With the end of the tax year approaching, it’s time to take action to minimise the tax liability for your retail business. Here are my top tips for end of year tax planning:
Take advantage of the small business $30,000 asset write off
One of the best tax breaks for small business remains the instant asset write-off and with many businesses offering end of financial year promotions, now is the ideal time of year for your businesses to take advantage by acquiring some much needed capital assets to build your business and, at the same time, reduce your taxable profits.
Better still, the tax break has recently been made more generous. Assets costing up to $30,000 can now be written off immediately (previously $20,000 up to 29 January 2019 then briefly increased to $25,000 for item acquired between 29 January 2019 and 2April 2019; the new $30,000 limit applies to any qualifying asset purchase made after 2 April 2019). In addition, more businesses can make a claim; previously available only for businesses with an aggregate turnover of less than $10 million, that turnover threshold increased to $50 million from 2 April 2019.
Amongst the items you could look at claiming are the following:
- Cash registers and other POS devices
- Delivery vans
- Store fittings and fixtures
- Computers, laptops and tablets
- In store security systems
- Accounting software
Prepay expenses
You can get an immediate tax deduction for certain pre-paid business expenses. The basic rule is that a deduction is available for expenses that cover a period of no more than 12 months. That covers expenses such as insurance premiums, telephone and internet services, subscriptions to trade or professional bodies, rent or leasing charges on your retail premises and bookings for seminars, conferences or business trips.
Write off bad debts
No business wants to be in a position where they can’t recover outstanding debts but we have to be realistic and acknowledge that it does happen sometimes. The good news is that if your business has to write off a debt, a tax deduction is available for the amount of the debt written-off.
A debt that is unpaid and deemed to be a bad debt is an allowable deduction provided it was included as assessable income in the current or a previous income year.
At this time of the year, it makes sense to go through your debtors list and if there are any debtors on it who you believe can’t or won’t pay, write off those debts by 30 June to claim the deduction this year. The business must keep a written record to document that the debt has been written off.
Pay superannuation
Employers have to pay superannuation contributions for within 28 days of the end of the quarter. Ensure that all June quarter superannuation contributions are paid by 30 June to accelerate the tax deduction. Note that contributions must be actually paid, cleared in the business bank account and received by the employee’s super fund before 30 June for a tax deduction to be available.
Get the right trading stock valuation
Trading stock can be valued using different methods for taxation purposes, either at cost, market value or replacement value. The only requirement regarding changing methods is that the closing stock value at the end of one tax year must become the opening trading stock value for the next year. Changing the valuation method at year-end for tax purposes can either bring forward or defer an amount of taxable income so it pays to look closely at the method adopted.
Businesses with an aggregated turnover of less than $10 million can also choose not to do a stocktake where the value of their trading stock has not changed, either up or down, by more than $5,000. In that case, include the same stock value at year-end as at the start of the year―that is as if not change had occurred.
Damaged and obsolete stock can be written down or written off entirely and a tax deduction claimed.
By Mark Chapman, H&R Block’s director of tax communications
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