No one likes to pay taxes, and sometimes hospitality operators play a bit fast and loose with the way we avoid them. The secret is to make as much money as you can, then get a good accountant who knows the best ways to keep most of that money in your hands. By Ken Burgin.
I recently caught up with Brisbane accountant Chris Wheatley of Scope Accounting to get his recommendations on how to maximise tax deductions before the end of the financial year. He shared these 10 with me. Or you can check out this short video summarising the below.
- Know your business
His first recommendation is to really understand your business structure – sole trader, partnership, trust or company – because they each have different tax options. For example, will the owner be paid wages, or dividends, or in another way? Don’t miss out on tax savings that are inherently connected to your structure.
- Bring payments forward
This year 30 June is on a Friday, and it’s always useful to bring bill payments forward if you can so they fall into the current financial year. If your normal staff pay day is late in the week, you might even think about paying them a few days early to bring those wage costs into 2017.
- The same goes for super
Superannuation payments must be paid before 30 June to be deductible, and paid means the money has left your account, so allow plenty of time for this to be processed. Safest to make super payments a week in advance.
- Go shopping
From June 2017, the $20,000 instant asset write-off for equipment ceases, so make sure you use it. The whole cost of a new asset is deductible within this year instead of depreciating the cost over several years.
- Know your sources
Keep track of all of your sources of funding for the business, whether it be from your family, credit card, or made from your home mortgage – don’t forget to claim the interest and bank fees on what can be traced to the business.
- Understand your accounting method
Accountants work out tax and GST on a cash basis or an accruals basis. Most hospitality operators work on a cash basis, but remember to give your accountant all of your unpaid bills, especially if they are not already included in your bookkeeping records, to see what they can include in this year’s tax deductions. Keep it simple with the cash method for GST, but for tax, think about accruals so you can claim for costs that you didn’t actually pay by June 2017.
- Understand the stocktake rules
For tax purposes, you need to assess the value of what you have sitting on shelves and in fridges as close to possible at close of business on Friday 30 June. How you assess that value is per item, at the lower of either the original cost price for that stock item, the current market price to sell it (so if out of date the value is the giveaway price), or the price to replace that item of stock (say, if the wholesale price is now lower). You are not allowed to claim a tax deduction for purchasing stock that you have not yet sold, however you can value that stock at the lowest value possible each year.
- Think about estimates
There’s also a small business concession for stocktaking. You can estimate the value of your trading stock for end of year tax reporting, saving the hours of a formal stocktake. You need to be able to justify your estimate if asked by the ATO. You can use an estimate as long as there is a difference of $5,000 or less between what you had at the start of the financial year and what you think you have at the end of the financial year.
- Don’t forget the car
Make sure you’ve getting the best deductions for your vehicle. Keep your logbook up to date – this translates into the costs you can legally claim. But don’t overclaim in a crazy way, as the ATO will compare your vehicle costs with those of your peers.
- Make friends with your accountant
Finally, Wheatley reminds us that accountants like to eat out and love good coffee – encourage them to drop in regularly and have a chat. Friends look after friends. They handle lots of businesses and have plenty of suggestions – did you know you can claim your home internet, your home office and even sunscreen if you’re serving customers in a courtyard?
Image: MYOB Australia