Defer your income
Income becomes taxable when it is derived. If your business operates on a cash basis, this occurs when you receive the income. If instead, you operate on an accruals basis, then the income is derived when you have completed the work or the sale.
So, either way, as the end of the year approaches, consider whether you need to take on any more work this year. If you can defer any work until after year end, doing so will defer the payment of tax on this income by one year.
In addition, if the tax cuts announced in the 2016 Federal Budget are passed, deferring the derivation of income until after year end may result in you paying tax on that income at a lower rate.
Prepay business expenses
Prepaying your business expenses can help you in two ways.
Firstly, many suppliers will offer you a discount if you pay them one year in advance. Even if they don’t offer you a discount, prepaying allows you to lock in the cost and beat any price rises that may occur during the upcoming year.
If you are a Small Business (you have an aggregated turnover of less than $2million) prepaying your expenses can also help you save on tax.
Normally, business expenses are only tax deductible once they have been incurred. This occurs when your business is definitely committed to paying the expense and this is usually when the service has been completed and you have been issued with the invoice ( Note, you don’t actually have to pay the invoice for the expense to be incurred. This applies even to businesses who account for their transactions on a cash basis).
However, the special prepayment rules for Small Businesses allow you to pay for services before they are incurred and then claim a deduction in full in the year that you make the payment.
To qualify for these rules, the services which you are prepaying must be provided over a period of 12 months or less.
Typical expenses that can be prepaid include interest on borrowings, advertising, rent, insurance premiums, business travel expenses and subscriptions.
So, if you meet the Small Business turnover requirement, before year end review the services that your business will require for the upcoming year and cash flow permitting, contact the supplier to prepay 12 months of those services.
Purchase business assets
For Small Businesses (businesses with an aggregated turnover of less than $2million), an immediate write off is available for any asset costing less than $20,000.
If you meet the Small Business turnover requirement, you should review the assets that you currently own and consider if there are any assets that need to be replaced as they are either no longer working or they are obsolete. In addition, look to the year ahead and consider if there are any additional assets that you will need to acquire to meet the upcoming year’s business objectives.
If you come to the conclusion that you need to acquire new assets, doing so before year end will enable you to claim the whole cost as a deduction in the current year.
The assets need to be installed and ready for use by 30 June 2016. Simply ordering them and paying for them before 30 June 2016, with the assets to be delivered after the year end will not do.
For assets that can be repaired rather than be replaced, have the repair work done before the year end.
Write off bad debts
Review your accounts receivable and look for debtors way past the due date for payment. Make one final determined effort to collect the debt. Consider offering a small discount to the debtor if the debt is paid before 30 June, though bear in mind that this may be encouraging future bad behaviour from the client
When all avenues for collection have been exhausted and you do not envisage collecting the debt at any point in the future, write the outstanding amount off as a bad debt.
For businesses registered for GST, remember to include the bad debt in either your June Quarter BAS or Annual GST Return to receive a refund of the GST previously remitted to the Australian Taxation Office for the amount owed.
Revalue trading stock
For businesses with trading stock, a lower value for stock on hand at the end of the year will result in a lower tax bill.
For tax purposes, stock on hand at the end of the year can be valued using one of three ways:-
•   Cost – what you paid for the stock, including freight, customs and delivery costs
•   Market selling value – what you can sell the stock for today under normal business conditions
•   Replacement value –   what it would cost to obtain an identical item on the last day of the income year.
A different valuation method can be used for each item of stock. You do not have to pick one valuation method and apply to all of the stock on hand.
So, on 30 June 2016 conduct a stock take and list all of the stock on hand at its cost. Then, consider any stock that is obsolete with no reasonable prospect of it being sold in the future. This stock has a market selling value of nil, so it can be recorded as having no value.
Next, consider stock items purchased at a higher cost than what the same stock items can be purchased at year end. An example of this would be imported stock purchased when the Australian dollar was weaker than it is today. These stock items can be valued at the lower replacement value rather than at their cost.
Finally, consider stock items that, whilst not being obsolete are out of fashion or slow movers and are going to require a current selling price below their cost to be sold. Again by valuing these stock items at their market selling value rather than at their cost, tax savings can be had.
The information (including taxation) contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Rosenfeld Kant and Rosenfeld Kant Wealth Advisors strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.