Small business entities (SBEs) have access to a range of concessions which not only help reduce their taxable income but are also designed to make tax administration easier. Dr Adrian Raftery, principal of Mr Taxman and author of 101 Ways to Save Money on Your Tax - Legally! 2021-2022 edition (Wiley, May 2021, AU$29.95), gives some excellent tips for small business owners to action and minimise your business’ tax bill this year.

1. Scrap obsolete stock or plant and write-off those bad debts

Got some old plant or stock that your business simply can’t sell due to COVID-19? Then physically write it off before 30 June and get a tax deduction for it this year. You can value trading stock at the lower of actual cost, replacement cost, or market selling value. A different valuation method can be applied to each item of trading stock.  Like obsolete stock, there are a lot of customers facing financial difficulty during this pandemic & simply can’t pay so for a business to get a tax deduction on its bad debts it must physically write off the debt prior to 30 June. Note that the debt must have been originally shown as income for the write-off to be allowed. Put your decision in writing such as a board minute. You also need to show that you have made a genuine attempt to recover the debt to prove that it is bad.

2. Buy any new business asset and claim it as a tax deduction this year

There have been some great tax concessions over the past few years for small business with none greater than the immediate write-off available for the purchase of new business assets regardless of how much they cost. Apart from motor vehicles (where it is limited to the business portion of the car limit of $59,136), there is no limit to the amount of assets that you can purchase under this concession but beware that you are only getting a percentage back and your cashflow will suffer. If your business is registered for GST, you can claim the 10% GST credit first up and get an immediate write-off for the balance in this year’s tax via the Temporary Full Expensing rules.

3. Build your nest egg quicker by paying 15% rather than 47% by salary sacrificing into super

Salary sacrificing into superannuation is one of the best, and legitimate, ways to minimise your income tax bill. Small business owners can have their business contribute up to $25,000 per year into super which is only taxed at 15 per cent within the fund and claim a tax deduction for the contribution (26 per cent for small companies and potentially 47 per cent for sole traders). Note that in order to obtain a tax deduction in this financial year for any superannuation contribution (including all other non-related employees), the contribution must be received by the superannuation fund by 30 June. And if your super balance was under $500,000 as at 1 July 2020, you can carry forward any unused amounts from your $25,000 cap in the 2018/19 and 2019/20 years and make a higher contribution this year.

4. Defer income and bring forward expenses up to 12 months in advance

It is always a good idea to try and defer your taxable income to next financial year (except when the marginal tax rate increases). For those operating on a cash basis then simply delay the “receipt” of the income. If you operate on a non-cash basis then you may want to defer your invoicing til next year. An immediate deduction is available to SBE’s for the prepayment of allowable deductions such as lease payments, interest, rent, business travel, insurance and subscriptions up to 12 months in advance.

5. Split your income with your lower earning spouse and pay less tax as a family

It amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see them paying 47 percent tax on income, which could be in put under their lower taxed spouse (0 percent or 16.5 percent) or company (26 percent).  If you are paying a wage to your spouse from your business, ensure that you can justify the amount paid based on the time and the skillset required.

6. Claim a deduction for expenses not paid at year end

Just because you haven’t paid for something doesn’t mean that you can’t claim it. Businesses are entitled to an immediate deduction for certain expenses that have been “incurred” but not been paid by 30 June:

• Salary and wages – claim the number of days that employees have worked up to 30 June, but have not been paid until the new financial year;
• Directors fees – claim a tax deduction for directors fees that are “definitely committed” to at 30 June and has passed an appropriate resolution to approve the payment;
• Staff bonuses – claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June where the business is “definitely committed” to the expense;
• Repairs and maintenance – claim repairs undertaken and billed by 30 June but not paid until next year.

7. Write up your family trust resolutions before 30 June

After years of abuse, it is mandatory for those with family (or discretionary) trusts to have a written trustee resolution before 30 June showing the intended distribution of income to family members. Careful tax planning is required otherwise it may cost your family thousands in unnecessary (and unwanted) taxes. 

8. Private company loans to shareholders

If you have borrowed funds from your company, ensure that the appropriate principal and interest repayments are made by 30 June. Non-compliance with the strict ATO rules will result in the entire loan amount being deemed as an unfranked dividend paid and taxed at marginal rates. The private use of certain company assets (such as boats and cars) is now also potentially caught by the taxman unless a market rental fee is paid.

9. Don’t spend purely for a tax deduction

There are so many people that get caught out at this time of the year in spending money purely to get a tax deduction. If you are running a business via a company then you are only getting 26 percent back. If you want a $100,000 tax deduction then I will gladly invoice you and accept payment. Why spend money when you only get a fraction back? Don’t get caught out by the fancy marketing of retailers in coming weeks. Always think of my A-B-C motto: Absolute Bloomin’ Cashflow.

10. Get a great accountant (who knows what’s Exempt Income, the Loss Carry Back Tax Offset & more)

Most businesses have received as much as $100,000 in the Cash Flow Boost from the Government during COVID-19 but did you know it was tax-free? And that you can claim back taxes paid in 2018/19 and 2019/20 if your small company makes a loss in 2020/21. Avoid paying too much in tax or leaving yourself to a visit from the taxman. Great accountants are like surveyors ... they know where the boundaries are. And their fees are tax deductible!

This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.

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These tips were provided by Mr Taxman, Adrian Raftery, author of 101 Ways to Save Money on Your Tax - Legally! 2021-2022 edition (Wiley, May 2021, AU$29.95). @mistertaxman www.mrtaxman.com.au

101 Ways to Save Money on Your Tax – Legally! 2021-2022 edition

By Adrian Raftery

Published by Wiley May 2021

ISBN 9780730391616

AU$29.95 / NZ$28.99

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For further information or to request an interview, please contact: Adrian Raftery on 1800 TAXMAN (1800 829 626) or 0418 210 599 adrian@mrtaxman.com.au