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Year End Opportunities AUGUST 2015
For many businesses, 31 March is an important date because it is the end of their financial year, and it is the last day your accountant has to file your prior year’s tax return.
To make the year end process as smooth as possible (at least from a tax perspective), here is a few “to dos”, along with some tax planning opportunities.
Check these and see if any can apply to you:
- Motor Vehicle Expenses - shareholder employees on a fixed salary can claim unlimited motor vehicle expenses at 77c per km. Get this into your year end accounts for a tax free contribution.
- Bad debts: bad debts must be written off before the end of the financial year in order to be tax deductible in that year. Points to consider when writing off bad debts are the age of the debts and the likelihood of the debts being collected. If the debts are then considered to be bad, they should be written off to reflect a more accurate picture of the year’s profitability.
- Accruals and provisions: as you accrue and provide for expenditure, think about whether the costs are incurred at balance date. In general, an expense should be deductible if you are definitively committed to the expenditure at year end and can reasonably estimate the amount. There are exceptions though, for example, accruals for employment expenditure (such as annual leave) are tax deductible if they are incurred and are paid out in the current year or within 63 days after balance date.
- Charitable donations: these are fully deductible up to the company’s net income for the year, provided that they are paid in the financial year. So if a donation is planned before the end of the year, it may be worth writing the cheque sooner rather than later. On the other hand, if you have made a loss for the year, but are expecting a profit next year, it could be beneficial to wait until the new financial year.
- Shareholder current accounts: if the company is owed money by shareholders, consider paying commercially justifiable shareholder-employee salaries or paying a dividend to settle the debts. FBT or deemed dividend issues may arise if this is not carried out. Depending on the company, there are some extra timing rules which can apply here.
- Prepaid expenditure Certain expenditure can be incurred in advance of the 2014-year end and, provided it is not capitalized on the balance sheet, may be claimed as a tax deduction in the 2014 financial statements. Some expenses can be prepaid regardless of the amount or period being prepaid.
- Legal expenses: business-related legal fees are deductible, provided total legal costs for the year are $10,000 or less. If you are nearing this threshold and the legal work is not urgent, consideration could be given to postponing it.
- Asset purchases: these may need to be reviewed to ensure that assets that cost more than $500 are capitalized for tax purposes. This can often be overlooked especially where such assets are expensed for accounting purposes.
- Entertainment expenditure: businesses will need to ensure that entertainment expenditure is analyzed to determine if the expenditure is 50% or 100% deductible. A GST adjustment will need to be made for entertainment that is only 50% deductible.
- Repairs and maintenance The end of year is a good time to take a look at spending throughout the year in order to determine whether items are deductible, or need to be depreciated.
- Mixed use assets The calculation of expenses has changed for certain mixed-use assets, such as holiday homes, boats and aircrafts. The rules are now based on the amount of time an asset is used in business or private, not how often it’s available for business use.
- Home office expenses Areas in the home used primarily for business, or as a storage area for the business, may be able to be claimed as part of the overall costs of running the house as a business expense. Floor area is the most common base used for calculating the portion claimable.