As a small business owner in Australia, now is the time to consider various strategies to optimise your overall tax position. Here are 20 ways to potentially save on tax before 30 June:
1. Pre-Pay Expenses:
Consider pre-paying business expenses such as rent, insurance, and subscriptions in advance to claim deductions this financial year.
2. Make use of temporary full expensing while it lasts!
Utilise the temporary full expensing rules to claim immediate deductions for new eligible assets. Temporary full expensing is a tax incentive to support businesses and encourage investment. Under this measure, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use for a taxable purpose. This includes the cost of new eligible assets, certain second-hand assets, and improvements to existing eligible assets. The aim of temporary full expensing is to stimulate business investment and economic activity by allowing businesses to deduct the full cost of eligible assets more quickly, rather than depreciating them over several years. This incentive is available for assets acquired from 7.30pm AEDT on 6 October 2020 and first used or installed ready for use for a taxable purpose by 30 June 2023. Temporary full expensing ends on 30 June 2023. After this date, businesses will revert to claiming deductions for the business portion of the decline in value of depreciating assets under the general depreciation rules or the simplified depreciation rules for small businesses.
3. Small Business Boosts:
Claim the small business technology investment boost and the small business skills and training boost for additional deductions. These boosts are two separate tax incentives introduced by the Australian Government to support small businesses in enhancing their digital capabilities and workforce skills. Both boosts are designed to incentivise small businesses to invest in technology and training, which can lead to increased productivity, efficiency, and competitiveness. To claim these boosts, businesses must meet the eligibility criteria and keep accurate records of their expenses.
4. Write Off Bad Debts:
Review your accounts receivable and write off any unrecoverable debts to claim a deduction. (Applicable only to businesses who pay tax on an accruals basis – i.e. income / expenses recorded when earned / accrued rather than when actually received / paid).
5. Obsolete Stock:
Conduct a stocktake and write off any obsolete or damaged stock. If during a stocktake, it is determined that some stock items are obsolete, damaged, or no longer sellable at their original value, businesses can write down the value of this stock to reflect its reduced market value or scrap value. The difference between the opening stock value and the closing stock value, after accounting for purchases and sales during the year, will affect the business’s assessable income. If the closing stock is valued lower due to obsolescence, the business’s income will be reduced, which can result in a lower taxable income and therefore a tax saving. It’s important to note that the write-down of obsolete stock must be justifiable and in line with the ATO guidelines.
6. Superannuation Contributions:
Pay your employee super contributions before 30 June to claim a tax deduction.
7. Asset Review:
Scrutinise your asset register and write off any assets that are no longer in use. Writing off an asset involves removing it from the business’s balance sheet and recognising any remaining un-depreciated value as an expense.
8. Defer Income:
If possible, delay issuing invoices until the new financial year in order to defer income.
9. PAYG Instalments:
Vary your PAYG instalments down if you expect a lower tax liability.
10. Small Business Concessions:
Consider your eligibility for the small business income tax offset. The offset provides eligible small businesses with a reduction in their tax payable, up to a maximum of $1,000 per year. To qualify, businesses must have an aggregated turnover of less than $5 million and be carrying on a business as a sole trader, or have a share of net small business income from a partnership or trust.
11. Home Office Expenses:
Claim deductions for home office expenses if you run your business from home.
12. Professional Development:
Invest in training for yourself and your employees through registered providers to claim the skills and training boost.
13. Maintenance and Repairs:
Carry out and pay for any necessary repairs and maintenance on business property or equipment.
14. Charitable Donations:
Make charitable donations from your business to claim a deduction. Ensure that your donations are to Deductible Gift Recipients (DGR’s).
15. Research and Development:
Claim the Research and Development (R&D) tax incentive if eligible.
16. Review Contracts:
Consider the timing of contracts and whether income can be deferred or expenses brought forward.
17. Manage Capital Gains:
Review your investment portfolio and consider the timing of asset disposals.
18. Update Accounting Software:
Ensure your accounting software is up-to-date to maximise deductions and streamline tax return preparation. (Xero, MYOB and Quickbooks for the win!).
19. Seek Professional Advice:
Engage a tax professional to identify specific strategies for your business.
20. Keep Good Records:
Maintain thorough and accurate records to substantiate all claims.
Implementing these strategies, (provided they are compliant with ATO guidelines and regulations) can help small business owners reduce their taxable income and save on tax. For personalised advice, don’t hesitate to get in touch with our team.
Please note that this blog post is for informational purposes only and should not be considered as professional tax advice or specific to your personal circumstances.
