Preparing for the end of financial year (EOFY) can feel like a daunting task but it’s also a great opportunity to plan for the future.
Finalising your bookkeeping and tax returns allows you to take stock of your business’s financial position and make better decisions for the next financial year.
Here’s what you need to know to get ready for EOFY and set up for success for FY 2020-.
What are the key dates I need to know for EOFY?
The end of financial year is 30 June so most of your EOFY activity will land in April, May and June. A detailed timeline of tax return activities can be found at the Australian Tax Office (ATO)’s Due Dates web page so you can determine the dates relevant to your circumstances.
A few things to note:
- Speak with your tax adviser in case there are concessional arrangements for which you may be eligible
- Fringe benefits tax annual returns are due by 21 May if lodged by paper and 28 May if lodged electronically
- Make sure to pay any super guarantee contributions by June 30 so they qualify for a tax deduction in the 2018-19 financial year.
Record keeping is key
These are the bookkeeping tasks that need to be completed by June 30:
- Profit and loss statement.
A summary of your income and expenses.
Check your inventory and keep records so you can get deductions.
- Record of debtors and creditors.
See what accounts are owing which accounts you’re due to pay.
- Records of asset purchases and expenditure.
This is so you can calculate the depreciation expense claims and for capital gains tax purposes.
- Income tax returns.
Tax returns can include a bank reconciliation report, balance sheet and trial balance, general ledger report and payment summary.
Make sure you’re up to date with your super guarantee payments.
- Other yearly reports.
Every business will be different but you may need to lodge returns for PAYG withholding, fringe benefits tax (FBT), Goods and Services Tax (GST), and the taxable payments reporting system.
Professional help makes a difference
Consider working with a tax adviser to get the correct information consolidated and lodged by the due dates. Advisers can also sit down with you to review your cash flow and stay on top of any changes in tax laws. If you don’t have an adviser, subscribing to ATO’s publications is a good way to keep across any changes.
Using a POS like Square will help you keep track of your sales data throughout the year and accounting software like Xero is invaluable in keeping your bookkeeping in order. If you’re not already, it’s worth assessing the software options and going digital. Square neatly integrates with MYOB, Quickbooks and Xero among others.
Watch out for tax refund scams
Scammers target small businesses at tax time so keep your wits about you when you see claims like:
- You’ve overpaid your taxes and are eligible for a refund but first you have to pay an administration fee (tax refund scam).
- You’ve underpaid your tax and will need to repay the amount you owe using your credit or debit card details (tax owed scams).
Note the ATO will not email you asking for your bank details or tax file number (TFN).
You can claim deductions for most of your business expenses if they relate directly to earning your assessable income.
The ATO has three golden rules for claiming your expenses:
- The money must have been spent for your business, rather than on personal expenses.
- If the expense is for both business and private use, claim the portion that relates to your business. For example if you claim your rent but only work from home 3 days a week, you claim 43% of your rent.
- Have the records to prove it!
If you’re a sole trader you claim business deductions in your personal tax return. Read more about the tax differences between business structures here.
What you can claim
You can generally claim:
- Operating expenses (such as office stationery and wages) in the year you incur them.
- Capital expenses (such as machinery and equipment) over a longer period of time.
Some things you can claim include your website, travel expenses, phone and internet expenses, tools and computers.
The ‘incur date’ of the expense is when you’re legally obliged to pay it. Note that capital expenses should be adjusted for the portion of the year the equipment (like a car) is used for the business.
What you can’t claim
The following can’t be claimed as a deduction:
- Traffic fines.
- Entertainment expenses.
- Private or domestic expenses like childcare fees or clothes for you and your family.
- Expenses relating to earning income that is not assessable, like money you earn from a hobby.
- The GST component of a purchase if you can claim it as a GST credit on your business activity statement.
Claiming a deduction for a pre-paid expenses
If you pay an expense in advance (where you pay for something that you won’t receive until the next financial year, for example) you usually need to divide up the expense across the whole service period. That’s if the expense is $1000 or more and you either won’t receive the goods or services in full within 12 months or it’s not eligible for immediate deduction. Read more here.
Protect your business
If your business circumstances have changed throughout the year, now’s a good time to review your insurance options, including level of cover. An insurance broker can help get you the level of cover that suits your business and for the best price. As well as compulsory insurance, including worker’s compensation and public liability, there’s other types of insurance that you may need to consider.
Your strategy for next year
When you have all of your financial information together, you can step back and review the position of your business. Some things you can consider doing:
- Review your pricing.
- Set sales targets for the 2019-20 financial year.
- Prioritise projects based on their profitability.
- Make marketing strategy adjustments based on changes in the marketplace.
- Create a cash flow forecast to help you manage your incomings and outgoings.
If you are unsure about your end of financial year obligations, visit the ATO’s website or call 13 28 66, or talk to your tax adviser.
*Nothing in this article constitutes tax advice. If you have specific questions on filing your taxes, please consult a professional. *