Below are a few strategies small businesses can implement to reduce their tax obligations:
- Write-off bad debts. To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt. It needs to be written off your debtors’ ledger by 30 June. If you don’t maintain a debtors’ ledger, a director’s minute confirming the write-off is a good idea.
- Trading Stock.Write off any stock that is damaged or obsolete. Complete a stock take (if you are not using the simplified trading stock rules) and remember that stock can be valued at the lower of cost, replacement, or net realisable value. You can use different methods for different stock items.
- Review your asset register and scrap any obsolete plant.Check to see if obsolete plant and equipment is sitting on your depreciation schedule. Rather than depreciating a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June. Small Business Entities can choose to pool their assets and claim one deduction for each pool. This means you only have to do one calculation for the pool rather than for each asset.
- Repairs, consumables (office stationery etc.,), trade gifts or donations.To claim a deduction for the 2014/2015 financial year, consider paying for any required repairs, replenishing consumable supplies, trade gifts or donations before 30 June.
- Pay June quarter employee super contributionsif you want to claim a tax deduction in the current year. The next quarterly superannuation guarantee payment is due on 28 July 2014. However, some employers choose to make the payment early to bring forward the tax deduction instead of waiting another 12 months.
- Superannuation.Don’t forget yourself. Superannuation can be a great way to get tax relief and still build your personal wealth. Your personal or company sponsored contributions need to be received by the fund before 30 June to be deductible.
- Capital gains and losses. Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses. These need to be genuine transactions to be effective for tax purposes. It may be possible to contribute assets with unrealised losses to superannuation in order to do this.
- Directors’ fees and bonuses.Declare them before 30 June and providing the company is absolutely committed to them, you are entitled to the deduction even if they have not been paid. Again, a director’s minute is a good idea. The directors and employees only need to declare this income in the year of receipt although they need to be formally notified of their entitlements by 30 June.
- Management fees.Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties, then the transfer pricing rules need to be considered and the ATO’s documentation expectations will be much greater. This is an area under increased scrutiny.