It is a busy time for most small businesses but it’s important to put aside some time to review your business’ assets and liabilities and prepare for the year ahead. To help you get your financial house in order before 30 June, we’ve taken a look at some tax concessions that may be available to your small business and strategies you can use to help minimise your end of financial year tax liability.
Before you begin, it’s important to clarify if your business qualifies as a small business entity. To qualify, you must have an aggregated turnover of less than $2 million.
You must also ensure that you satisfy one of the following criteria:
- Aggregated turnover for the previous income year was less than $2 million
- Aggregated turnover in the current income year is likely to be less than $2 million (note that this test cannot be used if business income in the last two years was greater than $2 million)
- Aggregated turnover for the current income year is actually less than $2 million, calculated at the end of the income year.
If your business fits the above criteria, you may now be eligible to access a number of tax concessions that could help reduce the end of financial year tax liability for your business.
Small business tax concessions
We’ve outlined a range of tax concessions that are available to your small business at the end of the financial year below. Once you’ve established which one(s) suit your business, make sure you check your specific eligibility.
1. Simplified depreciation rules for small businesses
- Assets valued at less than $6,500 will be immediately deductible1 (1)
- Assets valued at more than $6,500 depreciated in one pool at a rate of 15% in first year and 30% in future years
- The first $5,000 of a motor vehicle (with a cost of more than $6,500) purchased for a business is an immediate deduction (2)
2. Interest prepayments for which you can claim immediate deductions
As long as the service period is not more than 12 months, eligible businesses can claim immediate deductions for interest prepayments.
3. Goods and services tax (GST), and capital gains tax (CGT) concessions
Your small business can account for GST on a cash basis.
You may also be eligible for a range of CGT concessions, which can provide substantial tax savings. These concessions will be available if you have disposed of active assets in the current financial year, or you are looking to dispose of an active asset. To be eligible for the CGT concessions, your business must qualify as a small business entity or have net assets of $6 million or less.
4. Changing your pay as you go (PAYG) instalments
Small business owners should review their PAYG instalments and notify the Australian Taxation Office (ATO) if the expected profit for this financial year is lower or higher than previous years, so instalments can be adjusted accordingly.
There are a number of other ways you can look at reducing your income tax liability at tax time and the Australian Tax Office is the most trustworthy resource to do your research at this time of year.
Watch out for our next blog post which details eight more end of financial year strategies for businesses; small, medium or large.
For more information on your business and tax, click here.