Preparing for EOFY – The Small Business Tax Checklist

EOFY is coming. Have you prepared your business in terms of tax planning? Here’s 8 pointers you should look into for the best outcome.

Small Business Entities (SBE) have a number of specific enticements to spend cash before 30 June, the first of which is the instant asset write off which allows businesses to fully depreciate assets under $30,000. SBE’s are also able to fully deduct prepayments for the 2020 financial year if the payment is made pre 30 June 2019.

Prepaying some expenses prior to 30 June may increase your allowable deductions for this financial year. Eligible expenses are those that relate to a service period of 12 months or less. Some costs you can consider are annual professional subscriptions, insurance policies, or even annual fees for tools that manage document annotation.

Checking the expected profit, the resulting tax payable and any prepaid PAYG tax instalments should be best practice for any business at EOFY. Once your tax position is established, you’ll be able to make educated decisions on distributions, dividends and director’s fees. Additionally, reviewing the PAYG instalment in your last activity statement for the year can be an effective way to manage the cash flow in order to space out the tax payable rather than leaving the liability due with your tax return.

Completing a stock take will be critical to any business that manages inventory – not least because closing stock is assessable income. Recognising any obsolete or damaged stock can decrease your tax and can also provide the incentive for an EOFY sale to clear these.

It’s not nice news for a small business when debtors don’t pay your invoices. But at least you can claim a tax deduction for the bad debt.

A bad debt is any debt which has been outstanding for at least a year which you have tried to recoup. It’s worth going through your outstanding invoices to find bad debts and write them off before June 30.

Deferring revenue to next year can be an effective cash flow tool if done correctly. The business will need to ensure that not only is the invoice post 30 June, it will need to prove that the bulk of the service hasn’t been provided yet – and therefore the revenue has not yet been earned – a key part of the small business tax checklist.

Make sure your employees’ super contributions are in order. You need to pay your employees’ super on time and in a way that is SuperStream compliant. You may also want to consider paying out any super on wages earned to the employees super fund in late June since they are only deductible in the year actually paid. Xero superannuation is really useful here.

The payment of dividends and director’s fees can also be an effective tool to manage tax of the shareholders and directors, as their tax and the company’s should be considered in total.

Once every entity & person’s tax position is established, dividends, distributions and director’s fees can be organized appropriately to arrive at the most effective tax outcome.

If a family trust is involved then a trust resolution should be completed pre-June 30 to ensure the trust remain compliant for tax purposes.

To avoid any tax surprises, its best practice to establish what your estimated tax payable may be. If payable, then you might choose to lodge in May the following year & save up for the estimated tax payable.

If you determine a refund is likely, then you’ll be in the best position to lodge quickly and recoup the funds. This is particularly the case with the R&D Tax Incentive, where founders are motivated to lodge their company tax returns in July or August.