End of financial year is almost upon us, and, as always there is a sense of urgency to get everything ready. I don’t know about you, but bookkeeping, accounting and finance are not my areas of expertise, so with that in mind I have called upon the expert knowledge of Julie Doyle from Jeds Booking and Jeds Management Consulting to offer her knowledge and advise on all things EOFY!
Below are a few tips and ideas for you to make the ‘financial’ most of this EOFY. (As always, the information in this post is of a general nature only and does not take into account your personal situation or those of your business. Please make time to speak to your accountant in order for you to make the right decisions for you and your business.)
Are you a PAYGW Employee?
Adjust salary sacrifice arrangements
This should have been done before now. But if you haven’t made adjustments to the reduction in the concessional contribution (CC) limits to $25,000 for all ages, then it might not be too late.
Find out how much in CCs you have put into super to date, then make any immediate adjustments that may be required.
How may the problem arise? Based on the mix of your total employer SG contributions and any salary sacrifice or lump sum contributions you make, you could tip yourself over the $25,000 limit.
Use the new rules for extra CCs
If you haven’t salary sacrificed to this point, it’s not too late for the last few pays of the FY or to begin from next year. From 1 July 2017, the ‘10% rule’ regarding employees was removed, allowing almost everyone to make contributions and receive tax deductions (similarly to salary sacrifice arrangements) by putting money directly into your super fund in the lead up to 30 June, as a lump sum, or in parcels.
Sole Traders can take advantage of this deduction as well. You must give a valid notice of intent to your fund or RSA provider, on the ‘approved’ form, and advise them of the amount you intend to claim as a deduction (you must give this notice on or before the day you lodge your 2019 tax return or 30 June 2020, whichever is earlier)
………. but don’t leave it right until the last minute. Contributions to super funds count for the year in which they are received. If you send it on 27 or 28 June 2019 (30 June is a Sunday this year), particularly by BPay, there’s a chance it will not be received by your super fund until 1st July where it will count towards your FY19/20 contributions.
Get free money from the government
If you have employment income of less than $37,697 this financial year and make an after-tax contribution to super of $1,000, the government will match 50c in the dollar, up to $500 – so you may be able to get a free $500 from the government! This tapers out once you earn $52,697.
If your total income is between the two thresholds, your maximum entitlement will reduce progressively as your income rises. You will not receive any co-contribution if your income is equal to or greater than the higher threshold.
Boost your spouse’s super for a rebate
If your spouse earned less than $37,000 this financial year, you can claim a tax rebate of up to $540 if you contribute on their behalf. Contribution maxes out at $10,800.
This can also be a great way to balance your super amounts. Watch out! This contribution is not deductible. There are a few other rules you have to check, so speak with your accountant or give us a call first.
Donate to a charitable organisation
This may not benefit you directly, but not only is donating a taxable deduction, you actually do some good at the same time. Keep the receipt!
Take out income protection
If you have been considering getting this for a while (and even if you haven’t), the end of the financial year is the best time to take cover out, as it’s tax deductible – so not only is it a good idea to cover your income, you also get your refund back sooner rather than later.
Sole Traders / SMEs
Small businesses have different considerations to make at tax time compared to their larger counterparts.
In relation to management of finances for sole traders and small businesses, the EOFY period is a bit of a line in the sand and can be quite a tight deadline. Transactions taken either side of 30 June can have flow-on effects for tax purposes.
Start working towards the EOFY processes well before EOFY arrives. Keep your accounts up to date and you will discover any issues which need resolving well ahead of the deadline. Keep up to date with reconciliations for the key financial items, such as your payroll and tax obligations. It will also provide you and your accountant time for tax planning: HINT have the important discussion with your accountant before mid June to have time to implement any important decisions about your upcoming FY18/19 tax liabilities.
Have a Plan!
Knowing your obligations, and when they fall due can set you up to ensure you have met all your requirements with sufficient time. For example: Did you know that you need to pay your employee super well in advance of 30 June to claim a tax deduction in that year, even though they aren’t legally due until 28 July? What SME doesn’t want to maximise their tax refund?
Ensure that you have met your deadline dates for preparation of Payment Summaries, WorkCover Rateable Remuneration Declarations and Superannuation payments etc.
Don’t forget the instant asset write-off
Businesses with a turnover of up to $10 million can claim a deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:
$30,000, from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020
$25,000, from 29 January 2019 until before 7.30pm (AEDT) on 2 April 2019
$20,000, before 29 January 2019.
Remember that the asset purchased must be used in the business for an income-producing purpose.
Tax deductions should not incentivise spending
….however…….the usual rules of purchasing should apply, i.e. don’t spend extra on deductions or assets unless you can actually afford it and you or the business actually need it. Just because you can get a deduction or an ‘instant’ write-off does not mean you may be in the best financial position to do so.
One element often forgotten is how an asset purchase might affect future cash flow. My advice? Always work with your accountant on your cash flow and your overall tax strategy. Do not spend money unless you really understand your numbers, because you don’t want to be left with a diabolical cashflow position just because you were blinded by deductions.
Write off bad debts
Small businesses should also be looking to write off any bad debts that they have not been able to recoup in the 2018/19 financial year. This involves documenting what the debts are and the efforts you have made to recover them, which is essential evidence if the ATO asks if it is actually a bad debt. Bad debts must be physically written off before the end of June.
Consider how you value your trading stock
Small businesses should also consider how they value their trading stock as that choice can help minimise a tax bill. Where you hold trading stock, you should discuss with your accountant how you choose to value trading stock at EOFY: ‘year-end cost’, ‘market selling value’, ‘replacement value’ or ‘obsolete stock value’. This decision can have the effect of either bringing forward deductions or moving the amounts into the following year. A business can switch between the methods each year and can use different methods for different items….. and, if the stock is old or obsolete, businesses should write it off in full.
EOFY is a great time to reflect on how your business and its processes operated for the outgoing financial year, and to set new financial and non-financial objectives for the next financial year. Are you currently getting the most out of your accounting software? Are there add-ons which may help streamline your accounting that are worth investigating or implementing? How are you coping – is there an advisor/mentor/coach/support person who could help you for the next financial year?
Square up your accounts
We’ve all heard the one about the business owner who cooked the books. Don’t try to get one over the ATO or you may live to regret it. The ATO is much savvier these days and they are collaborating and using more data-matching and benchmarking than ever before. For a small financial gain now, a contravention could cause you a long period of grief as the ATO investigates you and your business.
Also stay across what your accountant or accounts department are doing. Ensure you are aware what they are claiming and why. Sit with your accounts person and have them help you understand your accounts and what and why they process your data the way they do.
Company Tax Rate 18/19FY
A base rate entity is a Pty Ltd company that has an aggregated turnover of less than $50 million. Tax rate for Base rate entities in 18/19FY is 27.5%.
Get it right!
Speak with an accountant about information regarding preparing and completing your tax return. They can help you identify what is deductible and the consequences, if any, of claiming deductions in those areas. If you don’t have an accountant, get in touch and we’ll be happy to refer you to a fantastic accountant from a range that we deal with.