If you want your business to shine you need to be prepared to work up some spit and polish. Sometimes that means doing a ‘service’ on your business or personal finances prior to tax time so you’re set up to take advantage of a switch over to a new financial year.
Yes I know, tax is the unsexy side of owning a business but I promise you, a little bit of elbow grease and education now can save you thousands (and sometimes tens of thousands of dollars) in the long run.
What I know for sure (in the words of guru Oprah) is that small business owners aren’t sure of what they should be doing when it comes to tax through research conducted as part of my ambassadorship role with Officeworks.
One of the findings in the survey they conducted in conjunction with H&R Block found that only 32% of small businesses were fully utilising the $20,000 tax break and less than 1% were able to correctly identify what the tax break included. Which is madness right? Firstly to not be utilising something that could save $$ in your business and secondly to not even know what you could or should be buying to take advantage of it! Yet it’s the same story that I see with many parts of tax – from Research and Development to Employee Share Schemes.
The good news is, it’s not too late. So if you suspect you should do a tune up prior to 30 June here is a guide for things you may want to consider doing when it comes to your business and personal taxes.
- Embrace the cloud. Once upon a time you had to keep every paper receipt tucked away in an envelope in an overstuffed filing cabinet. Now you don’t need to keep paper receipts and all of your deductions can be stored safely in the cloud. If you’re a business you might want to consider a cloud based solution such as Xero paired with Receiptbank or Shoeboxed. If you’re an individual there is the official ATO tax app, My Tax or Pocketbook as well as Logitfleetcare to manage your logbook claim.
- Incur or Pay for deductions prior to 30 June. This one seems obvious but every year I meet so many people who simply forgot about buying a briefcase, upgrading their mobile phone or making a donation until after 1 July when it’s too late. The best idea is to make a list of what you need and a plan to buy it well before the end of June when you may be tempted to forget.
- Be smart about Deductions. If your partner doesn’t work or has a low income but they’re the one that organises your joint donations then make sure they ask for the receipt to be in the higher income earner’s name to maximise your deduction. Remember too that just because you receive a tax deduction doesn’t mean you should spend money on things you don’t need. After all you only receive a deduction for your marginal rate of tax which for most people is 31.5%.
- Understand budget changes. Make sure you’re taking advantage of changes in the budget – whether it’s the fact that from 1 July you’ll be classified as a small business if your turnover is less than $10million (up from the current $2million threshold) or personal thresholds are increasing from $80k-$90k. Do some research around how to make the most of these changes.
- Think about your income. In order to be smart about who is paying tax on it. For example if you have a mortgage and you have money in a savings account then either pop your savings onto your mortgage or into an offset account. You don’t pay tax on interest you save and you’ll be saving a higher rate of interest than you’re earning. If you don’t have a mortgage and you have a partner that’s not working or on a small income and you’re in a committed relationship then think about holding your joint savings in their name. It’s possible they’ll pay no tax on interest earned versus you paying tax on half the declared interest.
- Capital Gains. If you’ve sold property or shares and are carrying some poorly performing shares, then consider selling them prior to 30 June so your capital loss offsets some or all of the gain. If you don’t have any under-performers then consider salary sacrificing to superannuation to lower your taxable income and reduce the tax payable.
- Understand good vs bad debt. We’re hard wired in this country to pay down our mortgage as fast as we can. However if you have a mortgage on your own home then you’re almost always better off paying interest only on your investment loans. If you’re not doing this, contact your bank or broker and switch them to interest only pronto.
- Look into your crystal ball. If you know that next year you’re going to drop income because you’re going to take gardening leave, maternity leave or quit your job and start a business, you might want to look at your tax deductible expenses. That’s because it may be worthwhile in this year to prepay expenses while your income is higher. This may include travel, insurance, interest on loans up to twelve months or insurance.
- Where are you holding. Most people head straight to individual or joint ownership when it comes to purchasing assets or starting business because that’s what you know. The thing is, there are potentially better structures than holding assets or businesses in your own name such as Companies, Discretionary Trusts, Unit Trusts, Self Managed Superannuation Funds and more. Now is a great time to review how you’re currently holding everything as well as making a plan for where you should hold assets or businesses in future.
- Super is super. Should you be paying more into super, are you paying too much and potentially liable to pay more tax or should you be taking advantage of Transition to Retirement rules. Many people are worried the rules will change when it comes to superannuation but that’s not a good enough reason to do nothing. At least take advantage of the rules as they exist today.
- Employee Share Scheme. So you’re receiving bonus or discounted shares from your employer which is fantastic only you could end up paying tax simply because you’ve received them. If you suspect you’ll receive some extra ESS income then don’t sit on your hands but plan how to maximise your tax situation so you’re receiving the best outcome possible. Or if you’re an employer the rules changed from 1 July 2015 which means ESS’s are now far more attractive than they used to be, particularly for start-ups. If you want to attract talent but have been afraid of the rules in the past, make sure you take a look at how to take advantage of the new rules.
Make sure your business doesn’t get in the way of setting yourself up for a great 2017 financial year. After all, if you do nothing then you really can’t complain. Of course, if you want more help, make sure you contact a great accountant.