Following from our tax tips for individuals before the 30th June 2010, we have asked various experts from Economos Chartered Accountants to put together some tips and traps before closing off the financial year for Small and Medium Enterprises (SME).
Whilst our experts operate in various different areas of the accounting fields, they have all agreed the best method of minimising tax is to, where possible, defer income over to the next financial year and bring forward any expenses by paying it off before 30th June.
Other tips our panel of experts have come up with include:-
Starting up a new business?
If you have a business turning over under $2 million per year, you are classified by the ATO as a small business and could be eligible for some tax concessions.
Rita Barsamian, the SME specialist at Economos, states that “In the income tax area, SME’s can access prepayments. For instance, they could prepay rent; they could prepay lease payments etc. and take tax deductions in the current year. This is not available to a larger business. ”
“There are also some slightly preferential depreciation tax concessions, where at the present time they can write-off assets under $1,000.”
However, you should check with accountants to see what specific requirements for which your business is eligible.
Home office tips
Do you run your SME through a home office? If so, you need to get the most out of it by claiming as many deductions as possible.
Rita says that “SME’s looking to take advantage of their home offices should ensure they have logs and receipts available for computers, home phones, mobile phones and even the amount of time spent in home offices.”
“Ensure you keep all receipts and invoices for any purchases, details of professional association expenses and union memberships, along with tools and equipment purchased. All these are tax deductible.” Rita says.
Pay employee superannuation before 30th June
The superannuation specialist at Economos, Adrian Byrne, says that employee super needs to be paid before 30th June in order for it to be claimable in that financial year.
“Whilst superannuation payments are generally not due for payment until July, making a payments before 30th June will enable you to claim it a as a tax deduction this financial year. Payments made after that time will be claimable in the next financial year.”
Beware of non-commercial loans
Following regulations relating to non-commercial loans, it is crucial you meet what is written in the legislation or you could end up facing a significant tax problem that could put your business in jeopardy.
A non-commercial loan is made when a business provides funds to a shareholder or associate. The rules are clear – if you don’t make sure the required repayments are made before June 30, the loan could be classed as an unfranked dividend and you could be slugged with a tax rate on the payments of up to 46.5 cents in the dollar.
The non-commercial loan specialist at Economos, Albert Lam, states that “If I have a loan of even $50, and I don’t pay it back, then it could be classed as an unfranked dividend. I will be hit with a 46.5c in the dollar charge.”
Albert also reminds businesses of the new requirement for shareholders and associates to pay market value “rental” costs for the private use of company assets, such as vehicles.
Be careful with non-commercial losses
If you are an individual, operating either as a sole trader or within a partnership, and have a net loss then you must adhere to the ATO’s non-commercial loss rules. These determine whether you can use a business loss to offset income from other sources.
However, Albert says there are certain requirements that must be followed, including some changes from the 2009-10 year. This include a new exception for business losses solely caused by deductions claimed for the small business and general business tax break and a new Commissioner’s discretion for individuals who don’t meet the income requirement.
Most significant, however, is the introduction of a new requirement for higher-income earners. Individuals earning over $250,000 will only be able to deduct expenses from non-commercial business activities against the income only from those activities. The changes are designed to stop people from renting out holiday homes for a few weeks and then claiming a $30,000 deduction for related expenses.
Albert says businesses need to “make sure all the steps are in place to ensure you’re carrying on the business in the right way, and are not using those losses inappropriately”.
Group certificates
Most businesses would be aware group certificates, or payment summaries, must be handed out by July 14. But not many know about certain tax requirements that need to be stated on them.
“There is a common misconception that group certificates can be given with minimal information, but salary sacrifice and fringe benefits tax details must be included on the summaries,” Rita says.
“Also, if you get things wrong, there is a penalty scheme the ATO can enforce and that fine could be as much as $2,200 per employee. If you put a wrong number on that group certificate, it could end up costing you and your business.”
Beware GST compliance crackdown
In the latest Federal Budget, the Government provided an extra $440 million over four years to help crack down on the cash economy and promote GST compliance. The audit partner at Economos, Christine Kousoulis, says that the GST components of this will be particularly important.
“A lot more funding is being provided for GST compliance activity. It’s nothing new, no new requirements, businesses need to be sure they have all their documentations in order because they could face an audit. The ATO is just putting people on notice.”
If you would like to have a more in depth discussion with any one of our experts, they regularly review our comments and if required will contact you directly.
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