to optimise your submission.
Adam Joy is the CEO of the Australian Lottery and Newsagents’ Association (ALNA). Joy holds a Masters in Leadership and is a member of the Australian Institute of Company Directors.