Many of our business clients like to review their tax position at the end of the income year and evaluate any year-end strategies that may be available to legitimately reduce their tax. Traditionally, year-end tax planning for small businesses is based around two simple concepts – i.e., accelerating business deductions and deferring income.
However, Small Business Entities (‘SBEs’) have greater access to year-end tax planning due to particular concessions that only apply to them (the SBE system replaced the previous Simplified Tax System (‘STS’) on 1 July 2007). Taxpayers that qualify as an SBE can generally pick and choose which of the concessions they wish to use each year (although see below regarding the simplified depreciation rules). The basic requirement to be eligible for most of the SBE concessions for the year ending 30 June 2018 is that the business taxpayer’s annual turnover (including that of some related entities) is less than $10 million.
The following are a number of areas that may be considered for all business taxpayers.
Maximising deductions for non-SBE taxpayers
Non-SBE business taxpayers should endeavour to maximise deductions by adopting one or more of the following strategies:
Prepayment strategies – non-SBE
Any part of an expense prepayment relating to the period up to 30 June is generally deductible.
In addition, non-SBE taxpayers may generally claim the following prepayments in full:
Note: Prepayments can be a little confusing, so before you commit to making a payment please feel free to call us with any queries or assistance if required.
Accelerating expenditure – non-SBE
This is where a business taxpayer brings forward expenditure on regular, on-going deductible items. Business taxpayers are generally entitled to deductions on an ‘incurred basis’. Therefore, there is generally no requirement for the expense to be paid by 30 June 2018 (as long as the expense has genuinely been ‘incurred’, it will generally be deductible).
The following may act as a checklist of possible accelerated expenditure:
Accrued expenditure – non-SBE
Non-SBE taxpayers (and some SBE taxpayers) are entitled to a deduction for expenses incurred as at 30 June 2018, even if they have not yet been paid.
The following expenses may be accrued:
Maximising deductions for SBE taxpayers
Deductions can be maximised for SBE business taxpayers by accelerating expenditure and prepaying deductible business expenses. Former STS taxpayers who have continued to use the STS cash method since before 1 July 2005 cannot accrue expenses, but other SBE taxpayers on an accruals basis can accrue expenses (see above regarding accruing expenditure).
Accelerating expenditure – SBE
All SBE taxpayers can choose to write-off depreciable assets costing less than $20,000 in the year of purchase*. Also, assets costing $20,000 or more are allocated to an SBE general pool and depreciated at 15% (which is half the full rate of 30%) in their first year. Therefore, where appropriate, SBE business taxpayers should consider purchasing/installing these items by 30 June 2018.
It should be noted that SBE taxpayers choosing to use the SBE depreciation rules are effectively ‘locked in’ to using those rules for all of their depreciable assets.
Further note, former STS taxpayers who have continued to use the STS cash method since before 1 July 2005 and who qualify as an SBE are generally only entitled to deductions if they have paid the amount by 30 June.
(*) The small instant asset write-off threshold has been temporarily increased to ‘less than $20,000’, for assets acquired and installed ready for use between 7.30 pm (AEST) 12 May 2015 and 30 June 2018. On 8 May 2018 the Government announced it intends to extend this date to 30 June 2019.
Prepayment strategies – SBE
SBE taxpayers making prepayments before 1 July 2018 can choose to claim a full deduction in the year of payment where they cover a period of no more than 12 months (ending before 1 July 2019). Otherwise, the prepayment rules are the same as for non-SBE taxpayers.
The kinds of expenses that may be prepaid include:
This is some of the information we will need you to bring to help us prepare your income tax return:
Categorised in: Checklists