Checklist for SMEs: Maximising your tax deductions this EOFY

As an SME, you generally need two hats when it comes to maximising tax deductions. There are deductions applicable to your business and to your personal circumstances. Also, depending on your situation, personal tax rates may be higher or lower than your business tax rates. 

Your business structure — company, trust, sole trader — will determine your business tax rate. To maximise your overall outcome while managing risk, you will need to have the right structure in place. This requires your financial adviser, accountant and legal representative to work together.

As an SME with a busy schedule, it’s easy to assume your advice support team will ensure nothing slips through the cracks; however, your advisors don’t always know every aspect of your life, your partner’s life or your business.

To help ensure you get maximum deductions this EOFY, I have provided a (non-exhaustive) essential checklist:

Normal business related expenses

These can be tracked through your software.

1. Marketing

2. Production costs

3. Rent/interest on your loan if you have premises with a mortgage 

4. Staff costs

5. Stationery

6. IT

7. Post/couriers

Items generally not in your everyday accounting software

These are usually prompted by your accountant.

1. Depreciation

2. Managing capital losses

3. Logbooks of mileage and vehicle expenses

4. Interest on loans

5. Instant asset write-off. This year, there are special rules due to COVID and some assets can be written off immediately.

Special items that apply this year

The main item to consider is your working from home allowance during COVID.

There are three methods available: the shortcut, the fixed rate and the actual cost method. Choose the one that maximises your return.

Insurances

Income protection insurance is tax deductible for the individual.

Other insurances such as professional indemnity and public liability are deductable if you are a sole trader, or to the business if you are in another structure.

If you have business partners, you have other personal insurances that may be tax deductible to the business (if they are about managing debt), for example, total and permanent disability (TPD) insurance, life insurance, key person insurance etc.

Superannuation

1. Employees’ superannuation

   Contributions for your employees’ superannuation are deductible to the business.

2. Paying your own super

   Your contributions to superannuation will be business or personal depending on your structure.

   Salary sacrifice for yourself will reduce your own tax.

   Personal contributions will reduce your own tax.

   [See the SmartCompany Plus guide to maximising your own superannuation for more].

3. Spouse super

   Spouse contributions will entitle you or your spouse to a tax rebate depending on the numbers.

   If you have a partner, you should talk to your financial adviser about ‘super splitting’. 

4. Super catch up

   You may be eligible for catch up legislation (my favourite piece of legislation, ever). This allows you to go back and use any of the cap you haven’t used in the last three years (eventually five years) to reduce your taxable income.

Financial advice fees

Ongoing financial advice is tax deductible, so this is a great one to allocate appropriately to enable you to maximise the deduction.

Upfront advice is generally not tax deductible but some initial consulting advice may be considered a business expense; for example, certain meetings with other adviser members of your team like an accountant, lawyer, finance broker etc.

Education

Certain schemes could be tax deductible through your business or personal circumstances.

Donations

Don’t forget your donations. Sometimes it is better to do a one-off transfer and claim the deduction rather than putting coins in a tin at the surf club, which is generally forgotten.

This list should have started the wheels turning in your mind. Less money paid in taxes means you can stretch your money further, and you can grow your business and your personal wealth. Hopefully, the advice pays for itself.