With end of financial year 2016 just around the corner, businesses should be looking at their tax planning to make sure that they achieve the best tax results.
The following are some things for businesses to consider in the lead up to EOFY.
Pay Superannuation Contributions
Whilst employer superannuation contributions for the quarter ending 30 June 2016 are not due until 28 July, businesses should consider paying those contributions prior to EOFY.
As superannuation contributions are deductible in the year in which they are paid, paying prior to EOFY will bring forward the deduction from 2017 to 2016.
If your business operates through a discretionary (family) trust, it is necessary to decide how the trust’s income is to be distributed (and therefore taxed) on or before 30 June.
Failure to pass a distribution resolution by EOFY could give rise to unintended tax consequences. As such, document your distribution resolutions if you have not already done so.
With the small business asset write-off now law, businesses with turnover of less than $2m can claim an immediate deduction for assets costing up to $20,000 in 2016. As such, consider whether to acquire any new assets prior to EOFY.
Unfortunately, businesses with turnover of $2m or more cannot make use of the write-off. However, those businesses should review their asset register and scrap assets where appropriate.
The latest Federal Budget includes a plan to extend the small business asset write-off to business with turnover of $10m or less. As such, any businesses with turnover of between $2m & $10m may consider delaying capital acquisitions under the $20,000 threshold until July.
Businesses with turnover of less than $2m can claim an immediate deduction for prepayments that meet the 12 month rule. Business with turnover of $2m or more can claim an immediate deduction for prepayments of up to $1,000.
As such, consider if the prepayment rules can be used to bring forward tax deductions into 2016.
Bad debts are deductible in the year in which they are written off. Given this, businesses should review their accounts receivable (debtors) prior to EOFY and write-off any unrecoverable debts.
Businesses with trading stock (inventory) should undertake a stocktake at 30 June each year. Not only is this a tax requirement, it is good business management.
As part of the stocktake, those businesses should identify any stock items that should be scrapped/written off.
A stocktake can have a significant tax impact, particularly for hospitality businesses where stock levels are difficult to track and are affected by factors like spoilage and waste.
Also, whilst most businesses value trading stock using the “cost method”, there are two alternative methods that may result in better tax outcomes. Talk to us about whether using an alternative method is right for your business.
Income in Advance
Review invoices that include products and/or services to be provided after 30 June 2016. Where this is the case, those invoices may not be taxable until the 2017 year. If this is relevant to your business, talk to us about how the Arthur Murray principal may apply to improve your 2016 tax position.
Income & Expenses
Businesses should look at what expenses can be brought forward into 2016 and what income can be deferred to 2017. Not only will this help the 2016 position, but companies with turnover of less than $10m will be able to take full advantage of the transition to the 27.5% company tax rate in 2017 announced in the recent Federal Budget.
Will your business be paying bonuses in relation to the financial year ending 30 June 2016? If so, consider quantifying the amount of the bonus and locking in the commitment to pay prior to EOFY in order to bring the deduction forward into the 2016 year. It’s the commitment that counts – physical payment can take place after 30 June.
If you are looking at providing for bonuses, talk to us about the specific requirements to be met.
Planning to make charitable donations? If so, why not make those donations prior to EOFY to get the deduction in 2016? But remember, the donation must be made to a Deductible Gift Recipient.