With the end of the tax year approaching, it’s time to take action to minimise the tax liability for your small business. Mark Chapman, Director of Tax Communications at H&R Block delivers his top tips to wrap up your tax planning.

Take advantage of temporary full expensing

Make sure your business utilises temporary full expensing (TFE) while it still can! This tax break allows you to claim an immediate tax deduction for the entire cost of all capital purchases, rather than depreciating the cost over several years, as used to happen. There is no ceiling on the cost of assets you can acquire and provided your business has turnover of less than $5 billion, you are included.

This is great for tech items such as computers, tablets and phones, as well as tools and equipment for tradies, office furniture and even motor vehicles.

As the temporary full expensing scheme ends on 30 June 2023, this is the last chance to claim this very generous tax break! From 1 July, small businesses can instead claim the instant asset write-off, which gives an immediate tax deduction for capital assets costing less than $20,000, which is a lot less generous (particularly with regard to motor vehicles). In addition, the new scheme is only available for businesses with an aggregate turnover of less than $10 million.

Remember, as well as making a purchase, the asset you acquire also has to be used or available for use in your business by 30 June. If you order and pay for an asset between now and 30 June but it isn’t actually delivered until July, you’ll miss out!

Amongst the items you could look at claiming are the following:

• Cash registers and other POS devices
• Delivery vans, utes, motorcycles and buses
• Cars (costing up to $64,741)
• Store or office fittings and fixtures
• Computers, laptops and tablets
• Security systems
• Accounting software
• Plant and equipment, including tools

Prepay expenses

You can get an immediate tax deduction for certain pre-paid business expenses.

The basic rule is that a deduction is available for expenses that cover a period of no more than 12 months. That covers expenses such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges on your premises, and bookings for seminars, conferences or business trips.

Pay superannuation

Employers have to pay superannuation contributions within 28 days of the end of the quarter. Ensure that all June quarter superannuation contributions are paid by 30 June to accelerate the tax deduction.

Note that contributions must actually be paid, cleared in the business bank account and received by the employee’s super fund before 30 June for a tax deduction to be available. Any other outstanding amounts should also be paid before year end.

Write off bad debts

No business wants to be in a position where they can’t recover outstanding debts but we have to be realistic and acknowledge that it does happen sometimes, especially during an economic downturn like the current one. The good news is that if your business has to write off a debt, a tax deduction is available for the amount of the debt written-off.

A debt that is unpaid and deemed to be a ‘bad debt’ is an allowable deduction provided it was included as assessable income in the current or a previous income year.

At this time of the year, it makes sense to go through your debtors list and if there are any debtors on it who you believe can’t or won’t pay, write off those debts by 30 June to claim the deduction this year. The business must keep a written record to document that the debt has been written off.

Get the right trading stock valuation

Damaged and obsolete stock can be written down or written off entirely and a tax deduction claimed – now is the time to crystalise that tax deduction.

The Golden Rule: Keep records

Good record-keeping is your best friend for efficient business management and will also make life easier if the ATO ask you questions. It’s essential that records are kept to substantiate what’s in your tax return; any unsubstantiated deductions, for instance, are generally not allowable.

Tax law requires that records be kept for five years, and they should include:

• sales receipts
• expense invoices
• credit card statements
• bank statements
• employee records (wages, super, tax declarations, contracts)
• vehicle records
• lists of debtors and creditors
• asset purchases.

Records can be kept on paper or electronically, but should be easily retrieved. In our experience, businesses often stumble when asked by the ATO to verify transactions by providing supporting records, with the consequence that even ‘innocent’ businesses can find themselves stung by the tax man where they are unable to provide the requested evidence.

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