5 last-minute EOFY tips for small business owners

Small business owners have managed a heroic amount of change in the past 12 months, which is going to impact their EOFY. Here are five things to watch.

COVID-19 has impacted almost everything over the past 12 months, so it’s important that small business owners keep an eye for how it might have impacted their tax situation.

And for the best advice on your individual situation, your first port of call of is an accredited tax advisor.

Emma Murphy, associate tax and business advisor (ATBA) at Kiwitax, is one such expert, recently offering some EOFY tips for readers of Stuff.co.nz.

‘From pivoting business models, to significant changes to business operations, to making the most of the various government support, the resulting fluctuations in both revenue and overheads will affect final tax calculations,’ wrote Murphy.

The following is a summarised list of Murphy’s top-line pointers. See the full article, here.

1. Understand how wage subsidies impact your tax position

• Wage subsidies, when drawn for the business owner, are classed as taxable income
• Wage subsidies for employees aren’t classed as taxable income
• Businesses can’t claim an income tax deduction for pages paid out of the subsidy, but ‘nor are they liable for paying GST on the subsidy payments’

‘Lastly, if annual leave was used to top up wage subsidy payments, the top up amount can be claimed as a full deduction,’ wrote Emma.

2. Loan repayments and interest-free periods

• There’s no tax deduction for the Small Business Loan scheme repayments but, interest and administration charges of business loans are deductible
• If a business borrowed from the Small Business Loan scheme, they’ll be able to claim against the interest once the interest free period ends

‘For many small businesses, this will be the first time they have accessed finance and had to venture into loan coding.

‘To meet obligations, it’s important that loans are coded into software correctly,’ wrote Emma.

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Additional consideration should be given for any interest-charging loans, where repayments need to be split ‘between an interest expense account (to claim a tax deduction) and a principal loan repayment account (which will not claim a deduction)’.

3. Provisional tax refunds due to revenue loss

• Businesses expecting a revenue loss in 2021 can request a refund of provisional tax paid in 2020
• Provisional tax can be re-estimated until the return is due for filing (31 March)
• Businesses can avoid a surprise tax bill next year by working with an accountant to calculate expected losses

Also, the government has increased the provisional tax threshold from $2500 to $5000.

‘This means, businesses that expect a tax liability of under $5000 will not be required to pay provisional tax payments throughout the year,’ wrote Emma.

These businesses will have until 7 February, 2022 or 7 April, 2022 to pay their bill in full, so long as they’re linked to a tax agent.

‘This initiative will assist cashflow by allowing small businesses to retain cash for longer and reducing compliance costs.’

Unfortunately, this will result in a one-time, large payment, which Emma said will cause businesses to consider how to adjust their tax position throughout the year.

‘To prepare for this, businesses should routinely put aside money for this bill, working with their business advisor to adjust their tax throughout the year,’ she wrote.

‘Unexpected revenue and expense fluctuations will affect the final bill amount, so savings may need to be adjusted accordingly.’

4. Tax Carry-Back Scheme for those in profit

Emma advised that, ‘like the provisional tax calculation, if a business made a profit in 2020 but estimated a revenue loss in 2021, they can claim that loss against previous (2020) profit’.

The callout here is that the entity must retain their profit — businesses that transfer profits to shareholders via a shareholder salary won’t be eligible.

READ: How useful is the Temporary Tax Loss Carry-Back Scheme?

5. Write off new assets strategically

• Before 16 March, the assets threshold had been upped to $5000
• After 16 March it decreased to $1000
• Equipment purchased under the threshold amount can be treated as an expense for offsetting tax

‘This is a great opportunity for businesses considering new equipment, as previously, equipment over $500 would only be eligible to claim year-on-year depreciation rather than the full amount.

‘Businesses should, however, take care with more expensive purchases – it’s a common mistake to make a purchase over the threshold thinking that they will offset their tax bill.’

NB: As we are now passed the 16 March, businesses should take note the threshold is currently $1000.

Emma also highlighted the importance of writing off any expired stock, which many businesses may have on hand following a year of disruptions.

‘This should be written off on the stockholding that is done on March 31, and will also impact the final tax bill.’

Emma Murphy is an associate tax and business advisor (ATBA) at Kiwitax, a Diamond Partner of MYOB.

The above information does not constitute individual tax advice and any business owner wanting to learn more about their specific situation is recommended to see an accredited professional. Start your search for an advisor near you now.