With the end of financial year on the horizon, now is the time to prepare for tax time.
Put a little time aside to find out what tax benefits apply to your busines, maximise your deductions where possible and claim the expenses you’re eligible for.
Paul Drum, the head of policy at accounting firm CPA Australia has partnered with Officeworks to share his top 10 tax tips to help business owners prepare for tax time.
1. Check eligibility for small business tax regime
Small business entities (SBE) with an annual turnover of less than $2 million may be eligible for a range of tax benefits including simplified depreciation, capital gains tax concessions and accounting on a cash basis. For example, they automatically qualify for simplified rules for both tax depreciation and trading stock.
2. Maximise your business’s depreciation deductions
Eligible small business entities can claim an immediate deduction for a depreciating asset whose cost is less than $6,500 in the 2013-14 year if it’s used or installed ready for use for an income producing purpose by 31 December 2013.
If purchased after that date, the threshold for claiming an immediate deduction reduces significantly to less than $1,000 per item.
However a depreciating asset that is not immediately deductible will be still be automatically depreciable at a flat rate of 15 percent in the year of acquisition to the extent the asset is used for income producing purposes and it is used or installed ready for use by 30 June 2014.
3. Claim an immediate deduction for work car purchases
An eligible SBE can claim an immediate deduction for the purchase of a vehicle if its cost is less than $6,500 and it was used or ready for use by 31 December 2013 to the extent it is used for income producing purposes.
If the vehicle cost $6,500 or more, an immediate deduction of $5,000 plus 15 percent of the balance of the cost can be claimed in the year of acquisition to the extent the car is used for income producing purposes and it is used or ready for use by 31 December 2013.
In subsequent years, the car can be depreciated at a rate of 30 percent to the extent it is used for income producing purposes. This concession does not apply to tractors, graders, road rollers, combine harvesters, trailers and earthmoving vehicles.
4. Bring forward income and defer deductions
Because of the proposed changes to both the Medicare Levy and the proposed Temporary Deficit Levy, individuals who are in the highest tax bracket may wish to consider bringing forward income into the 2013-14 year as it would be taxed at a lower tax rate than that which is proposed to apply in the 2014-15 year.
Conversely, they may wish to defer deductions from the 2013-14 year to the following financial year, as such amounts would be deducted at the proposed higher effective tax rate of 49 percent.
Care should be taken to ensure that any action does not breach the general anti-avoidance provisions or any specific provisions that could curtail such activities – such as the prepayment rules.
5. Claim work-related deductions
Claiming all your work-related deduction entitlements may save considerable tax. In doing so check whether you have all the necessary receipts or credit card statements. Typical work-related expenses include employment-related telephone, mobile phone and internet usage, computer repairs, union fees and professional subscriptions.
6. Home office expenses
When part of your home has been set aside primarily or exclusively for the purpose of doing work a home office deduction may be allowable.
To claim the deduction you must have typically kept a diary for at least four weeks of the hours you worked at home. This amount is then used to work out your total hours worked for the year and a deduction claimed at the current rate of 34 cents per hour.
7. Self-education expenses
Self-education expenses can be claimed provided the study is directly related to either maintaining or improving your current occupational skills or it is likely to increase your income from your current employment.
Typical self-education expenses include, amongst others, course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers and printers.
8. Non-business depreciation deductions
Individuals can claim immediate deductions for depreciating assets purchased by 30 June 2014 that cost under $300 to the extent that the asset is used for an income producing purpose.
Such assets can include tools, calculators, briefcases, computer equipment and technical books purchased by an employee, or minor items of plant purchased by a landlord.
9. Write off bad debts
Your business can only obtain income tax deductions for bad debts where various conditions are met. For example, the debt must be both irrecoverable and written-off in the accounts as ‘bad’ in the year in which the deduction is claimed.
The debt must also have been brought to account as assessable income. There are other requirements that need to be met too if the creditor is either a company or trust.
10. Make trust resolutions by 30 June
Trustees of discretionary trusts are required to make and document resolutions as to how trust income for the 2013-14 year is to be distributed by June 30 at the latest.