With the end of financial year period approaching, now’s the time for your business to take advantage of upcoming EOFY sales. We spoke to Dr Adrian Raftery, principal of Mr Taxman and author of ‘101 Ways to Save Money on Your Tax – Legally!’, to explain how to prepare for the upcoming tax planning season and make the most of EOFY sales.
What should businesses do to prepare for EOFY tax planning?
“A great place to start EOFY tax planning for your business is to look at your actual year to date profit and loss and see how your business is tracking. I recommend starting this discussion after the March quarter Business Activity Statement has been completed, which is usually towards the end of April, as this will give you nine to ten months of business performance. From there, plan the cashflow forecast to June 30 more accurately and have enough time for tax planning in May and June,” advises Dr Raftery.
“If the business has set expenditure budgets, you’ll want to ensure that you spend your quota rather than letting it lapse or spending frivolously on items that may not be used on or just before June 30,” says Dr Raftery.
How can EOFY sales benefit businesses?
“EOFY sales can serve five main purposes to benefit businesses,” Dr Raftery explains. These include:
Reducing the potential tax bill by lowering profit for the year with more deductible expenses before June 30.
Accessing great deals and effectively increasing future profits with discounted items.
With the right equipment, creating more efficiencies and reducing costs and stress in the future.
Kickstarting office projects such as backing up systems or storing away old files.
Opening up the future with new product lines or add-on services simply with the purchase of new equipment. This is dependent on the skillset of employees and capacity (both in terms of time and space). If there is one lesson that businesses can learn from the past year and the pandemic, it would be the importance of making businesses more adaptable.
What are your top spending tips for SMEs and large businesses?
“It’s important to understand the tax rules relevant to your organisation as there are some great tax concessions for small businesses each year.
“If your business turns over less than $10 million increasing to $50 million from July 1, 2021, you can claim a tax deduction for the prepayment of expenses up to 12 months in advance and elect to forgo stocktakes if your stock is within $5,000 from last year’s closing value,” says Dr Raftery.
“When it comes to asset purchases, larger businesses would have missed out under the old Instant Asset Write-Off rules, but they will now be eligible for the Temporary Full Expensing concession in 2020-21 and 2021-22. Over the next two years, a business with a turnover under $5 billion can immediately deduct the business portion of the cost of eligible new depreciating assets this year regardless of its cost under this concession. For second-hand assets, your turnover must be below $50 million to qualify. The exception to this rule is for motor vehicles as the deduction is capped to the business portion of the car depreciation limit of $59,136,” informs Dr Raftery.
Loss Carry Back Tax Offset
“Further to this, if your business has a turnover under $5 billion, you are also eligible to claim back the tax paid in a previous year under the new Loss Carry Back Tax Offset rules.
“This has great cashflow benefits as you help fund an asset purchase that generates a tax loss now, rather than wait until profits are made in future years. Note that aside from the turnover requirement, this concession is only eligible to businesses structured as companies with sufficient franking credits, and not available to sole traders, partnerships nor trusts,” says Dr Raftery.
Any advice for businesses looking to take advantage of EOFY sales?
Dr Raftery provides his top three tips for responsible and smart business spending during the EOFY sales:
Ensure all purchases are tax deductible but don’t spend purely for a tax deduction. If you are running a business via a company note that you are only getting 26 per cent back.
Spend wisely. Make sure what you purchase will benefit your business now or in the future. Will it make things cheaper or easier for you? Consider what will save you money and/or effort in the future.
Cashflow is king. Make sure your business can afford to continue to operate and meet your regular commitments such as wages, superannuation, taxes and supplier payments. You may need to talk with the bank to either help your cashflow from time to time or finance some big-ticket items. Cashflow management and debt management is key.