With tax time fast approaching, it is time to start thinking ahead. There are a number of opportunities to manage your 2019 tax liability that you should consider in the lead up to 30 June. To take the pressure off, we have listed the top five tax tips to action before it is too late.
1. Make the most of the instant asset write-off
As part of the suite of Budget measures, the Government has increased the instant asset write off to cover depreciable assets up to a cost of $30,000. They have also significantly widened the scope of the concession, allowing businesses with a turnover of up to $50m to access the write off. These changes came in effect from Budget night (7.30pm 2 April 2019).
BDO Tax Partner Jason de Boer commented:
The Government obviously sees value in the annual re-announcement of this concession. Providing taxpayers with certainty around capital expenditure rather than year-on-year extensions would be preferable. That being said, the greater accessibility of the concession is welcomed and businesses should take the benefit of the write-off into account when evaluating their capital expenditure requirements.
Many SMEs who historically have not been able to access this concession will now be able to claim an immediate tax deduction on their asset purchases. You should ensure you have put some thought into the capital needs of your business, and make any required purchases prior to 30 June 2019 to lower your tax liability for the current tax year.
For the period prior to 2 April 2019, businesses with a turnover under $10m will still be able to obtain a full tax deduction for depreciable assets with a cost of less than $25,000 (between 29 January 2019 and 2 April 2019) and $20,000 (1 July 2018 to 28 January 2019).
Examples of assets that may qualify for the deduction include:
- motor vehicles
- small manufacturing plant and equipment
- restaurant kitchen equipment
- computers and software
- desks, chairs and lamps
- filing cabinets and bookshelves
- hand tools or power tools
- protective items, such as hard hats, safety glasses, sunglasses
- professional libraries
- safety equipment
- technical instruments.
2. Get across the company tax rate changes
Unless you have paid no attention during this election cycle, which has seemingly gone on forever, you will know about the changes to the Australian company tax rate.
Whilst these changes may never reach the big end of town, it’s already good news for SME companies. Last year’s tax rate of 27.5% for companies with turnover under $25m now applies to companies with turnovers up to $50m.
If your company now falls under this threshold, make sure you factor in your tax cut of 2.5%! When it comes to distributing your profits, also be mindful of your applicable tax rate, as this could affect the franking percentage attributable to your dividends. Companies paying tax at 27.5% need to tale care when paying dividends out of income previously taxed at 30% as there could be a danger of trapped franking credits. Professional tax advice should be sought in these cases.
3. Get your super payments made on time
If you want to claim a tax deduction for your superannuation expenses, make sure all payments have been correctly processed before June 30, otherwise the opportunity for a deduction in this financial year passes.
If your superannuation remains unpaid, not only will you not be eligible for a tax deduction, you may also be exposed to penalties – something no small business wants.
4. Clean up your debtors
While unrecoverable trade debts are a blow for businesses, you don’t want to also have to pay tax on the income derived in relation to those debts! Before June 30, if there are any trade debts that have gone ‘bad’, ensure these are written off, otherwise you’ll be paying tax on revenue your business is never going to receive.
Make sure any debts written off are properly documented through your accounting records prior to claiming a tax deduction (more on this in tip 5).
5. Keep strong records
With more and more funding being handed to the ATO in an effort to increase government revenues, it is becoming increasingly likely that you will hear from the ATO after lodging your tax return.
Should the ATO come knocking, the most effective way to ensure a smooth review process is to have comprehensive and well presented records on hand, to answer any questions the ATO may have. Ensuring such documentation exists will not only save time - but also advisor fees!
If you want further information on the above please contact a BDO Tax adviser in one of our many offices around Australia.
Important disclaimer: No person should rely on the contents of this article without first obtaining advice from a qualified professional person. This article is provided on the terms and understanding that the author and BDO is not responsible for the results of any actions taken on the basis of information in this article, nor for any error in or omission from this article. The article is provided for general information only and the author and BDO is not engaged to render professional advice or services through this article. The author and BDO expressly disclaim all and any liability and responsibility to any person in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this article.