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Your EOFY checklist to minimise tax liabilities

With the new financial year fast approaching, now’s the time to make sure you aren't paying too much tax. Here are six ways you could minimise tax liabilities and pay less at tax time.

At a glance

Here’s a snapshot of the advice from our interviewees:

  • Getting tax-smart begins with keeping on top of your expenses and writing off any bad debt that won’t go away.
  • Consider using investment accounts to reduce taxable income.
  • Asset management software can help increase productivity and cut costs.
  • Experts are there to help – an accountant could help save you money.

Ahead of the new financial year, it’s critical to get across your finances and start the new year with the right foot forward. 

That could mean using cash flow management tools to streamline your business, learning how to claim your vehicle expenses, or looking at upcoming tax breaks or funding opportunities. 

It’s also the time to make sure that you’re paying the tax you should – that means not paying more tax than you should. We asked experts for their tips for minimising tax liabilities.

1. Clean up your expense records

Like so many things in small business, being tax-smart means keeping an eye on all the small things that add up – and that includes expenses. 

“One of the best ways to minimise your tax liability is to keep track of all of your business expenses throughout the year,” says Davie Mach, Director and Client Manager at Box Advisory Services. “This includes things like office supplies, travel costs and any other expenses that are necessary for running your business. 

“By keeping more meticulous records, you will be able to deduct a significant amount from your taxes come tax season.” 

Too late? Start now. You’ll get the benefit of the rest of the FY’s expenses and embed a good habit ahead of the coming financial year.

2. Write off bad debts

Occasionally, customers will accrue debt to your business which is unlikely to be paid. Greg Mawer, Director at Accumulate, recommends writing off ‘bad debts’ prior to 30 June to avoid increased tax liability. 

“To do this effectively, you need to include the original income in your tax return, determine the debt is made and write off the bad debt,” he says. “This reduces your taxable income and your tax bill.” 

3. Consider alternative investment strategies

Superannuation and insurance bonds can be tax-effective investments, depending on your circumstances. Insurance bonds, for example, are taxed at the corporate rate of 30%, and could offer savings for those paying higher marginal tax rates; their tax treatment also changes after 10 years, so they may offer greater advantages with longer-term investment. ASIC’s moneysmart.gov.au advises caution though – and advises against investing based on tax relief alone. 

According to Greg, using superannuation to reduce taxable income can also be an option to explore.  

“Superannuation is a great vehicle for long-term, low-tax investing. The limit for deductible (concessional) contributions for the 2021/22 financial year is $27,500,” he says. “If you are a small business owner approaching retirement or have a one-off capital gain, high income or some spare cash, contributing to superannuation can save significant tax.”

4. Pay expenses in advance

“If you had a good year financially but expect next year will not be as profitable, consider paying for next year’s expenses prior to 30 June,” says Greg. 

“There are special rules for small businesses with a turnover of less than $50 million. These businesses can claim a deduction for prepaid expenses in the year they are paid, as long as they are not prepaid for more than 12 months and are used by the end of the next tax year.”

5. Use asset management software

“Proper asset management can not only centralise information, but also increase productivity, cut costs, and reduce loss and theft,” says Davie. 

And centralising information is key to easily and correctly claiming asset depreciation come tax time. Think that laptop won’t make a dent in your tax bill? Take a critical look at all the items you use in running your business, and start tracking them properly – Davie suggests other benefits aside from tax too.  

“Asset management software is an initial expenditure that pays off in the long run. You can reduce costs from unexpected repairs or replacing lost equipment because you know where each asset stands at any given time, and routine maintenance scheduling helps prevent problems with equipment before they happen.”

6. Seek a professional’s perspective

Sometimes, and especially when dealing with a tricky topic such as tax liability, you need a third-party perspective to provide clarity. That’s where a professional accountant comes in. 

“Hiring an accountant can save you a lot of headaches come tax time,” says Davie. “They will be able to help you maximise your deductions and make sure that you are taking advantage of all the tax laws that apply to your small business. 

“While hiring an accountant may cost you some money upfront, it will definitely save you money in the long run.”

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The information in this post is provided for general information only and does not take into account your personal situation. Nothing contained in this post constitutes advice or an endorsement or recommendation of any kind by Prospa. Any links to third party websites are strictly for informational purposes only. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information as at the date of publication, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information for any reason, including due to the passage of time, or any loss or damage suffered by any person directly or indirectly through relying on this information.

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