Make the most of tax time.
The company tax rate is reducing to 25 per cent for financial year 2021/2022. If you're thinking about invoicing in June for services that you are providing in July or beyond it may be worth deferring those invoices until after July 1. This will also give you the added advantage of the lower 25 per cent company tax rate and a potential tax saving. It's important to consider your cashflow position to ensure you have sufficient funds to meet your business expenses and, more importantly, to ensure you can comfortably meet your staff obligations.
You may be able to claim a tax deduction for bad debts (also known as unrecoverable income). Grab a notebook and review who currently owes your business money to ensure you are maximising your tax position. If a customer from a year ago still hasn’t paid your invoice, this is your opportunity to draw a line in the sand and make a claim. It's vital to keep detailed records for audit purposes that support the debt being unrecoverable, that show you attempted to recover the debt and that it was included in your assessable income. The bad debt must also be written off before July 1 2021 to claim as a deduction.
If you purchase assets before July 1, you can qualify for the enhanced instant asset write-off for the 2020-21 tax year. This means you’ll get an immediate deduction for eligible assets, new or used, as long as they cost less than $150,000 (specific eligibility requirements apply). Items such as tools and equipment, computers, office furniture and equipment and motor vehicles are eligible assets.
Last year, plenty of people applied for early release of their super. If your financial position has improved since then, it may be time to rebuild your super balance. It’s not too late to take full advantage of the tax benefits by topping up your super to reach the tax concession cap of $25,000 per annum. The cap includes any compulsory 9.5 per cent superannuation guarantee that may have been paid from an employer on your behalf, so make sure you don’t exceed the cap. If you didn’t contribute the full $25,000 super cap last financial year, this is the first year where you have the ability to access unused concessional contributions.
For example, if you only contributed $10,000 last financial year, you're able to "carry forward" the remaining $15,000 unused of your $25,000 cap to this financial year. This means you could contribute a maximum of $40,000 and potentially claim the full amount as a tax deduction.
Prepaid expenses incurred by small businesses are immediately deductible under the 12-month rule if the eligible service period for the expenditure is 12 months or less. You can find the full list of eligible prepaid expenses here. You don’t want to adversely impact your cashflow position and spend money just to get a tax deduction on things you don’t need, so consider this before prepaying expenses.
Disclaimer: This advice is general in nature. Always seek tax advice from your accountant or registered tax agent.
Photography: Simon Shiff
Jodie Dean is the Founder/Owner of Accountarts, a creative-industry-focused financial management firm. You can check them out at @account_arts on Instagram.