The end of financial year (EOFY) is again upon us and when you’re already flat out running your business this can be a time of added stress and confusion for business owners.
How to make the most of End of Financial Year for your business.
The end of financial year (EOFY) is again upon us and when you’re already flat out running your business this can be a time of added stress and confusion for business owners. But when it comes to tax time and your business it’s important to get on top of things and get your affairs in order. So, we take a quick look at reasons why the EOFY why can provide a bonus to your business and hopefully provide you with some motivation to get the old paperwork ball rolling.
Did somebody say less tax?
As Benjamin Franklin famously (and somewhat morbidly) said “Nothing in life is certain except death and taxes” and in today’s day and age there certainly seems to be a tax for everything. The good news however is that there are a range of tax breaks available to SME’s that can help to minimize the tax your business owes at the same time as purchasing much needed business equipment or assets to advance your business in the new financial year.
The Instant Asset Write Off
The Instant Asset Write Off has been extended and is now available to both small business (annual turnover $10 million or less) and medium enterprise (annual turnover between $10 million & $50 million). Included in the latest budget the Government has extended the write off threshold. The threshold for eligible assets is now $30,000 for purchases made between 3 April 2019 and 30 June 2020. This is a great way to refresh tired business equipment or to grow your fleet of business assets. Keep in mind that should you wish to purchase a new vehicle that you will also use personally then only a percentage of the purchase price can be claimed. For further info on eligible assets you can visit the ATO website (www.ato. gov.au) or ask your financial partner.
Purchase assets outright or fund them
By assessing your cashflow you can ascertain whether your business is better off purchasing a new asset outright or funding it. The instant asset write off is available on both options for eligible assets so you get this advantage no matter which option you take and there are pro’s and con’s to both approaches. It is always best to obtain advice from your accountant or financial parter for these business decisions. The conversation you are likely to have with your accountant is whether your business is better of paying cash or financing. A large number of organizations tend to go with the finance option knowing that their cashflow is better preserved for other things (including a rainy day) – knowing that ‘cash is king’ and also mindufl that the interest payable on the loan (or the additional cost of financing the asset vs paying cash for it) is fully tax deductible.
Tax advantages of purchasing new plant
By claiming depreciation on an asset, it effectively reduces your businesses taxable income. So, for example your business has an annual turnover of approximately $600,000 and you purchase a new machine that is worth $60,000, then your taxable income is reduced by this amount so in this example taxable income is now only $540,000 reducing the amount of tax your business owes. As well as being able to claim the depreciation of the new asset as already mentioned the interest on any asset loans you take on the equipment is also a deduction.
Another day another election…
…And the winner is… Not Bill Shorten. So what does this mean for small business? The newly reinstated Morrison Government has promised to back small & medium business. They have lowered the corporate tax rate for small business from 30% to 25.5% and they have promised to continue this trajectory with plans to further cut this to 25% by 2022. Unincorporated businesses with turnover of less than $5 million currently receive a tax discount of 8% (capped at $1,000) and it is planned for this discount to be increased further to 16%.
From July, the Government will also be required to pay any bills within 20 days for any contracts up to $1 million and this will also be in place for any large businesses seeking Government contracts to assist smaller business cashflow. The Morrison Government has also provided better access to finance in the wake of the Royal Commission with the new $2 billion Australian Business Securitisation Fund. They have also committed to $100 million in funding to the Australian Business Growth Fund to provide equity funding to small business.
How are you tracking?
At the very least the EOFY ensures that you get everything together and allows you to assess your cashflow and tracking. How did you track with your budget? Where are you behind? What were your strengths and where can you do better? Did you reach your strategic goals? What are some new goals you can set? Are you properly resourced? or perhaps you need to hire more staff? Is your business equipment properly maintained and probably the biggest one – do you need to purchase new equipment? – if so, this could be a good time to do it.
Keep organized and updated to minimize disruption
Your best plan for tax time is to keep accurate and organized records and to use a reputable accountant that knows what they are doing and understands your business to ensure that you get the most for your business. This should keep the stress of this busy time of the year down allowing you to keep running your operations seamlessly.
Our role as a finance partner, is to source the best funding option for your business – and quickly. We are accredited with the full suite of lenders to assist you and arrange a fully tailored solution. We would love to chat with you if you need any assistance with your finance arrangements or if you just are looking for someone to speak to about your business plans in general. At Magnolia Lane we pride ourselves on helping our clients grow and succeed. Please don’t hesitate to contact us on (02) 8287 3000 or email email@example.com.