Small Business Tax Deductions
Here's a list of innovative small business tax deductions for business owners in Australia to take advantage of.
Bring forward expenses
Consider bringing forward expenses such as maintenance, repairs, consumables, customer gifts or tax-deductible donations. To claim a deduction these costs must be incurred by 30 June.
Defer income
Consider deferring income to the next financial year by issuing customer invoices after 30 June where appropriate.
Prepay expenses
You can claim a deduction for prepaid expenses in the current year, providing the benefit provided does not extend beyond 30 June of the following year.
Timing of renewals
Consider aligning the renewal dates for annual subscriptions and insurances with the financial year end to maximise your prepaid expense deductions.
Directors fees and employee bonuses
If payment of a directors fee or bonus has been ‘definitely committed to’ by 30 June, a deduction can be claimed in the current year even if the directors fee or bonus is paid after 30 June. Any accrued directors fees and bonuses need to be paid within a reasonable time period after year-end.
You would generally be definitely committed to the payment by year-end if the directors or trustees pass a properly authorised resolution prior to 30 June to make the payment. The employer should also notify the employee of their entitlement to the payment or bonus before year-end.
The director or employee is taxed on the directors fees or bonus in the financial year it is received.
Scrap obsolete plant & equipment
Review your depreciation schedule for obsolete items of plant and equipment and consider scrapping these items and writing them off where appropriate.
Maximise depreciation deductions
Temporary full expensing enables your business to fully expense the cost of new depreciable assets, improvements to existing eligible assets and second-hand assets in the first year of use.
Consider bringing forward the purchase of equipment and machinery required by your business. Note that it is never advisable purchasing an asset for the sole reason of claiming a deduction.
Write off bad debts
To claim a deduction for bad debts, all attempts to recover the debt must have been given up. The bad debt needs to be written off your debtors’ ledger by 30 June.
Provide staff with work uniforms
Consider elevating the appearance of your team by providing staff with a work uniform. Businesses can claim the cost of providing staff with work uniforms regardless of whether the uniform has a business logo.
Pay super early
Superannuation payments are deductible in the year in which they are paid. Consider paying your June quarter super contributions by 30 June to claim the tax deduction in the current year.
Contribute to super
Both business owners and employees can make tax-deductible contributions into super up to the concessional contribution cap amount. From 1 July 2019 unused concessional contribution caps are carried forward for up to 5 years.
Review your business structure
With the company tax rate reduced to 25%, now may be a good time to consider switching to a company structure or utilising a company within your existing structure. The company will need to be established by 30 June in order to receive income.
Maximise your tax thresholds
The following tax thresholds apply to Australian residents: $0-$18,200 (0%), up to $45,000 (21%), up to $120,000 (34.5%), up to $180,000 (39%), over $180,000 (47%).
Look for tax planning opportunities where members of a couple are in different tax brackets. Couples with a single wage earner may wish to ensure all investments are held in the name of the lower income partner.
Allow employees to cash out leave
Offer employees the option to request the cashing out of annual leave. Ensure the leave is cashed out in a pay run with a payment date on or before 30 June to claim the deduction in this year.
The employee should make the request in writing and a copy should be saved on the employee’s file. In most states an employee’s annual leave balance must not reduce below 4 weeks.
Complete a stock take
Complete a stock take and consider writing off old or obsolete stock. Where obsolete stock is not disposed of, we recommend the correct quantities be recorded in your inventory management system even if the value is reduced to nil. Consider writing down all stock that has not sold in the last 12 months by 50%, and writing down all stock that has not sold within the last 24 months by 100% where appropriate. Copies of stock count numbers and stock valuation calculations should be kept on file.
Review vehicle logbooks
Logbooks are valid for a period of 5 years providing the pattern of use has not significantly changed. Where the business use percentage of a vehicle has increased, keeping a new logbook may result in significant additional business deductions.
Donations to political parties
In some circumstances donations to political parties and independent candidates and members may be deductible to individuals. The contribution must be $2 or more, and the maximum deduction is $1500 for donations to political parties, and an additional $1500 for donations to independent candidates and members. Businesses cannot claim deductions for contributions and gifts to political parties, members and candidates.
Review shareholder loan accounts
Where shareholders have borrowed money from a company, these loans are required to be placed under a complying loan agreement with interest paid and minimum loan repayments met.
Where possible, all shareholder loans should be repaid on or before 30 June to avoid interest charges. Note that the ATO does not approve of arrangements where funds are borrowed extensively during the year and repaid on 30 June.
Where a shareholder does not have sufficient funds to repay the loan or make minimum loan repayments, consider declaring a dividend to provide the shareholder with the funds to repay the loan.
Ensure company tax instalments are being paid
A company can only pay a fully franked dividend to the extent it has paid income tax or tax instalments.
New companies expecting to pay a dividend in the current financial year should ensure sufficient tax has been paid and if not, consider increasing the March quarter instalments.
Keep your accounting software organised and up to date
Ensure all owners and employees keep receipts for all work-related purchases to ensure expenses are not missed and can be claimed.
For further information on any of these small business tax deduction tips please reach out to one of our experienced tax advisors on 07 4635 4616.
