End of Financial Year Tax Planning – 10 Best Tax Planning Tips for Businesses

In today's feature, we look at the Top 10 Best Tax Planning Tips for businesses to consider ahead of the End of Financial Year (EOFY).

A mistake we commonly see is waiting until after the end of the financial year to determine your taxes and take steps to reduce a large tax bill. By this stage, it is often too late and there is little a business can do to maximise tax offsets.

For this reason, prior to 30 June each financial year, usually around the end of Q3, the Sapphire Bay team conducts EOFY tax planning with our clients to consider opportunities for them to reduce their taxable income (and thus tax payable) for the year.

Tax planning can include techniques to defer recognition of income or techniques to accelerate timing of deductions. Detailed below are 10 tax planning techniques for businesses that managers and owners should consider prior to 30 June.

End of Financial Year Tax Planning - Sapphire Bay Partners Tax Advisors & Accountants

Note: for this exercise to be effective, entities need to be able to accurately project its current financial year's taxable income. Obviously, having robust management accounts and up to date expense and income tracking is critical to ensure the most reliable answer possible. If your financial accounting system is not at this level, feel free to contact us to discuss ways we can help you.

1. Pay June superannuation guarantee obligations by 30 June to ensure payment is deductible in the financial year.

The tax legislation only allows deductions for superannuation contributions when the amounts are paid. If payments are made by 30 June of the current financial year, the amounts will be deductible in the next financial year.

2. Claim immediate deductions for business assets purchased.

Temporary full expensing deductions are available for businesses with turnover of under $5 billion that purchase business related plant & equipment that are installed ready for use by year end. While there is generally no limit to the amount of the deduction that can be claimed, deductions for cars are capped at the depreciation threshold to luxury cars of $60,733.

3. Prepay some or all of next year's expenditure by 30 June (subject to cashflow)

Small Businesses with turnover of less than $50M are eligible to claim deductions for prepayments made which have a prepayment period of less than 12 months.

Obviously, don't do this to the detriment of your cash flow. But whatever you can pay in this period, even if it is 6, 3, 2 or 1 month will give you a deduction in this period and reduce your tax payable.

4. Write off debts that are bad

Businesses are able to claim a tax deduction for debts that cannot be recouped and have been written off as bad prior to 30 June.

5. Consider revaluing trading stock

If the value of trading stock items on hand is below cost price, consider revaluing the trading stock to its net realisable value so as to claim a tax deduction in the financial year.

6. Determine whether any invoices have been issued for work that is still required to be performed after 30 June

If invoices have been raised, there is the possibility that the invoices may not be assessable for tax purposes if any amounts paid by customers are required to be refunded if the work is not subsequently performed.

7. Consider scrapping plant & equipment that is no longer installed ready for use

A deduction can be claimed for plant & equipment that is scrapped and is no longer installed ready for use at 30 June.

8. If bonuses are payable for the current financial year, make a binding resolution by 30 June to pay the bonuses to ensure tax deductibility in the current financial year.

Provided there is a definitive commitment to pay the bonus by 30 June of the current year, the bonus can be deductible in the current financial year notwithstanding that it is not paid until the following financial year .

9. Apply loss carry back provisions for companies.

Companies that incur a tax loss in the current financial year can use the loss to offset tax paid by the company in the financial years commencing FY2019. Applying loss carry back could result in a refund of tax previously paid in those years.

10. Bring forward pending expenses

Subject to cashflow, try and bring forward pending expenses to before 30 June of the current financial to ensure the expenses are deductible in the current financial year.

If you have any further questions relating to the above, please do not hesitate to get in touch with us via your Sapphire Bay contact, (03) 9563 4666 or email us at letschat@sapphirebay.com.au.

Disclaimer: This article is provided as general guidance only. Please seek professional advice for your own specific situation.