15 tax tips from the experts

It’s that time again. The 2009-10 financial year is almost upon us, and the Australian Taxation Office is preparing to knuckle down and get to work.

Businesses struggling to survive the downturn will know that every dollar counts. Whether extra money is used for cashflow issues or employing an extra worker, keeping a business’s tax burden low ensures more money can be spent on helping the business thrive.

So to help businesses and entrepreneurs wade through the difficult waters of taxation, SmartCompany has questioned a panel of tax experts for their top tips on how to avoid a hefty tax bill.

While ATO commissioner Michael D’Ascenzo has said the ATO will do all it can to help struggling SMEs, it will still keep a watchful eye on businesses avoiding tax laws.
The ATO’s assistant commissioner Rod Ettridge, head of the small business division, recently told SmartCompany that the office will be “firm” with companies avoiding tax laws and that “if that involves taking them through to a wind-up, then so be it”.

Defer income

One of the most common tax tips is to defer employee income until after 1 July. Matthew Field, director of the enterprise advisors division at accounting company PKF, says this is one of the easiest ways for companies to save money.

“Apart from the obvious reasons for delaying income, tax rates drop from 1 July, 2009.
You can [even] save the amount of tax you pay when [the top tax threshold] drops from $180,000 to $150,000, which [it] will soon.”

This strategy isn’t necessarily simple of businesses, but those dealing with income paid through invoices can delay the invoice, and thus delay the payable income.

If you can, pay in advance

Businesses which have the benefit of large amounts of available capital should determine if any payments can be made in advance to take advantage of deductions in the current tax year.

But Chris Hope, partner at Pitcher Partners, warns that prepaid expenditures usually don’t qualify for deductions unless they are less than $1000; are required to be paid by law; are part of salary or wages; and cover a period of less than 12 months.

But paying interest in advance for income-producing activities, such as rental properties, may allow you to qualify for deductions if paid before 30 June.

Claim those home office and other work expenses

Entrepreneurs wanting to make deductions for home office and other work related expenses should ensure they have all related logs and receipts for computers, home phones, mobile phones and time spent in home offices.

“Make sure you have the receipts and invoices for any purchases you have made, details of professional association expenses and union memberships, tools and equipment purchases that you have used for work. Professional subscriptions are also deductible,” Frank Brass, regional director of H&R Block says.

“If you or your family members need to have some medical work or procedure done, it is worthwhile trying to bunch them into one financial year as you are entitled to a rebate of 20c in the dollar for every dollar spent over $1500.”

Also keep in mind that deductions can be claimed for up to $300 in work-related expenses with no receipts required, as well as up to $150 for laundry claims above the $300 no-receipt limit.

There are also deductions available for depreciation of home office equipment and a professional library, and education expenses directly related to your field of work.

Get it installed to get your 50% investment allowance

Most businesses would be aware that the Federal Government increased the investment allowance from 30% to 50% for the current financial year. Now is the time to do something about it.

The break works by allowing businesses to claim a 50% allowance for any tangible, depreciating asset purchased for or above the value of $1000. Simple and straight forward enough, but many businesses wouldn’t be aware of some of the regulations surrounding this particular tax break.

Mark Morris, senior tax council at CPA Australia, says businesses need to be aware that the concession is a deduction, not a rebate, and that the equipment needs to be both purchased and installed before 30 June if it is to be claimed in the 2008-09 tax year.

“If you buy a new desktop computer on 29 June, 2009 and it’s installed the next day, then you get your full 50% deduction. The trick is having the installation done as well. If it’s a relatively complicated piece of equipment, it has to be available for use, but the acquisition and installation cost can be put together to go over the $1000 threshold.”

Additionally, businesses should be aware that some assets such as software and second-hand items are not eligible to be claimed under the allowance.

Are you small enough?

If you are operating a business and your annual revenue is less than $2 million, you may qualify as a small business entity and therefore be eligible for several tax concessions.

These benefits include CGT small business concessions, FBT, GST and PAYG concessions.

Depreciate it

The small business entity tax concession allows the immediate write-off for new, depreciating assets costing less than $1000. Additionally, businesses can pool assets together to reach over $1000 as a whole, and then depreciate them at accelerated rates.