20 small business tax planning tips for 2020

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person making notes to plan their taxes
Taxation
By
John Liston
John Liston
Director | Adviser
April 20, 2020
5
minute read

Reduce the tax your business pays in 2020 with these 20 smart tax-saving tips

As the 2019/20 financial year draws to a close you may be starting to think about your tax return.

These 20 tips will enable your business to take advantage of tax-effective planning, so you can keep more of your hard-earned money where it belongs.

Ever think you’re paying too much in tax? Liston Newton Advisory are experts when it comes to tax minimisation strategies. Contact us today to find out which strategies will be appropriate for your business, and how you can get started on these before the EOFY rolls around.

1. Pre-pay your expenses

Pre-pay some of your expenses for the coming financial year while you’re still in this financial year. This can be things like your rent, insurance, and subscriptions to any professional associations. Up to 12 months of the coming year’s expenses can be deducted in the current tax year.

2. Take advantage of the $150,000 instant asset write-off

This enables you to immediately deduct the business assets you purchase from your assessable tax, both new and used.

3. Review your invoicing

Review your invoicing for the current tax year and postpone some of them until the following year, if appropriate.

4. Contribute to your super

Top up your voluntary superannuation contributions. Remember, you can contribute up to $25,000 in deductible super contributions each year.

5. Review your debtors

Review your debtors and write off any unrecoverable debts. These debts will come off your income in the year in which you write them off, regardless of the year you invoiced them.

6. Are you using the right investment structures?

businessman using a tablet with blurred cityscape and financial graph in background

Review your business structure and personal assets, and where your investments are held. Some structures are able to take advantage of reduced or capped tax rates. For example, a company structure is capped at a 27.5% tax rate, which can make a big difference if your investments are generating significant income.

7. Make and document any trust resolutions

Prior to 30 June every year, the trustees of discretionary trusts are required to make and document their resolutions on how the income from the trust is distributed to its beneficiaries.

If a valid resolution isn’t executed by this date, any default beneficiaries become entitled to the trust’s income, and are subject to tax. For any income that’s derived, but not distributed by the trust, the trust will be assessed at the highest marginal tax rate on this income.

8. Take advantage of Early Stage Investment Companies

Investing in Early Stage Investment Companies (ESIC) allows you to take advantage of generous concessions. If you invest in a new company, the ESIC concessions entitle you to a 20% tax offset on the amount you invest. ESIC investments are also free from capital gains tax for a period of 10 years. So if you hold the investment for less than 10 years and you sell it, you won’t pay any additional tax.

9. Join an Early Stage Venture Capital Limited Partnership

This is similar to an ESIC structure, but is expanded to combine multiple investors. This type of investment allows you to gain a 10% tax offset on the amount of any investments made.

10. Take advantage of negative gearing on any investment properties

If the income you receive on your investment property is less than the expenses you pay to hold it, you can claim a tax deduction for this amount. However, be aware this strategy only works effectively when the underlying asset is increasing in value.

11. Look into income protection

Investing in income protection not only provides peace of mind that your family is taken care of should anything happen to you, but you can also claim it as a tax deduction.

12. Take advantage of depreciation

Review your depreciation schedule for obsolete items and write them off completely.

13. Delay deriving assessable income

Where appropriate, and if it won’t adversely affect your cashflow, consider deferring some of your assessable income until after 30 June. Generally, income is considered to be earned when:

  • The payment has been received
  • The goods have been provided
  • The services have been performed

However, this is only applicable if you’re registered for GST on a cash basis. If you’re registered under accruals, see tip #3.

14. Complete a stocktake

Review your stock valuation and write off any stock that is damaged or obsolete. Complete a stocktake, and remember that stock can be valued at the lower of cost or net realisable value.

15. Are you taking advantage of tax rebates?

person using a calculator to work out tax refund

Make sure you take advantage of all applicable tax rebates available to you. There are different rebates that may apply, including medical expenses, spouse super contributions, and educational rebates.

16. Update your vehicle logbook/s

Updating your logbooks ensure you're claiming the most accurate amounts for your motor vehicle expenses.

17. Know what’s on the ATO’s watchlist

Each year when it comes to tax time the ATO likes to let Australians know the things it’s keeping an eye on for that year. So, it pays to be aware of what’s on their hit list. Common items are home office expenses, motor vehicle costs, or education expenses.

18. Keep thorough records

The better tax records you keep, the more deductions you can substantiate, and the less tax you’ll pay. Keeping good records also ensures you can accurately deal with the ATO should they enquire about your tax returns.

19. Start your business exit planning now

If you’re thinking about selling your business, it's important to start planning now how you might exit your business in the future. Properly planning how to access capital gains tax concessions for small businesses can see you save hundreds of thousands of dollars in tax when it comes time to sell. So, there’s no better time to start planning than today.

20. Undertake strategic tax planning with your accountant

Great accountants look at two types of tax planning: short-term and long-term tax planning. Short-term planning looks at what you can do before 30 June to minimise your tax this financial year. Long-term tax planning looks at how you can utilise your business structure to minimise tax, and the type of investments you can make to minimise tax over the long term.

How Liston Newton approaches your tax planning

At Liston Newton Advisory we work with you to ensure your personal and business finances are as tax-effective as possible.

For every new client, we look your business' tax structure and conduct a review to ensure that all possible tax strategies available to you are being taken advantage of.

We meet with you prior to 30 June every year for a short and long-term tax planning session. In this session, we work through your finances to ensure you’re making the most of tax-effective planning.

We ensure you stay on top of your tax for the long term, and stay up to date with the latest legislation and tax strategies to ensure you don’t have to.

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