With June 30 just weeks away, now is the perfect time to start thinking about how you can save money this financial year. Fortunately, you don’t need to be a mathematician to get started. Sometimes, all it takes is having a few simple strategies up your sleeve to reap impressive savings. Here are five sharp tax strategies that will keep you and the tax man happy.
1. Check your concessions eligibility
Being a small business – whether sole trader, company, partnership, or trust – comes with its own unique set of benefits. Your business may be eligital for concessions on certain taxes such as, income tax, capital gains tax (CGT), PAYG instalments, fringe benefits tax (FBT), and superannuation.
To be eligible, you have to be classified as a ‘small business’, which is determined by your current or previous year’s turnover. You’re a small business if you earn up to $10 million (rather than the previous $2 million) in a fiscal year. If this change means your business classification has changed, the concessions you’re eligible for have likely changed too, so find out which apply or ask your accountant.
2. Use simplified depreciation
Working out how much your equipment and assets have dropped in value over time, and therefore how much you can deduct for depreciation in your return, can be tricky. That’s why the Australian Taxation Office (ATO) introduced simplified depreciation rules for small businesses with an aggregated turnover of less than $10 million.
Using these rules, you can:
- Immediately write off (deduct the total cost) of most assets that cost less than $20,000 and were brought, used or installed between May 12 2015 and June 30 2018.
- Pool most higher cost assets (those equal to or higher than $20,000) and claim a 15% deduction for the year you bought them and a 30% deduction each year thereafter.
3. Claim deductions for pre-paid interest
It’s rare for a small business to not operate using some form of credit. Whether you have a business loan or you’re managing mortgage repayments on your business premises, you can squeeze some good fortune from some of your debts.
By pre-paying any deductible interest – within the stipulated 12-month period – you can immediately reduce this year’s tax payment. If you pay interest that covers a period of more than 12 months, you’ll need to spread out your deductions over two years or more.
4. Manage your capital gains tax
All capital gains and losses must be reported in your tax return. Capital gains are profits you make selling assets; capital losses occur when you sell an asset for less than you paid for it. Any gains you make are added to your assessable income and may increase your tax.
However, there are a number of strategies you can adopt to minimise the amount of capital gains tax you pay. For example, selling assets that have lost value can offset some of the capital gains you’ve made. You can also carry capital gains losses forward for use in later years – provided you have recorded them in your tax return.
5. Adjust your spending
If your cash flow is healthy, paying for expenses or making asset purchases in advance of June 30 is a smart idea, as it allows you to bring any tax deductions forward. Expenses include things like office and equipment lease payments, business insurance, subscriptions, travel and conference bookings, and telephone and IT services.
You could even try to negotiate a discount from your supplier for paying in advance. It’s likely they’ll be as keen to make another sale before the end of financial year as you are to reduce your taxable income. By employing these smart tactics, you can pay less tax and keep more of this year’s profits. You can’t say no to that.