End of year tax planning
Year End Tax Planning
Below is a fairly comprehensive list of pre-end of year actions to consider…remember most of them require funds!
Firstly, if you have any old accounts receivable (monies owed to you), write them out of your books before 31 March. You are still able to chase them; they just have to be written out of your ledger.
If you have employees who are taking annual leave between April and mid-June, these may be accrued in the March reports.
While it is possible to purchase assets (vehicles, plant, etc) prior to balance date, this is of limited value for tax purposes, as you are only able to claim depreciation, and then only for the number of months you have owned the asset. We can assist with advice about depreciation rates, and also if you are intending to sell any assets, we can advise about taxable loss on sale, on an asset-by-asset basis.
If you have plant or other assets on your books that you are no longer using, review the fixed asset register. Ensure the assets exist and identify assets that are no longer used in order to claim a deduction for the remaining adjusted tax value of the asset.
Assets can be written off if they are no longer used but have not been disposed of, provided:
- The asset is no longer used by you in your business or to produce income and;
- Neither you nor an associated person intends to use the asset in a business or in the future to derive gross income; and
- The cost of disposing of the asset would be more than any proceeds from disposing of the asset; and
- The asset is neither a building nor an asset being depreciated using the pooling method.
Certain types of expenditure can be claimed as a tax deduction in the year in which they are incurred regardless of the fact that the good or service will not be used until a future year, but only if they have also been expensed for financial reporting purposes. Some of these prepayment concessions have a dollar limit and/or a limit on the length of the period after year-end. The following prepaid expenses could be claimed in the 2019/20 income year:
- Advertising for up to 6 months after the balance date and not exceeding $14,000 in total;
- Insurance for up to 12 months after the balance date as long as the premiums incurred during the year for the contract do not exceed $12,000;
- Rates to the extent of the amount invoiced on or before balance date;
- Subscriptions or fees for membership in any trade or professional association, for up to 12 months after the balance date as long as the expenditure incurred during the year for membership in the association does not exceed $6,000;
- Advance bookings for travel and accommodation, to be used within 6 months after balance date and not exceeding $14,000 in total;
- Service or maintenance contract for plant, equipment or machinery, for up to 3 months after balance date, as long as the expenditure incurred during the year for the contract does not exceed $23,000;
- Use or maintenance of telephone and other communication equipment for up to 2 months after balance date (amount is unlimited);
- Consumable aids (i.e. items that do not become a component of the finished stock, e.g. oil, grinding wheels, chemicals, wrapping and packaging) not exceeding $58,000 in total;
- Stationery, subscriptions for newspapers, journals or other periodicals, and postal and courier services (unlimited);
- Vehicle registration fees, drivers license fees and road user charges (unlimited);
- Other services for up to 6 months after balance date, and not exceeding $14,000 in total;
- Other periodic charges for up to 12 months after the balance date, and not exceeding $14,000 in total.
Repairs or Maintenance Expenditure
Broadly, repairs and maintenance expenditure is deductible only to the extent it has been incurred. There is also a fine line between a deductible repairs and maintenance expense (deductible) and capital expenditure (non-deductible). You may wish to consider accelerating repairs and maintenance expenditure to claim deductions. A confirmed order of works may suffice – talk with us.
Trading stock on hand at year end must be valued, subject to meeting the relevant criteria, using one of the prescribed methods: cost; discounted selling price; replacement price or market selling value if lower than cost. Generally, these methods must be applied consistently. Provisions for obsolete stock or stock write downs are not generally allowed as tax deductions. Therefore prior to year end it is important to perform a stock take and to ensure that all obsolete stock is physically disposed of or is valued using one of the prescribed methods. Concessional rules apply to small taxpayers (annual turnover of $3 million or less). A further concession is that a person with turnover of less than $1.3 million per year can value their closing stock at the opening stock value, as long as the closing stock can be reasonably estimated to be worth less than $10,000. If you want to look at stock, discuss with us.