It’s tax time again and the days of filling up a shoebox full of receipts and handing it over to the accountant are long gone. Ahead of June 30, prepare yourself for a happy annual return by applying this quick essential checklist.
1.Keep proper records for the tax man
“Keep good records to make your tax time job easier, but also to meet your legal requirements,” says RaboDirect’s Renee Amor. “If you are thinking about getting a tax advisor to help with your tax, before you choose a record-keeping system, talk to them about what system is best for you.”
There are different tax requirements for business structures such as trusts, companies and sole traders, so make sure you speak to an expert.
Put your ABN on your business stationery, especially on your invoices. The businesses you deal with may need your ABN so they do not have to withhold the highest rate of tax from payments for supplies you make to them.
2. Reconcile the accounts
“There’s nothing worse than sending through accounts that haven’t been reconciled, because the accountant will have to spend more time fixing it, ultimately costing the client more money,” says BDO partner, Eddie Chung.
It is difficult to make any informed tax decisions without having the accounts reconciled, including bank accounts, investments, inventory, loans, payables, receivables and tax liabilities.
3. Contact the accountant in advance
Save time (and your money) by asking the accountant to email you a checklist of everything needed to prepare your accounts. The less time the accountant has to spend on processing information, the more time he or she has on tax planning and other advice.
BDO’s Chung suggests meeting your accountant and giving a quick overview of the key activities undertaken by the business during the past year, which will help put the accounts into context and make the key transactions obvious.
4. Trust distribution resolution
For business owners using a discretionary trust, this year it’s important that all trust income, as defined in your trust deed, is distributed to beneficiaries such that they are entitled to the income before 30 June. This may require you to finalise trust distribution resolutions before financial year-end.
For those who forget, the Australian Taxation Office could impose a 46.5 per cent tax on all undistributed trust income, making it a costly mistake.
When undertaking distributions, make sure to consider the tax status of beneficiaries to ensure it is done in the most tax-effective manner. You should consult your tax adviser to ensure that the outcome is correctly achieved.
5. Maximise expenses and deductions by taking actions
before 30 June
Be aware of what is deductible and what is not. Depending on your business circumstances, some ways of maximising deductions and write-offs which you could consider together with your accountant include:
- Making a donation to a charity that is a “deductible gift recipient”.
- Realising any capital losses to offset any potential capital gains.
- Writing off genuine bad debts or inventory if they are obsolete stock.
- For small businesses with annual turnover below $2 million, prepaying expenses such as rent could allow you to claim an immediate deduction. Similarly, for small businesses above the turnover threshold, any assets worth less than $6,500 can also be immediately written off.
Any claims for deductions must be supported, including evidence of transactions such as invoices and receipts, and evidence of use, such as motor vehicle logbooks.
6. Maintain funds for tax payments
“Keep a buffer for tax payments in a high interest savings account so that it works hard for you before you give it to the government,” RaboDirect’s Amor suggests. “Any returns are a bonus – and by keeping them in a high interest savings account or term deposit you can maximise the benefit.”
By starting early, it can be possible to make tax time a far less painful and ultimately more rewarding experience for business owners.
What’s your top tax time tip?
This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice nor tax advice. You should seek independent professional tax advice before making any decision based on this information.
Further reading for small business tax returns