Tax tips for the last day of financial year

With the end of the financial year now upon us, SMEs will soon be preparing their tax returns and brushing up on the Government’s new tax laws that come into effect from tomorrow.

But while today, 30 June, is the last day of the 2008-09 financial year, there are still things businesses can do to ensure they lower their tax bill as much as possible.

Mark Morris, senior tax counsel at CPA Australia, says there isn’t much time left but businesses can still make some last minute arrangements.

“If you can acquire and install equipment in one day to get the small business tax break, that would be good, but also very hard. Additionally, it’s probably worth thinking about stock valuations. If your closing stock is effectively a lower value than your opening stock, you get a deduction.”

“Apart from that, just organise everything and have it ready. Make sure everything is in order, have your receipts, have your invoices. There are also things to avoid, such as don’t forgive a debt until you make sure it’s not recoverable. If you have losses, there are very stringent rules regarding recoupment. Just remember to be careful.”

Here are some more tax tips you might be able to take advantage of:

Defer income

Several tax experts say one of the easiest ways for a business to save money is to defer income into the next financial year. As the Government is reducing tax rates for the 2009-10 financial year, by deferring income business can save on their tax bill.

While this method isn’t appropriate for every SME, businesses using invoice-based payments can delay the invoices, and thus the income to be paid.

Pay in advance

Businesses can claim deductions for payments made in advance of the next financial year, but these payments do not qualify unless they are each less than $1000, are required to be paid by law, are part of salaries or wages and cover a period of less than 12 months.

Investment allowance

Most businesses will be aware of the Government’s increase to the investment allowance, giving SMEs the opportunity for a 50% deduction on eligible depreciating assets.

However, not all businesses would be aware that the equipment or asset must be purchased and installed prior to 1 July 2009. So if you’ve bought some equipment and it is not ready for use, you still have the rest of the day to have it installed.

Depreciation

The ATO’s small business entity tax concession allows write-offs for new, depreciating assets that cost less than $1000. Businesses can also pool assets together to reach a total of $1000.

Additionally, tax experts say businesses can use their own depreciation rates, rather than the ATO’s, if they can provide an estimated loss on strong grounds.

Non-commercial business losses

Changes to non-commercial business losses will come into effect from tomorrow. Taxpayers with income over $250,000 will no longer be able to claim a $30,000 deduction for renting out holiday homes for just a few weeks out of the year.

Additionally, in situations where an individual is running one successful business and one unsuccessful business at a loss, from tomorrow any losses will no longer be allowed to be offset against other income.

Gifts and donations

Any charitable gifts or donations given by a business must be listed as a deductable gift by the ATO to claim a deduction. Businesses should also ensure donations cannot be made from entities that expect to incur a loss.

Rental property deductions

Rental property owners are warned by the ATO that under-reporting of rental income will be closely investigated this year. But they can still claim the following:

Advertising, bank charges, body corporate fees, cleaning, council rates, electricity and gas, gardening, insurance, interest on loans, land tax, lease preparation expenses, legal costs, pest control, postage and stationery, property agent fees and commissioners, repairs, secretarial and bookkeeping fees, security patrol fees, telephone calls and water rates.

Tips refresher

Before you enter the 2009-10 year, make sure to read part one and part two of SmartCompany’s list of tax tips from the experts.