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Tax planning strategies for Business

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 basic requirement to be eligible for the SBE concessions is that the business taxpayer's annual turnover (including that of some related entities) is less than $2 million.

Maximising deductions for taxpayers with an annual turnover of less than $2 million:

Deductions can be maximised for SBE business taxpayers by accelerating expenditure and prepaying deductible business expenses. SBE taxpayers on an accruals basis can accrue expenses (see below 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 (the threshold decreases to $1,000 from 1 July 2018).

Assets costing $20,000 or more ($1,000 from 1 July 2018) 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.

Once a taxpayer has opted to use the SBE depreciation rules they must use the SBE depreciation rules for all of their depreciable assets.

Prepayment strategies – SBE

SBE taxpayers making prepayments before 30 June 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 30 June 2019). Otherwise, the prepayment rules are the same as for non-SBE taxpayers.

The kinds of expenses that may be prepaid include:

  • Rent on business premises or equipment.

  • Lease payments on business items such as cars and office equipment.

  • Interest – check with your financier to determine if it’s possible to prepay up to 12 months interest in advance.

  • Business trips.

  • Training courses that run on or after 30 June 2018.

  • Business subscriptions.

The following are a number of areas that may be considered for all business taxpayers.

Maximising deductions for taxpayers with an annual turnover of more than $2 million:

Non-SBE business taxpayers should endeavour to maximise deductions by adopting one or more of the following strategies:

  • Prepayment strategies;

  • Accelerating expenditure; and

  • Accrued expenditure.

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:

  • expenditure under $1,000;

  • expenditure made under a 'contract of service' (e.g., salary and wages); or

  • expenditure required to be incurred under law.

Before you commit to making a payment please feel free to call us with any queries or assistance if required.

Accelerating expenditure – non-SBE

A business taxpayer may choose to bring forward the expenditure on regular, on-going deductible items.

There is generally no requirement for a business to pay the expense 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:

  • Depreciating assets costing $100 or less can be written off in the year of purchase.

  • Depreciating assets costing less than $20,000 ($1,000 from 1 July 2018) can be allocated to a low value pool and depreciated at 18.75% (which is half of the full rate of 37.5%) in their first year regardless of the date of purchase.

  • Repairs – repairs to office premises, equipment, cars or other business items.

  • Consumables/spare parts.

  • Client gifts.

  • Donations to a “deductible gift recipient”

  • Superannuation – contributions to a complying superannuation fund, to the extent contributions are actually made (i.e., they cannot be accrued but must be paid by 30 June).

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:

  • Interest – any accrued interest outstanding on a business loan that has not been paid as at 30 June 2018.

  • Commissions – where external parties are owed commission payments.

  • Fringe benefits tax – if an FBT instalment is due for the June 2018 quarter, for example, but not payable until July, it can be accrued and claimed as a tax deduction in the 2018 income year.

  • Directors’ fees – where a company is definitively committed to the payment of a director’s fee as at 30 June 2018, it can be claimed as a tax deduction.

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