With the tax year for standard balance date taxpayers looming on 31 March it is timely to remind you of those things that need to be done before or at year end which may assist in maximising tax efficiency.
Bad Debts: Write off all bad debts that you consider are bad
You can claim a deduction for bad debts that are physically written off. It’s not a case of just writing off bad debts as you see fit, you must still go through a process of determining that a debt is indeed bad. A debt is considered bad if a reasonable and prudent business person would be of the view it is unlikely that the debt will be paid. Factors to consider are the length of time the debt is outstanding and the efforts that you have taken to collect the debt and information on the debtor. A debtor does not need to be insolvent for the debt to be bad, so you can still pursue the debtor for payment.
Remember that if your turnover is less than $1.3 million per year you can value your closing stock at the opening stock value, as long as the closing stock can be reasonably estimated to be worth less than $10,000.
Consider old or obsolete stock while undertaking you end of year stocktake. You must use one of the prescribed methods: cost; discounted selling price; replacement price or market selling value if lower than cost to value your stock. Generally, these methods must be applied consistently. Provisions for obsolete stock or stock write downs are not generally allowed as tax deductions. Therefore prior to year-end it is important to perform a stock take and to ensure that all obsolete stock is physically disposed of or is valued using one of the prescribed methods.
You can claim depreciation for each month you own and use an asset. If you purchase and asset and use it in the month of your balance date you can claim one month’s depreciation. However you should consider the likely gain or loss on sale from selling old assets and if you consider a gain likely you may wish to defer the sale until the month following balance date.
Assets no longer used in the business can be written off if it is no longer intended to be used in the future and the cost of disposal would be more than the disposal value. Review your asset schedules and identify those that may need writing off.
Certain types of expenditure can be claimed as a tax deduction in the year in which they are incurred regardless of the fact that the good or service will not be used until a future year, but only if they have also been expensed for financial reporting purposes. Some of these prepayment concessions have a dollar limit and/or a limit on the length of the period after year-end. The following prepaid expenses could be claimed in the 2015/2016 income year:
- Advertising for up to 6 months after the balance date and not exceeding $14,000 in total;
- Insurance for up to 12 months after the balance date as long as the premiums incurred during the year for the contract do not exceed $12,000;
- Rates to the extent of the amount invoiced on or before balance date;
- Rent for up to 6 months after the balance date and not exceeding $26,000 in total. There is no monetary limit for rent that is prepaid not more than one month in advance;
- Subscriptions or fees for membership in any trade or professional association, for up to 12 months after the balance date as long as the expenditure incurred during the year for membership in the association does not exceed $6,000;
- Advance bookings for travel and accommodation, to be used within 6 months after balance date and not exceeding $14,000 in total;
- Service or maintenance contract for plant, equipment or machinery, for up to 3 months after balance date, as long as the expenditure incurred during the year for the contract does not exceed $23,000;
- Use or maintenance of telephone and other communication equipment for up to 2 months after balance date (amount is unlimited);
- Consumable aids (i.e. items that do not become a component of the finished stock, e.g. oil, grinding wheels, chemicals, wrapping and packaging) not exceeding $58,000 in total;
- Audit fees and mandatory accounting fees (unlimited);
- Stationery, subscriptions for newspapers, journals or other periodicals, and postal and courier services (unlimited).
- Vehicle registration fees, drivers license fees and road user charges (unlimited);
- Other services for up to 6 months after balance date, and not exceeding $14,000 in total;
- Other periodic charges for up to 12 months after the balance date, and not exceeding $14,000 in total.
It is important that your company’s imputation credit account is in credit at 31 March regardless of your balance date. If you have paid dividends during the year you need to check that the tax you have paid during the year has been sufficient to keep the ICA in credit. You can fix this and avoid the 10% imputation credit account debit penalty by paying any terminal or provisional tax due before 31 March.
Please contact us if you need assistance or more information about any with any of these tips.