In tax, timing is everything. With the end of the year here it is time for businesses to tidy up loose ends before the new tax year really begins.
Here are a few things that business owners may need to consider and act on before the end of the year.
- Write off bad debts
In order to claim a deduction for bad debts, the amount must be written off from the accounts receivable ledger before year end. To qualify as a bad debt, there must be no reasonable likelihood that the debt will be recovered. If, after writing off the bad debt, it is recovered, the amount must be treated as taxable income in the year it is received.
- Prepaid expenses
Some expenses can be prepaid, written off for financial reporting
purposes and claimed as a deduction only when paid. Other expenses, however, can be prepaid and at the same time claimed as a tax deduction (e.g. stationery, magazine subscriptions, rates). The end is near – tax year end that is!
- Review private use of company assets and loans
The Government has recently introduced legislation expanding the effect of section 7A of the Income Tax Act. Existing rules apply to private loans and have the effect of loans being treated as income to individuals. New rules relate to the private use of company assets by individuals. The change means assets owned by a company, available for use and under the control of an individual may create a benefit which will be deemed as a payment to an individual in much the same way as a private loan.
- Pay employees superannuation by 30 June
Ensure that superannuation entitlements for employees are paid on time in order to be tax deductible.
- Value your trading stock
Businesses that have trading stock will need to value any stock on hand at year end. Most businesses would generally use the cost of the goods. However, if the market value of the stock on hand is lower than the cost of the goods, businesses may be able to use that value instead. The value of closing stock does not include GST for businesses registered for GST.
- Dispose of non-performing investments
Dispose of any non-performing investments to take advantage of the capital loss. Use these funds to reinvest in more worthwhile areas. Losses can be offset against other capital gains, but taxpayers need to be mindful of the ATO’s warning against ‘wash sales’ where the asset is reacquired within a short period of time, solely to realise a capital loss.
- Transfer business premises to super
A small business owning premises through another structure could consider the transfer of their premises to a SMSF. This may provide opportunities for the fund to borrow in order to acquire the premises and take advantage of Capital Gain Tax (CGT) concessions. The transfer could split between a contribution, borrowing and straight purchase.