I know many of you are wondering where that first half of the year went. Already we are approaching the end of financial year and everything that involves it. I wanted to get in early with this article to give you as much time as possible to prepare. We do see some clients who leave it all to the end and then are in a frantic rush to meet deadlines. Every business is different, but hopefully, this list of reminders will get you thinking and might even form the basis of a bit of a checklist for you and your business to ensure that you’re prepared, organised and ready for a successful and smooth end of financial year.
Tax Returns for last year. If you haven’t already had your tax returns done – then this should be a priority. If you’ve not sent everything to your accountant, then make that a must do task for now. If you have sent everything in (and more than just a week or two ago) then follow up with them. If it was months and months ago, then there should be no excuse to not have that work done, lodged and completed.
Bookkeeping current? One should never assume. Because you’re in business and likely GST registered, one would expect your bookkeeping is current, at least up to the 31st March quarter, however that can sometimes not be the case. Whether you have an external bookkeeper or do it yourself, make sure that the data entry is up to date. All bank accounts should be reconciled to at least the end of April. Clearing accounts should actually clear. Bank reconciliations should not have a heap of outstanding items in them, especially deposits which should clear instantly. You should ensure that if you have a ‘suspense’ or ‘queries’ account that this has now been cleared out. Have all cash dockets been entered? If you run a petty cash account, is this current and update to date? Don’t forget also credit cards which are run through the file. Essentially make sure your file is current, up to date and as accurate as possible. Likewise, your BASes should be all lodged, current and paid.
Tax File Numbers. If you employ staff, then it’s important that you have all current information in order to produce the Payment Summaries (aka Group Certificates). Ensure that all current employee cards have an address entered. Also, ensure emails and addresses are entered. It may be worthwhile to put out a memo or email to staff to have them update the payroll department if their email address has changed or they have moved. So much time is wasted months after Summaries are issued because staff have moved and not alerted the payroll department and then requesting reprints of summaries be issued.
Tax Planning. Now is an exceptional time for tax planning. This is not an excuse for accountants to just charge a fee, there is real value in planning BEFORE 30 June. Once 30th June rolls around many options become unavailable; the most well-known being topping up your superannuation. As soon as the March quarterly BAS is done, and your bookkeeping is current, it’s a great time to make an appointment and meet with your accountant, or to send in interim figures. This tax planning isn’t just about tax minimisation, it can also involve structure reviews, to ensure you are still in the best business accounting structure for your current situation. What was best say three years ago may not now be best.
Maximising Deductions. A common year-end action is maximising your deductions. Commonly, businesses will stock up on materials or stationery or get their vehicles serviced and any vehicles requiring new tyres, then this is done before 30th June. However, I should warn against two aspects of maximising deductions. Firstly, it should be relevant to you. Not every business should be doing this and particularly if next year is likely to be quite different. This is where planning comes into play and you do what is right for you – not what the masses simply do. The other aspect is that if you are endeavouring to maximise deductions (perhaps because you’ve had a very successful year) then be smart around what you buy. There is often the temptation to buy ‘toys’. Get a new vehicle or buy a piece of machinery you would like. Firstly, ask yourself if you actually need this item, or you’re just trying to spend? Also, ask yourself whether the item will be of value and generate income? That is, will it be a good return on your investment? Next important thing is the value. At present we have accelerated depreciation which is levelled at $20K per annum. This means (if you are a small business with a turnover of less than $10M) you can spend up to $20,000 and get an immediate write-off. That is – the item is fully claimable in the year it was purchased and doesn’t need to be depreciated. However, if you buy say a vehicle worth $40K then that item will be depreciated over a number of years, so the full amount is not deductible in the current year and won’t fully reduce your taxable income.
Wage Levels. Your accountant needs to look at the big picture, of both you and your business. You need to plan what wage levels you should draw for the year and get a plan in place. We know that as a taxpayer the last thing you want is a nasty surprise, so allocating a large wage which will need PAYG allocated at last minute without notice may be a burden on your cash flow. We look at your financial position, planning and cash-flow. You cannot consider one without the other. Again, this is another reason why tax planning is so beneficial.
Defer income – it at all possible you should defer issuing invoices until after 1 July 2019. This way that income will be included in the 2020 tax year rather than the 2019 tax year.
Pay employee superannuation – if cash flow allows it, ensure your June 2019 employee superannuation is paid by 30 June 2019 to secure the tax deduction in the 2019 tax year. This payment must clear the bank account prior to 30 June 2019 for it to be considered a deduction, so make sure you pay it a few days before 30 June so it clears in time.
Write off any bad debts – do you have any outstanding debtors that are unlikely to pay. If so, you should consider writing these off prior to 30 June 2019.
Like many aspects of business, end of financial year takes a bit of planning and organisation. If you have to perform stocktakes, then ensure you have staff around. If this is your busiest period, then you may ensure all your staff are not going to be on annual leave. If you’re looking for a forward thinking and proactive accountancy firm, we’d love to hear from you. Just give One Minute Tax a call on 03 8899 7506 today to discuss how we can help you.