Optimum End of Financial Year Series - Business Edition

Welcome to Part 2 of our End of Financial Year Series.

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Below is our business edition which provides some helpful tips for dealing with your business’ year-end tax planning before 30 June 2021.

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‍Business Edition

Review your business position

As a business owner you should be reviewing your business’ year to date performance regularly. If this has not occurred this is a great time to do so. By preparing up to date management reports and cash flow statements you can make comparisons with prior years and your budget to identify strengths and weaknesses within your business. Additionally, this will help you determine how the business is going and its forecasted end of year performance. Once you have determined your business’ position you can plan for30 June 2021 and budget for the new financial year.

This is also a great time to ask yourself the following questions:

-         Are your sales in line with your expectations?

-         Are there opportunities to target a new customer base?

-         Are there any expansion opportunities within your business?

-         Are you reporting income and expenses appropriately to identify profitable areas of your business?

-         How was the business’ performance compared to last year?

-         What are your goals for the business moving forward?

Temporary Full Expensing

If you are looking to update your business assets prior to30 June, 2021 you can still take advantage of the temporary full expensing concession introduced by the Government in response to Covid. For more information refer to our Temporary Full expensing article on our website.

Timing of Expenses

You may also consider bringing other expenses forward to obtain a tax deduction for 30 June 2021. Please note expenses are only deductible when incurred, i.e., there must be a presently existing liability to pay the expense.

Trading Stock

Where your business holds stock, it is important to prepare for a stock take on 30 June 2021. As part of this process, you should identify any obsolete or old stock and scrap it or write it down to its correct market value.

Individual items of trading stock can be valued using the following methods:

-         at cost price

-         market selling value

-         replacement value for tax purposes.

For more information on these methods please refer to the ATO Website.

Bad Debts

Now is the time to review your debtors and its recoverability. If you believe a debtor is unlikely to be recovered, consider writing the balance off as a bad debt before 30 June 2021. This is particularly relevant for businesses that are reporting on an accruals method as the debtor balance would have been included in their assessable income when the invoice was raised.

You can also use this opportunity to review debtor payment terms for the new financial year. Ask yourself these questions:

-         Do you have issues with the collection of debtors?

-         Do you need to update your payment terms?

-         Do you have the right processes in place to chase your debtors promptly and regularly?

Company Loans – Division 7A

For businesses that operate through a corporate structure you also need to review any payments, loans or debts forgiven to shareholders and their associates which could be deemed to be an unfranked dividend under Division 7A rules.

Division 7A can also include deemed loans from trusts to shareholders where a company has an unpaid present entitlement (UPE) to income of the trust.

If the above apply to your business, you can take action to prevent deemed dividends from occurring. This would include ensuring that such loans are either repaid or converted to a Division 7A complying loan before the lodgement day for the income year in which the payment or loan occurs.

Single Touch Payroll (STP)

By now most employers should be reporting wages paid to employees through Single Touch Payroll (STP). This has been a slow transition over the last few years and several concessions have been provided by the ATO which are due to end on 1 July, 2021. Therefore, if you have not already started reporting wages through STP, now is the time to start. There are several ways to report STP outlined on the ATO Website. If you require any assistance with this, please contact our office.

Superannuation

Following on from our super edition, if you are looking to pay your June quarter super before 30 June, 2021, please ensure this is completed by 25th June 2021 to ensure your clearing house has enough time to process the payment by 30 June, 2021.

Bonuses

Bonuses are only deductible when they are incurred. If you are considering the payment of a bonus to employees, the business must be committed to paying the bonus by 30 June, 2021 and not be subject to any contingencies(to get a tax deduction in that year).

Trust Distributions

For business clients operating through a discretionary trust structure, you will need to consider which beneficiaries will be made presently entitled to the income or capital of the trust on or before 30 June 2021.

 DISCLAIMER

Please note the tax legislation contains specific anti-avoidance provisions which target any schemes entered into with the principal purpose of tax avoidance. Therefore, it is important that you consider your individual circumstances to ensure that the rules do not apply to you. The above tax planning tips are of general nature only and should not be relied upon without seeking professional advice. If you have any questions regarding the above, please contact our office.

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