Tax tips for end of Financial Year
Be prepared. As the financial year draws to a close, preparation is the key to getting the best out of tax time. Here are some suggestions to simplify the process and optimise the outcome.
Well, its June already. Hopefully its been a prosperous financial year. Before you close off the books and hand them to your accountant, consider these issues.
- Ensure that superannuation contributions are paid by year end. The June quarter super is not due until July 28, 2004, but to receive a deduction in financial year 2004 it must be paid on or before June 30.
- Look at scrapping worthless stock, plant and equipment before year-end.
- Revalue your stock to a lower replacement price or market value, if this is applicable.
- Write off bad debts before year-end.
- Ensure that audit fees are incurred before year-end.
- Consider the appropriateness of the low-value pool for depreciating capital assets.
- Ensure that bonus obligations are incurred before year-end.
Pay deductible expenses that can be brought forward into this financial year.
- Most taxpayers will not be assessable on income such as rent, dividends and interest until it is received. This creates an opportunity for deferral.
- Many businesses will also account for their income on a cash basis vs accruals. On a cash basis, income is not assessable until received.
- For professional practices, work in progress will not be assessable until there is at least an entitlement to bill.
- There are specific tax provisions that allow some businesses to defer recognition of income received before the end of the year for services not yet performed. Ask your advisor if these apply to you.
Minimise Capital Gains Tax
- Defer disposals to make sure an asset has been held for 12 months, to (potentially) benefit from the 50 per cent discount.
- Defer disposing of an asset until after June 30.
- Review capital gains for the year-to-date to determine if you have potential capital losses. It might be worth selling the “loss assets” to offset the capital losses against your gains.
- Look to benefit from the CGT small business and retirement concessions.
- Consider the rules relating to private company loans and, if any loans do exist, make sure they have been structured correctly to avoid a deemed unfranked dividend and franking debit.
- With such loans, make sure that minimum repayments have been made.
- Consider whether non-commercial loss rules will apply to your business.
- Look at whether the Personal Services Income (PSI) rules affect your business. If so, you might need to have a PSI determination.
- When dividends are paid by your company, make sure you issue a dividend statement in the correct format. Recipients need this to claim imputation credits.
- All dividends must be franked to the same extent if paid within the same franking period.
- Are you entitled to a refund of franking credits in relation to dividends received?
- If youre eligible under the Simplified Tax System (STS) rules and not already using them, determine whether they could benefit your business.
Paying tax should not be a problem for any business (you would be worried if you always had a loss!), but it is important for business planning to ensure that you are minimising tax payable and paying no earlier than necessary.
These checks should be performed at June 30. For businesses using computerised accounting packages, many of these are automatic operations.
- Ensure a stocktake is carried out to record closing stock values.
- Record a list of accounts receivable at June 30.
- Record a list of accounts payable at June 30.
- Prepare bank reconciliations (attach copies of bank statements).
- List capital assets (plant and equipment) bought, sold or scrapped during the year.
- Ensure FBT records—such as car log books/km travelled—have been kept and entertainment has been apportioned for clients and employees.
- Prepare copies of lease/loans schedules for the year.
By completing as much of this as possible, you should be able to give your accountant the right information the first time … which will help keep their time, and your bill, to a minimum.