2021 EOFY best practice tips – for action prior to 30 June
We hope the final weeks of the 2021 financial year are tracking just as you’d hoped.
As we approach the pointy end of the financial year, we do typically like to provide some best practice tips for our clients to consider in order to help you maximise your business’ EOFY financial position.
Of course, any information contained below is broad and general in nature, if you would like specific guidance pertaining to your business’ unique circumstances, please get in touch with us directly (via the contact website menu).
Get your accounting records in order. Spend some time catching up on the business’ bookkeeping. This can help to reduce accountant fees at tax time and also provide a great starting point for planning ahead.
The final months of the financial year can be the ideal time to analyse the past 12 months and use this insight to plan for the future. Developing realistic budgets for revenue and expenses, tax planning for the year(s) ahead, reviewing insurances, setting business goals for the next three to five years, assessing risk management and even considering succession planning are all effective ways to help maximise opportunity.
- Temporary Full Expensing (effectively replacing the previously known instant asset write off)
The temporary full expensing scheme came into effect on 6th of October 2020 and is in place until 30 June 2022. What this means is, businesses with an aggregated turnover of less than $5 billion can potentially immediately deduct the business portion of the cost of eligible new depreciating assets.
What are considered eligible new depreciating assets? We’re glad you asked. This ATO link provides a high level snap shot of what may be considered eligible, and what may be considered excluded:
If your small business genuinely requires new equipment or assets, this can be an effective way help reduce your income tax bill. However, we highly recommend not purchasing items for the sake of an income tax deduction. The true benefit is only gained here if the asset purchase was going to happen anyway, and you might consider bringing that purchase forward to gain the income tax deduction. Otherwise, cash flow is king and keep your money in your business bank account for a rainy day rather than spending for the sake of a tax deduction.
An effective strategy for small business owners trying to minimise their tax bill can be to prepay expenses. For example, office rent, insurances or interest expense can all be claimed when paid. If cash flow allows and there is a net profit to be reduced, consider bringing some of these payments forward into June.
- Accounts Receivable
Review your accounts receivable (list of open invoices owed). Follow up on any amounts that remain outstanding and boost your cash flow immediately. If there are any unrecovered debts, it may be worth considering if any of these may be appropriate to write off as a bad debt, which can be an allowable income tax deduction.
It’s a good idea to make sure you are on top of all superannuation obligations well ahead of time. For employee superannuation contributions or personal superannuation contributions (a great option for self employed), these can often be an allowable deduction. If your business is looking to obtain that additional deduction, it may be worth looking to pay these amounts before 30 June (even earlier to allow for super fund processing times – many accounting software providers and complying super funds require at least 7 days processing time). For reference for employing entities, June quarter superannuation is not due until 28 July, by bringing this payment forward into June it can enable an additional 2021 FY income tax deduction.
- Invoicing (timing)
If your business operates on a cash basis, and many small businesses do, then you’ll be taxed on income actually received in the bank on or before 30 June. Keep this in mind when creating invoices and taking deposits for any upcoming work.
Alternatively, if your business operates on an accrual basis, then you’ll be taxed on income as per invoice date. So, if there is any work that you’re due to commence in the coming months, consider if the invoice could be created in July or beyond to push out the related income tax payable.
Disclaimer: For all work that has been completed, we do not recommend delaying invoicing for the sake of reducing potential taxable income in 2021 FY, rather consider the timing of creating invoices for any pending future work. If you’re unsure whether your business operates on cash or accrual basis, check with us (or your respective accountant).
*All tax agent services provided are authorised and completed under the supervision of Mode Bookkeeping Pty Ltd (registered agent number 25221498).
If you’d like to discuss any of the information listed here, please feel free to reach out via email here.
Team at Oceans