Just as summer brings heat, sand and sun, the EOFY brings stocktake, spreadsheets and tax. While many Australians’ wish sand and sun came with the EOFY, a simple perspective switch can turn a chore into an opportunity.
For a small to medium business owner, it’s time to prepare your paperwork, reconcile your accounts and check your expenses. This is a key time to check the financial health of your business and to work out ways to minimise your business expenses. One of the ways to add profit to your bottom line is to reduce your expenses and costs – and your tax. All of this will clearly be seen in your EOFY report.
So, what should you include in your EFOY report?
Profit and Loss Statement
Your businesses profit and loss statement (P&L) should show your income (or revenue) and your expenses (or costs) in separate, comparable columns. Your expenses should be subtracted from your income to show how profitable your business is.
Your P&L statement should reflect all of your business transactions for the year and should include every sale and fee you charged, plus interest earned as well as every dollar you spent on supplies, rent, utilities, payroll and loans. This information can get quite complicated, especially when depreciation of assets is included.
The balance sheet for your business will summarise your assets and liabilities. Assets are things that the business owns, such as capital equipment, vehicles and cash. Your invoice is also an asset, even if it hasn’t been paid yet. Liabilities include debts and bills. You can have received a bill and not yet paid it, but it will still need to be catalogued as a debt on your balance sheet.
The balance sheet shows which invoices have and haven’t yet been paid, and exactly how much money you are owed as well as what you owe to suppliers and lenders.
Current Assets: are items of value that can be consumed or converted into cash within the next 12 months. This includes payments from debtors.
Non-current assets: are items that are not expected to be consumed or converted into cash within the next 12 months. This includes vehicles, building and goodwill.
Current liabilities: are items that are expected to be paid in the next 12 months, such as credit card debt, tax owed, short-term loans and stock purchases.
Non-current liabilities: are items not expected to be settled within 12 months, such as mortgages and long-term loans.
A balance sheet is a snapshot of the financial position of your business that includes assets, liabilities and owner’s equity. It’s best to stay on top of your balance sheet during the year so you can see the real time cash position of your business. This will help you adjust your costs and expenditure to help keep your business afloat during the year. Record new assets as soon as you buy them and bring them into your business, make sure you record bills as soon as you receive them and use software that shows what has and hasn’t been paid.
Inventory needs to be declared as it is an asset. You’ll also be able to depreciate old and out of date stock as a loss. During stocktake, all stock items should be counted and assigned a value in order to work out your asset value. An accurate stocktake is important, as is writing off obsolete stock and missing stock and will have an impact on your Profit and Loss figure for the year.
Paperwork For Your Employees
At the EOFY, certain documents need to be finalised so that your employees can lodge their tax return. Finalise your payment summaries/income statements and how much tax, super and fringe benefits you have paid staff during the year.
Before 30 June
Before you run any report, you should first ensure that all of your details are finalised by the 30 June. This includes:
- Ensuring your accounting file is locked off and all bank accounts reconciled
- All costs and revenue have been finalised
- Ensure all principal and interest repayments are made and dividends declared
- Stocktake finalised
- Determine your tax obligations
- Collate the paperwork and records you’ll need to work out and minimise your tax
- Implement strategies to reduce your tax
- Review your vision, pricing, wages, superannuation and budget for the upcoming year
- Review your business structure to see if it is offering all of the tax benefits your business is eligible for
Your business structure will determine how and what you can claim and how expenses are calculated.
Sole trader: Money earned is not an expense. Tax is paid on the net profit regardless of how much has been earned.
Partnership: A net profit is proportionately allocated between partners, or allocated according to an agreement if one has been drawn up. Each partner pays tax on the amount of profit they receive.
Company: Directors receive a salary from which they pay tax. The business is regarded as a separate entity that pays company tax.
Key EOFY Small Business Dates
The new fiscal year begins on the 1 July and ends on the 30 June. EOFY paperwork should be finalised by the 30 June so that your business and your employees can lodge their tax return.
Sole traders: If you are a sole trader / freelancer, your tax return should be lodged between 1 July to 31 October each financial year. If you lodge using a tax agent, you might be able to have until 15 May to lodge your tax return.
Partnership: If you are in a partnership, your tax return should be lodged between 1 July to 31 October each financial year. If you lodge using a tax agent, you might be able to have until 15 May to lodge your tax return.
Company: Company tax returns lodgement dates vary. The majority of company tax returns will be due 28 Februaryeach financial year. Your tax agent will work with you to help you with your dates.
Planning For Tax
Individuals and businesses are required to submit a tax return for the financial year between the 1 July and the 31 October in most cases. Underpaying tax can get you in trouble. Overpaying tax doesn’t make sense. You need to get the balance right. Planning for your business to pay tax is not necessarily a bad thing as it means that your business is making money, but there are several strategies you can put into place so you’re not caught short when you’re asked to pay your businesses’ obligations.
The key to planning for your businesses tax means that you structure your finances to legally reduce the amount of tax your business has to pay. This strategy focuses on reducing your taxable income, increasing your expenses and maximising your deductions.
When investing in expenses or purchasing capital equipment, it’s important to note that your equipment should generate income and grow your business – not just to try and reduce tax.
Even though you have until the 28th July, in order to reduce your tax, the Superannuation Guarantee (SG) can be paid prior to June 30 to obtain a tax deduction. You can also make additional superannuation contributions up to your cap, which will decrease your taxable income.
Bad Debts and Old Stock
Review your Accounts Receivable and write off bad debts, as well as slow moving or obsolete stock from your stocktake. Scrap obsolete equipment. Bring forward tax deductible purchases such as capital equipment, software, repairs, maintenance, office expenditure and other consumables.
Salary, Wages and Income
Pay director’s fees or dividends and staff bonuses by 30 June and try to defer receiving income. You can also opt to prepay expenses, such as rent, insurance, interest subscriptions, union fees, donations, work-related vehicle expenses, staff education and travel expenses. Before June 30 is a good time to purchase and install capital equipment. Speak to your tax accountant to determine whether you should use the instant asset write off for an instant tax deduction, or depreciate your assets.
How To Have A Better EOFY
EOFY can run smoothly if you plan and know what to expect. Understand which reports you’ll need, how to read and interpret them, and how you plan for the upcoming year. Don’t just wait for tax time to run your reports. A good accounting software and advice from an expert tax accountant can help you throughout the year to keep on top of changes and opportunities in the marketplace. Your tax accountant will be in a much better position to help lower your tax bill if they help you create your 12 month strategy.
ITP have helped Australian individuals and businesses with their tax for over 50 years. Call on 1800 367 487 or book your online appointment today.