by Renée Jovic
As the financial year comes to a close it is an ideal time for individuals and businesses to review their investment situation and take the opportunity to minimise their tax obligations.
It can often be said those that fail to plan, plan to fail – so get proactive before the end of the financial year!
- Bad debts: Bad debts are taxable sales that have been overdue for 12 months or more and have no chance of being recovered. It is important to write off bad debts before year end. It must not be bad, not merely doubtful and must have been previously included as assessable income.
- Trust distributions: Trustee distribution resolutions are needed before 30 June 2022, or individuals can expect to pay 46.5 per cent on trust profits if you do not assess who you make your distributions too in the most tax effective way. It is important to physically make these distributions also with the current review of trust and paper distributions.
- Maximising Superannuation: You can maximise your superannuation contributions to $27,500 – this includes any employer contributions made for the financial year. You can do this my means of salary packaging or directly contributing via your super fund and advising them you wish to claim a tax deduction. Note also, if you have not been maximising your contributions over the last three years and your fund balance is less than $500,000 you maybe able to contribute more to super up to potentially $75,000 for missed contributions over the last three years – speak to your advisor.
- Prepaid Interest: There is potential for big tax refunds for prepaid interest if you have the cashflow, and also with the potential of more interest rate rises – speak to your accountant.
- Self education: To claim a deduction for self-education expenses individuals must show that the course maintained or improved a skill required for their current work activities, or that it was likely to lead to an increased income.
- ATO benchmarking: Benchmarks have been developed to identify taxpayers who report income or expenses different to similar businesses. It allows the ATO to identify businesses that are not fulfilling their tax obligations.
- Write off obsolete inventory: The year-end stock take should involve a review of all inventories and identify any damaged or obsolete stock. Obsolete stock may be scrapped or valued below cost subject to specific guidelines. Receipts must be kept so that all deductions can be substantiated.
- Capital expenditure vs repairs: Review all spending during the year to determine if all items are deductible or it they are capital by nature and need to be depreciated. Note until 30 June 2022 we still have the $150k active asset write off for small business.
- Review unpaid expenses: Business who are falling behind in their rent and other expenses that work on an accrual’s basis may claim the arrears amount as a tax deduction.
- ATO compliance: Businesses should be aware of any ATO changes that have occurred throughout the year as penalties can apply for those who fail to be compliant.
- Prepay expenses: Prepaying expenses that cover a period of no more than 12 months is an effective way to bring forward operating expenses before 30 June. Items that can be prepaid include rent, insurance, and repairs.
- Depreciation schedule: The depreciation schedule can add a significant tax deduction. The cost is also tax deductible. For businesses which maintain depreciation schedules, it is important to review them to ensure there are no items which are no longer on hand and could be written off. This is also important with the $150k write off mentioned above.
- Small business CGT concessions: Individuals operating a small business may be eligible for CGT concessions on the sale of business assets.
This is some general ideas that I work with many of my businesses and clients with, as always seek professional advice from your own trusted advisor.
With thanks to our guest author:
Renée Jovic FCPA
Director at Zenith Business Advisory
& Board Director at the Geelong Chamber
Zenith Business Advisory was established after recognising the demand for tailored, bespoke services within preparing businesses for succession & sale, business strategy, accounting and financial advice. Zenith encapsulates excellence specialising in preparing businesses for sale, business strategy, accounting, financial performance, financial planning, structure, systems and leadership. To get in touch with Renée, email her at email@example.com.
DISCLAIMER: This article is for guidance only, and professional advice should be obtained before acting on any information contained herein. Neither the writer, publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this article. Liability limited by a scheme approved under Professional Standards Legislation