Tax planning tips for small business

As a small business owner in Australia, you may be wondering how to reduce your tax liability and maximise your deductions. Tax planning is the process of organising your financial affairs in a way that minimises your tax obligations and maximises your benefits. Here are some tax planning tips for small business in Australia that you can implement before the end of the financial year.

1. Claim immediate deductions for business assets purchased.

Temporary full expensing deductions are available for businesses with turnover of under $5 billion that purchase business related plant & equipment that are installed ready for use by year end. While there is generally no limit to the amount of the deduction that can be claimed, deductions for cars are capped at the depreciation threshold to luxury cars of $60,733.

2. Pay June 2023 superannuation guarantee obligations by 30 June 2023 to ensure payment is deductible in 2023 financial year.

The tax legislation only allows deductions for superannuation contributions when the amounts are paid. If payments are made by 30 June 2023, the amounts will be deductible in the 2023 financial year.

3. Subject to cashflow, prepay 2024 expenditure by 30 June 2023

Small Businesses with turnover of less than $50M are eligible to claim deductions for prepayments made which have a prepayment period of less than 12 months.

5. Consider revaluing trading stock

If the value of trading stock items on hand is below cost price, consider revaluing the trading stock to its net realisable value so as to claim a tax deduction at 30 June 2023

7. Consider scrapping plant & equipment that is no longer installed ready for use

A deduction can be claimed for plant & equipment that is scrapped and is no longer installed ready for use at 30 June 2023.

8. If bonuses are payable for the 2023 financial year, make a binding resolution to pay the bonuses by 30 June 2023 to ensure tax deductibility at 30 June 2023.

Provided there is a definitive commitment to pay the bonus by 30 June 2023, the bonus can be deductible in the 2023 financial year notwithstanding that it is not paid until after 30 June 2023.

9. Apply loss carry back provisions for companies.

Companies that incur a tax loss in the 2023 financial year can use the loss to offset tax paid by the company in the 2019, 2020, 2021 or 2022 financial years. Applying loss carry back could result in a refund of tax previously paid in those years.

10. Bring forward pending expenses

Subject to cashflow, try and bring forward pending expenses to before 30 June 2023 to ensure the expenses are deductible in the 2023 financial year and think further on the following as well.

·         Claim all your eligible expenses.

You can deduct any expenses that are directly related to earning your business income, such as rent, utilities, advertising, wages, insurance, etc. Make sure you keep records of all your receipts and invoices to support your claims.

·         Prepay some of your expenses.

 You can prepay some of your expenses for the next financial year and claim them as deductions in the current year. For example, you can prepay your rent, interest, subscriptions, insurance premiums, etc. for up to 12 months in advance and deduct them in the year you pay them.

·         Defer some of your income.

You can defer some of your income to the next financial year and reduce your taxable income in the current year. For example, you can delay issuing invoices, receiving payments, or completing projects until after June 30.

11.  Write off any bad debts.

If you have any debts that are unlikely to be recovered, you can write them off as bad debts and claim them as deductions. You need to have evidence that you have taken reasonable steps to recover the debt and that it is genuinely bad.

12. Contribute to your superannuation.

You can claim a deduction for any contributions you make to your superannuation fund as a self-employed person or as an employer for your employees. You need to make sure you pay the contributions before June 30 and notify your fund of your intention to claim a deduction.

In addition, consider the following other items with superannuation.

·         That is maximise concessional contribution cap by making deductible personal superannuation contributions.
The concessional contribution cap for the 2023 financial year is $27,500. Individuals need to satisfy a work test for the 2023 financial year if they are between 67-74 years of age.

·         Taxpayers with superannuation balances of less than $500,000 that have not maximised their eligible contributions caps from the 2019 financial year can make catch-up concessional superannuation contributions in the 2023 financial year which will be deductible for tax purposes.

Thus, if the individual has not made contributions of $25,000 for each of the 2019, 2020, 2021 and 2022 financial years, catch up contributions can be made in 2023.

13. Review your business structure.

You may want to review your business structure and see if it is still suitable for your needs and goals. Different business structures have different tax implications and benefits. For example, sole traders and partnerships are taxed at individual rates, while companies are taxed at a flat rate of 25%. Trusts can distribute income to beneficiaries who may have lower tax rates. You may want to consult a professional adviser before making any changes to your business structure.

These are some of the tax planning tips for small business that you can consider before the end of the financial year.

By planning and taking advantage of the available deductions and concessions, you can reduce your tax burden and improve your cash flow.

However, tax planning is not a one-size-fits-all approach, and you should seek professional advice tailored to your specific circumstances and goals.

If you have any further questions relating to the above, please do not hesitate to get in touch with us via phone on 03 9770 1547 or email harper@harper.com.au

Harper Group Pty Ltd – Chartered Accountants Frankston - Ph 9770 1547

Disclaimer: All information provided in this article is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.

Please note we at Harper Group Pty Ltd are not licensed to provide financial product advice under the Corporations Act 2001 (Cth) and taxation is only one of the matters that must be considered when making a decision on a financial product, including on whether to make superannuation contributions. You should consider taking advice from the holder of an Australian financial services licence before making a decision on a financial product.