19th May, 2022
For bigger businesses and growing companies, here are the main areas of focus for tax planning ahead of EOFY.
This is a crucial time of the year from a business strategy and planning perspective.
Of course, your business must lodge a tax return each year, and you may need to lodge your Business Activity Statements more regularly, depending on your business structure.
With careful consideration, solid recordkeeping processes and excellent advice from qualified experts, you can effectively minimise your business’s tax burden.
Known as tax planning, this process involves reviewing your current business, asset and liability position before the end of the financial year. This helps give you a better understanding of where the money you’re earning is going, and enables you to identify opportunities or concerns for your business.
Getting these processes right means that business owners have the chance to implement strategies before 30 June to better manage their company’s tax position.
Finance teams will no doubt be preparing a number of key reports that are required at this time of year.
FREE DOWNLOAD: 6 critical reports and how to make them work for you
Business owners need to keep accurate records of financial transactions under Australian tax law. This includes documentation explaining how the income and expenses were calculated, as well as documents supporting these calculations and any other financial decisions made throughout the year.
For example, if you’re claiming kilometres for car use, you will need to have supporting documentation to support the percentage of the cost you’re claiming through tax.
Finding ways to improve the accuracy and fidelity of recordkeeping without adding significant costs or administrative burden is a key aspect of business planning in general, which is why complex organisations turn to cloud-based enterprise resource planning (ERP), workforce management (WFM) and more.
Tax is an inevitable part of being in business, but at this time of year, business owners and their advisors will take time to review their liability and consider policies to help reduce it.
Common tactics used for this purpose may include:
As a result of COVID-19, the threshold of the Instant Asset Write-Off has been lifted from $30,000 worth of asset purchases to $150,000 for the 2021-22 financial year for eligible businesses.
ATO Assistant Commissioner Tim Loh says the ATO will take firm action to deal with taxpayers gaining an unfair advantage by deliberately trying to increase their refund.
“We know there are still some weeks left until tax time, but if you start organising the income and deductions records you’ve kept throughout the year, this will guarantee you a smoother tax time and ensure you claim the deductions you’re entitled to,” said Loh.
You might also like to consider how the recently announced Digital Tax Incentive may change your investment into digital subscriptions in the year ahead. This incentive is designed to offer a 120 percent return on any online products used in your business.
The measure was announced in the recent Federal Budget, but has not yet been passed into legislation, making the Digital Tax Incentive one to watch in the second half of 2022.
Your business may be eligible to claim Temporary Full Expensing or Loss Carry Back in this year’s tax return.
Temporary Full Expensing allows eligible businesses to deduct the business portion of the cost of eligible depreciating assets that have been purchased and installed before the end of the financial year.
The Loss Carry Back measure enables eligible businesses to receive a refundable tax offset if they choose to carry back losses made in the last financial year.
A number of government payments have been made available in response to recent natural disasters and COVID-19.
Making the most of these as a business can help improve your position for the year ahead, as well as having potential impacts for your tax position.
Examples of these payments include:
Read more about government payments here.
To know where you’re going, it’s really important to look at where you’ve been.
Leaders therefore dedicate some time during the end of financial year period taking stock of how the business is performing against the backdrop of external events such as the pandemic, any weather events and ongoing supply chain issues faced by many in business.
Questions that will be asked by finance leaders include:
EOFY is the best time to consider the overall health of your business.
Bear in mind that potential investors look for a key measurement to understand the health of a business. While profit and loss statements are useful, financial ratios that connect and compare the various numbers on the balance sheet or income statement are more useful.
The four main areas of financial health are liquidity, solvency, profitability and operational efficiency.
This refers to the business’s ability to pay off short-term liabilities, usually measured as a ratio of what is owed versus what is owned.
Solvency is an important measure of long-term health. It refers to the ability to meet long-term debts and financial obligations.
How profitable the business is, which is most commonly calculated by looking at how much a business is able to generate in earnings at a given point in time.
This metric helps measure the efficiency of profit earned as a function of operating costs. The greater the operational efficiency, the more profitable a firm or investment is because it can generate greater income for the same or lower cost than an alternative.
Get good busy by getting ahead on your tax time activity this year with the help of MYOB’s EOFY calendar.