End of Financial Year 2016: Get ready

June 2016

End of financial year always seems to sneak up on business owners and following the 2016 Federal Budget, there are quite a few reasons for small business owners to rethink their tax planning

End of financial year always seems to sneak up on business owners and following the 2016 Federal Budget, there are quite a few reasons for small business owners to rethink their tax planning, for example, a company tax cut to 27.5%, an increased threshold to $10m turnover and other SME measures come into effect from 1 July.

So what should you be doing to ensure your business is ready before the end of the tax year?

The basic housekeeping

There are some basic housekeeping requirements at this time of year, including:

Writing off damaged or obsolete stock
Writing off bad debts;
Scrapping any out-of-date or obsolete plant and writing off your asset register;
Making loan repayments to satisfy Division 7A loan agreement;
Finalising any inter-entity management charges;
Review your deductions; and
Take advantage of timing benefits and permanent savings.

These actions need to be undertaken before 30 June 2016 and your accounts need to be updated to reflect that they were completed before that date.

Comply with Division 7A

Look at the decisions and elections required for your company and make sure that you are complying with Division 7a rules. Ensure that any loan agreement documentation is up to date.

Check your cash flow

As the business mantra goes, maximise your income and keep your expenses low, however at tax time, there are good reasons to consider reversing that mantra.

The key is managing your cash flow: if it works for your business, then you may want to defer income to the new tax year to reduce the assessable income and bring expenses into the current year. However be careful not set yourself up for a cash flow crunch by delaying client invoice payments too long or buying things for your business that aren't needed.

It's also important to look at your forecasts: are there expenses, equipment or bills that you can prepay? Some expenses can be prepaid for the coming financial year, e.g. rent, which would enable you to claim the deduction now, but you need to be careful that you qualify for these benefits. Prepaid expenses are only generally deductible up front for small businesses (with a turnover of up to $2m to 30 June 2016).

Immediate asset write-off

Many businesses with revenues of less than $2 million took advantage of the immediate deduction of purchases under $20,000, which was announced in the 2015 Federal Budget. It's a deduction worth taking advantage of if you business has the cash flow to do so.

What else can you do?

There may be other ways to time your expenses and income, so we'd suggest you talk to your accountant before the financial year ends so that you can make sure your tax strategy is taking into account the new taxation measures announced during the Federal Budget.

As always, it's worth looking at your super and other options for the end-of-year, but it's also an opportunity to speak to your accountant and make sure you're set for 2017. Contact us on 02 9957 4033 for more information.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.