Now is as good a time as any to start implementing tax minimisation strategies in your business. We’ve listed our best 17 tips below.
1. Is your business a “Small Business” entity?
Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected/affiliated with you) of less than $10 million and be operating a business for all or part of the financial year.
2. Reduction in company tax rates for small business
The company tax rate for businesses with less than $50 million turnover is 27.5%, if 80% or less of a company’s assessable income is “passive income” (such as interest dividends, rent, royalties and net capital gains).
If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 27.5% for the financial year. Note that this company must qualify as a “base rate” entity to be eligible for the lower 27.5% company tax rate.
Important note: the corporate tax rate for the 20-21 financial year is 26% (reduced from 27.5%), and 25% in the 21-22 financial year.
3. Instant deduction / Instant asset-write off
On 14 October 2020, the Federal Government passed into law an extension of the the instant asset write-off concessions.
The instant asset write-off threshold of $150,000 applies to businesses with an aggregated turnover of less than $500 million. The asset must have been first used or installed between 12 March 2020 and 30 June 2021 (this is an extension of the original end date of 31 December 2020).
How the extension applies:
- From 12 March 2020 to 30 June 2021 (installed and ready for use during the period), new or second-hand depreciating assets costing less than $150,000 (GST exclusive), can be written off by businesses that have an aggregated turnover of less than $500 million.
- From 6 October 2020 to 30 June 2022 (installed and ready for use during the period), new eligible assets are 100% tax deductible for their full cost by businesses that have an aggregated annual turnover of less than $5 billion.
- From 6 October 2020 to 30 June 2022 (installed and ready for use during the period), new or second-hand eligible depreciable assets are 100% tax deductible for their full cost by businesses that have an aggregated turnover of less than $50 million.
- From 31 December 2020 to 30 June 2021 (installed and ready for use during the period), second-hand eligible assets costing less than $150,000 (GST exclusive) are 100% tax deductible for their full cost by businesses that have an aggregated turnover of between $50 million and $500 million.
- At the end of the 2021 financial year, small businesses can deduct the balance of their small business pool if they have an aggregated turnover of less than $10 million.
Without the extensions, the instant asset write-off threshold of $150,000 would have reverted to the $1,000 threshold and eligible only to small businesses with a turnover of less than $10 million after 30 June 2020.
For more information on other COVID-19 State and Federal Government assistance, refer to our COVID-19 FAQ Page.
4. Maximise deductible super contributions
The concessional superannuation is $25,000 for all individuals. Do not go over this limit or you will pay more tax.
For the contribution to be counted towards the employee’s contribution cap for that financial year, it must be received by the fund by 30 June.
Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge.
5. Tools of trade / FBT exempt items
The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit.
Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.
If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased.
6. Pay employee superannuation
To claim a tax deduction for the current financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June.
You should avoid making last-minute superannuation payments as processing delays may cause them to be received after year-end. If for any reasons you end up having to make last-minute payments and you would like to claim them as deductions for the current year, contact us immediately and before you make any payments for possible resolutions.
7. Defer income
During tax time, businesses should aim to minimise income and maximise expenses in order to reduce assessable income and tax.
To do this, it’s all about timing your income and expenses i.e. you’ll want to defer income into the following tax year. While you’ll still have to eventually pay tax on what you’ve earn't, in the meantime you’ll have saved money, and that is yours to use now and however you see fit.
To do this, it is best to use accrual accounting (not cash accounting), and to keep on top of your income and expenses - we advise the use of an online accounting software such as Xero.
8. Bring forward expenses
In the same vain as point seven, you'll want to bring forward expenses into the current tax year. Purchase consumable items before 30 June. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now to get the deduction sooner.
9. Repairs and maintenance
Make payments for repairs and maintenance (business, rental property, employment) before 30 June.
10. Defer investment income and capital gains
If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June.
11. Motor vehicle log book
Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June. You should make a record of your odometer reading as at 30 June and keep all receipts/invoices for motor vehicle expenses.
An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
12. Investment property depreciation
If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.
13. Private company (“DIV 7A”) loans
Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 Jun. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.
14. Year-end stocktake / Work in progress
If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June. Review your listing and write-off any obsolete or worthless stock items.
15. Write off bad debts
Review your Trade Debtors listing and write-off all bad debts before 30 June. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June.
16. Small business concessions – prepayments
“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June and obtain a full tax deduction in the current financial year.
17. Trustee resolutions
Ensure that the Trustee Resolutions are prepared and signed before 30 June for all Discretionary (“Family”) Trusts. Chat to us for more information about these resolutions.
Minimise Your Personal Tax Guide
From key superannuation changes, to salary sacrifice and capital gains tax minimisation, this guide details the best strategies to minimise your personal tax for the financial year ahead.