Here we go. Tax Time 2016!
You don’t look excited – that’s understandable. For most of us, the end of financial year (EOFY) is a time of frustration, regardless of our accounting knowledge. However, it’s also a great chance to look at how your business is tracking, allowing you to identify opportunities and challenges for the year ahead. It may not involve fireworks or flimsy fitness resolutions, but EOFY is the most important time on the calendar for small businesses.
Whether your accounting is outsourced or done in-house, you still need to balance the books from your end. Don’t leave yourself rummaging through scrunched invoices and receipts as you drown in a sea of numbers.
Get ahead of the game with this checklist for small businesses to help guide you through the EOFY mire.
What’s different in 2016?
Let’s start with a rundown of what’s new. There are some key changes to tax this year – many of them pertinent to small business. While you’re likely to have heard about some already, here are some useful updates to look out for:
For businesses with aggregated annual turnover under $2 million, you can immediately deduct the full cost of depreciating assets under $20,000 (the current write-off threshold).
For depreciating assets that cost more than $20,000, you can pool them together and claim a 15% deduction in the first year, followed by a 30% deduction each subsequent year.
Company tax cuts for small businesses
As of July 2015 (ie. the financial year just gone), the small business company tax rate dropped from 30% to 28.5%. Again, this applies to companies with aggregated turnover less than $2 million. For businesses above that threshold, the rate remains at 30%.
Immediate deductions for start-up costs
Small businesses can now deduct certain start-up expenses. This includes things like consultancy about your proposed business structure, as well as fees paid to government agencies in order to set up your business. However, it does NOT extend to travel costs or costs related to acquiring assets.
Small business income tax offset
Individuals are now entitled to an offset on tax payable on their share of net business income. This means that sole traders, partnerships and trusts acting as small businesses must calculate the net income of their business enterprise, as well as their individual share of it.
What do I need to submit?
Here’s a checklist of what the ATO will need from you. Tick them off as you go.
- Income tax return
- PAYG withholding payment summary annual report (14 July)
- Business Activity Statement (30 June/quarterly)
- ASIC annual report
- Fringe benefits tax return*
(*not-for-profit organisations only)
So where do I start?
Reconcile your payroll
All staff payments should be recorded by the end of June – ideally, you’ll already be on top of them. Ensure any outstanding invoices from contractors or freelancers are paid as well.
All employee PAYG summaries must be lodged with the ATO by 14 July. This enables your employees to file their own tax returns promptly and accurately.
Payroll tax thresholds are determined by each state, but businesses with an estimated payroll above $550,000 should check payroll tax rates for their state.
Also take some time to review staff salaries to make sure they’re in line with the appropriate awards and any other relevant regulations.
Be aware of debtors (and follow up)
Chances are you currently have customers or clients from whom you’re awaiting payment. Make sure you know where all your outstanding receivables are. If you need to write them off as bad debt, you can claim a deduction. This will reduce stress going forward and make sure all payments are accurate and accounted for.
Check your inventory
Think about what assets and investments your business currently has. You may be able to write off or write down the value of stock. Does anything need to be sold to offset losses?
In terms of equipment, run a stocktake. What will you need for the coming year? Even if you don’t need it until later on, it’s worth pre-ordering and paying for supplies/services in advance in order to deduct them on your next return.
Review your balance sheet and profit/loss statement
It’s one thing knowing how much money you have (or don’t have, as the case may be). Having your balance sheet reconciled and up to date means you’ll be able to provide a clear breakdown of items and identify where each amount has come from. Necessary for you and particularly for auditors.
Back up everything
You might well roll your eyes but this one’s pretty important so it bears repeating. Make sure your records can’t be lost as a result of fire, flood, equipment failure or any other potential mishap. Backup your files to cloud storage. Any excuse vaguely resembling ‘my dog ate it’ won’t fly with the ATO.
There’s an app for that…
It’s tough to stay on top of everything at tax time. Luckily, as business needs become more immediate in the digital economy, apps tend to pop up on cue to make our lives easier.
Here are a couple of free apps that might be useful at tax time. They’ll at least help to give you a running start for the new financial year.
This enables you to whip up quotes and invoices wherever you are.
- Genius Scan
Allows your phone to act as a scanner for receipts or other documents and export them to PDF files.
A convenient accounting resource, Quickbooks lets you access your accounts from any device. You can create invoices and see overdue payment notices. You can even do business easily in multiple currencies.
Another mobile accounting app to help you record receipts, reconcile invoices and lodge expense claims.
Thorough preparation for EOFY might not be fun, but it is necessary. Your future self will thank you for getting all your ducks in a row. It’s a fundamental step in safeguarding the longevity of your business.
You can also download our free financial year calendar: