Small businesses may find that they qualify for a variety of tax benefits this year. The following are just some of the tax tips that can help small businesses.
1) Seek independent advice on investment products that are being promoted as tax-effective
The end of the financial year often sees the promotion of numerous investment products that claim to be tax-effective. If you are considering such an investment, seek independent advice from a financial planner or tax agent before making a decision. At best, some of these products may overestimate the tax and financial benefits. At worst, some of these products may be an illegal scheme.
2) Pay any outstanding superannuation entitlements
The Government has announced a 12-month amnesty from 24 May 2018 for employers to pay any outstanding Superannuation Guarantee (SG) contributions for periods prior to 1 April 2018. Employers who voluntarily disclose and pay previously undeclared SG shortfalls during the Amnesty and before an SG audit will not be liable for the administration penalties and will be able to claim a tax deduction for payments made during the 12-month period. This announcement is subject to approval by the Parliament.
3) Write-off bad debts
You can only obtain an income tax deduction for bad debts when certain conditions are met. A deduction will only be available if the debt still exists at the time it is written off. The debt must also be effectively unrecoverable and written off in the accounts as bad in the year the deduction is claimed and the bad debt must have been previously brought to account as assessable income. There are also additional requirements to be met where the creditor is either a company or trust.
4) Maximise depreciation deductions
Small businesses with an aggregated annual turnover under $10 million are eligible for an immediate tax deduction for individual assets that were purchased by 30 June 2018 and cost under $20,000. Such assets must be installed ready for use by 30 June 2018 and must be used by the business to produce an income. For GST registered businesses, the $20,000 threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis. It has been proposed that this measure will be extended until 30 June 2019.
5) Consider if your legal structure is best for your business
Small businesses are able to change their legal structure without incurring any tax liability when active assets are transferred from one entity to another. This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business. Business restructuring, however, can be complex, so you should seek advice from your accountant before proceeding
6) Make sure you pay the correct company tax rate
Most companies with an aggregated annual turnover under $25 million will pay tax at a rate of 27.5% in 2017-18. However, some companies with a turnover under $25 million will continue to pay tax at 30% if they earn the income from passive investments such as interest or rental income. It should be noted that companies that pay 27.5% tax can only frank dividends up to that rate. As the law currently stands, to qualify for the lower tax rate in 2017-18, a company must be “carrying on a business” and have a turnover of under $25 million. However, there is a proposal before Parliament to replace the ”carrying on a business” test with a test that will mean that companies below the $25 million threshold must earn no more than 80% of that turnover from passive income such as interest, rent and net capital gains to qualify for the lower company tax rate company. This proposed change may lead to different tax outcomes from the current law for certain companies.
7) Make trust resolutions by 30 June
As always, trustees of discretionary trusts are required to document resolutions on how trust income should be distributed to beneficiaries before 30 June. If a valid resolution is not executed by 30 June, any default beneficiaries under the deed will become presently entitled to trust income and subject to tax (even where they do not receive any cash distribution), or the trustee will be assessed at the highest marginal tax rate on any taxable income derived but not distributed by the trust. A trustee must be able to show how an effective resolution was made through minutes, file notes or an exchange of correspondence documented before end of year. However, the trust’s accounts do not need to be prepared before 30 June.