By Sam Heaney and Michael “Miyagi” Craig
Those that have seen movie great The Karate Kid will be familiar with the “wax on, wax off” analogy. During a long summer, young teenager Daniel turns to master martial arts mentor, Mr Miyagi, to teach him karate for an upcoming tournament. Mr Miyagi does just that – but he does it by first getting Daniel to lay down some important ground work in the form of painting and waxing his car. There was method to the madness – the painting and waxing techniques were secretly teaching his muscles karate moves. When the karate lessons actually began, Daniel then found it easy to learn – and became a champion!
This same principle can apply to being tax ready. With 30 June fast approaching, now is the perfect time for business owners to start thinking about how they can reduce their taxable income and get some ground work in place – ready for a better tax experience!
We have outlined four key tax “moves” below that should be considered when trying to reduce your taxable income.
MOVE 1 – Immediately write off new equipment
If your turnover is less than $50 million you may be considered a “small business” (self-employed individuals such as Uber drivers and social media influencers can also access this concession) and can currently claim an immediate tax deduction for assets that cost no more than $30,000. One question we like to ask our clients is: If you are going to purchase new equipment in the first few months of the next financial year, why not do it before 30 June and receive the tax benefit this financial year?
The Asset thresholds have changed during the year, which has been outlined in the table below:
|Date Range||Asset Value Threshold|
|7:30pm (AEDT) 02/04/2019 to 30/06/2020||$30,000|
|29/01/2019 to before 7.30pm (AEDT) 02/04/2019||$25,000|
|7.30pm (AEST) 12/05/2015 to 28/01/2019||$20,000|
MOVE 2 – Contribute extra to your superannuation
Business owners can contribute up to $25,000 each as concessional contributions into their superannuation fund which can be claimed as an immediate tax deduction either by the business owner, or individual owner.
Please note that that if you plan to do this via the Small Business Super Clearing House then payments should be made by 24 June 2019 to ensure the payments are processed in time.
MOVE 3 -Write off your bad debts
An unfortunate part of business, and one that most business owners encounter, is that not all debts owed to you are recoverable and may never be paid. The best option if you have bad debts you know won’t be paid is to claim a tax deduction for your bad debts. To claim a deduction, the debt must be considered bad and have little or no likelihood of being recovered.
Try to look at these debts and make these decisions before you get to 30 June, so you are prepared when it comes time to claim.
Please note that for GST purposes if a debt is outstanding for longer than 12 months even if you haven’t written the debt off, you can claim back the GST you have paid.
MOVE 4 – Prepayments
As with small business asset write offs, if your business turnover is less than $50 million businesses have the ability to prepay expenses and claim an immediate deduction in the current financial year when paid. Some examples of this include interest, rent, subscriptions, advertising, etc. The key rule to be conscious of when making an immediate deduction claim is the 12 month rule, which states:
- The prepaid expenditure cannot relate to a period of more than 12 months.
- The period of the prepayment ends no later than the last day of the income year following the year in which the expenditure was incurred.
Just as Daniel came to realise that through the labour of remedial tasks he was actually getting a “kick” start in his karate skills… so too will you come to realise that taking care of some of the more remedial tasks before EOFY can mean your tax is able to “kick” some serious returns for you!
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.