Small Business Tax Deduction Checklist

Here's a list of small business tax deductions to assist with minimising your taxable income.

Recognise income in advance

If your business receives payment for services in the current financial year that will only be provided in the next financial year, this income can be deferred to the following financial year. Ensure your accountant is aware of any sale transactions to which this applies.

Bring forward expenses

Consider bringing forward expenses such as maintenance, repairs, consumable purchases or customer gifts. To claim a deduction in the current financial year these costs must be incurred by 30 June.

Prepay expenses

You can claim a deduction for expenses prepaid in the current financial year, even if the benefit provided will only be received in the following financial year. For example, a business can prepay rent for the next financial year and claim the deduction in the current financial year. This will lock in the cost for the next twelve months, and some landlords or suppliers may offer a discount for up-front payment.

To claim a deduction in the current financial year, your business must have an aggregated turnover of less than $50m, and the benefit provided must not extend beyond 30 June of the following year.

Adjust the timing of renewals

Consider adjusting the renewal dates for insurances and annual subscriptions to align with the financial year end, which will allow you to maximise your prepaid expense deductions in the current year.

Stock valuations

It is important to complete a stock take at least once at the end of the financial year to ensure your financial statements are accurate. Including old and obsolete stock at cost in your inventory valuation incorrectly increases your net profit and income tax expense. Complete a stock take as close as possible to 30 June and consider writing off any old or obsolete stock. Copies of stock counts and valuations should be kept on file.

Stock can be valued at cost price, market selling value, or replacement value. You can choose a different method each year for different items of stock, which provides tax planning flexibility.

Scrap obsolete plant & equipment

Review your asset register for obsolete or defective items of plant and equipment and consider scrapping and writing off these assets at 30 June where appropriate. Ask your accountant for a current copy of your asset register to assist with this.

Access the simplified depreciation rules

Businesses with a turnover of less than $10m can opt in for the simplified depreciation rules. Under the small business simplified depreciation rules, assets that cost $20,000 or more are added to a general small business pool. Assets allocated to the pool are depreciated at 15% in the first year, and at 30% each year after that. Note that vehicles over the car threshold limit have limited deductions. If opting in for the simplified depreciation rules, all assets costing more than the instant asset write off threshold must be pooled.

Example 1: Purchasing a vehicle in June

• Under the normal depreciation rules, if you purchased a utility vehicle for $60,000 on 1 June, the maximum depreciation you could claim would be $1,250. Under the simplified depreciation rules the 15% depreciation rate would result in a $9,000 deduction. (Simplified depreciation rates provide a larger deduction).

Example 2: Purchasing a vehicle in July

• Under the normal depreciation rules, if you purchased a utility vehicle for $60,000 on 1 July, the maximum depreciation you could claim would be $15,000. Under the simplified depreciation rules the 15% depreciation rate would result in a $9,000 deduction. (Normal depreciation rates provide a larger deduction).
  

If you elect to opt out, you cannot re-enter for 5 income years. Make sure you consider the options carefully before making the choice to opt in.

Maximise depreciation deductions

Businesses opting in to the simplified depreciation rules are able to to fully expense the cost of new and second-hand eligible assets costing less than $20,000 in the first year the asset is used or installed ready for use. Consider bringing forward the purchase of any plant and equipment or lower value vehicles costing less than $20,000.

Note that for businesses registered for GST the $20,000 threshold excludes GST. Unless extended, this measure is expected to end on 30 June 2025.

Write off bad debts

Review your trade debtors and consider writing off any bad debts before 30 June where appropriate.

Generally a debt is considered irrecoverable when it has been outstanding for at least 12 months, you have taken all reasonable steps to recover the debt, and there is no reasonable expectation of recovery.

Pay superannuation early

Superannuation payments are deductible in the year in which they are paid. Consider paying your June quarter super contributions by 30 June to claim the tax deduction in the current year.

Interest Deductions

Deductibility of interest depends on the use to which the borrowed funds are put, regardless of what security was provided for the loan. Always focus on reducing your home or personal loan balances before reducing any business loans or other tax-deductible borrowing.

You may be able use the equity in your home as collateral to borrow money for business purposes. If you are considering this option, check whether your lender can set up a second loan for the additional borrowing, so the deductible interest portion can be easily managed. We recommend you speak to your accountant before redrawing your homeloan for business purposes, to help you maximise the deductible interest amount.

Consider providing staff with work uniforms

Consider elevating the appearance of your team by providing staff with a work uniform. Businesses can claim the cost of providing staff with work uniforms regardless of whether the uniform has a business logo.

Bring forward employee bonus deductions

Where you have ‘definitely committed to’ paying employee bonuses by 30 June, a deduction can be claimed in the current year even if the bonus is paid after 30 June. Any accrued bonuses need to be paid within a reasonable time after year end. The directors or trustees should pass a resolution prior to 30 June to make the payment, and the employer should notify the employee of their entitlement to the bonus before year end.

The employee is taxed on the directors fees or bonus in the financial year it is received.

Offer employees to cash out annual leave

Consider giving employees the option to request the cashing out of a portion of their annual leave balance, to claim an additional deduction in the current financial year. Each time an employee's wage increases, the value of their annual leave entitlement balance increases. Paying out annual leave reduces the impact future pay increases have on the annual leave entitlement balance.

Besides providing an additional tax deduction, cashing out leave may assist employees to reduce their personal or home loan balances, reducing their interest payments and helping them get ahead financially.

To claim a deduction in the current year, the leave must be cashed out in a pay run with a payment date on or before 30 June. The employee should make the request in writing and a copy should be saved on the employee’s file. In most states an employee’s annual leave balance must not reduce below 4 weeks.

Gift cards

Gift cards can be a good way to provide gifts to staff for birthdays or anniversaries. Providing the gift card value is less than $300 and that such gifts provided to employees are infrequent and irregular, you can claim a tax deduction for the cost of the gift card. Woolworths and Coles both allow you to purchase gift cards online for $299 allowing you to maximise the 'less than $300' deduction limit.

Gift cards must be physically given to employees prior to 30 June to be deductible in this financial year.

Maximise individual tax thresholds

Business owners receiving income through dividends and trust distributions should consider maximizing their lower income tax thresholds in the current year, as unused lower income tax thresholds cannot be carried forward to future tax years.

For example, where a couple has a taxable income of $165,000, an income split of $130,000/$35,000 would not be tax effective as the lower income earner would not be utilising $10,000 of their $45,000 income tax threshold (19% tax), while the higher income earner would be above the $120,000 income tax threshold (37%). An extra $1,800 tax would be payable.

Employing your family

If you operate your own business, consider employing your spouse or older children within the business. Wages paid must be appropriate to the work performed and should not exceed market rates for that role. Regular employment records should be kept. Superannuation is not payable on payments made to an employee under 18 years old unless they work more than 30 hours in a week.

Donations

Consider bringing forward charitable donations to the current financial year to increase your deductions. Ensure the charity is listed on the Deductible Gift Recipient (DGR) register to make sure your donation will be deductible. https://www.abr.business.gov.au/tools/dgrlisting

To be deductible there must be no expectation of any material benefit or advantage in return.

We trust you found this checklist helpful. If you need any help to take advantage of any of these deductions, please don't hesitate to contact our friendly team on 07 4635 4616.

Disclaimer

We believe this information to be correct at the time of publication. It is general in nature, does not take into account your personal financial situation, and does not constitute formal advice. You should always seek advice from your accountant or financial planner before making any decisions in relation to any of the content provided.