In Australia, the financial year (FY) begins on the 1st of July and ends on the 30th of June. What does the impending end of the financial year (EOFY) mean for small businesses?
It is not about dreading the paperwork ahead – it’s about taking the opportunity to remember that tax time can be an opportunity to claim deductions for your business and reduce your tax bill.
In this article, we’ll break down everything you need to know about EOFY tax deductions as a small business in Australia.
What are Tax Deductions?
Tax deductions are expenses that can be subtracted from your taxable income. These expenses must be incurred in the operation of your business but can be in relation to any of your legitimate business activities.
Essentially, by claiming these expenses as deductions, you are lowering the amount of income produced by your business that can be taxed. As a result, your tax bill will be lower.
Which Expenses can be Deducted for Small Businesses?
The Australian Taxation Office (ATO) offers tax deductions across a range of different categories. Some of the more commonly claimed deductions include:
1. Business Operational Expenses
These include everything from stationery to rent and insurances to office maintenance. Of course, expenditure related to stock, machinery purchases, and even utility bills are included.
2. Prepaid Expenses
It’s not just discretional or operational expenses either. Prepaid expenses, such as an industry association membership or other subscription, can be claimed as a deduction. It is important to note here that it is in the financial year in which the expenditure is paid that the deduction must be claimed.
3. Vehicular Expenses
If you purchase or use a vehicle for business purposes, or have other travel-related expenses such as airfares, you can claim deductions on the fuel, registration and depreciation of it.
4. Home Office Expenses
Legitimate home office expenses can also be eligible for deduction. You can often claim a portion of home expenses like rent, internet and utilities, as well as equipment and computer purchases.
5. Depreciation
Assets, whether we’re talking computers or even furniture, gradually lose value over time. This is referred to as depreciation. In many cases, you can actually claim this loss of value over time as depreciation.
6. Human Resources Expenditure
Salaries, wages and superannuation contributions are all tax deductible. For small businesses, the cost of wages and its associated expenditure can offer a lot of value in deduction-potential.
7. Skills Development
When you upskill yourself or your employees, the costs of relevant training courses and skills development constitute legitimate expenditure for tax deduction.
8. Technology Expenditure
If your small business invests in digital technology assets–whether physical like laptops or non-physical like cloud computing storage–you can include these costs in your tax deduction calculations.
Find Out More
This is not an exhaustive list, however. For more information about what can and can’t be deducted from your tax bill, make sure to visit the ATO website directly here.
How to Take Advantage of EOFY Tax Deductions
Now that you understand what could be tax deductible, how do you go about making the most of the savings this EOFY?
1. Keep your paperwork up to date
This might not be the most enjoyable activity, especially for busy business owners, but it is critical. Gathering all of your receipts and invoices for business-related expenses will not only help you ascertain how much you are claiming in tax but also ensure that, if questioned, you have the receipts to back up your claims.
2. Review your bank statements
More critical paperwork: Transactions on your business bank account can help jog your memory about expenses and investments that could be included in your tax deductions.
3. Consider other expenses that can be prepaid
Remember that only expenses that were incurred during the FY in question can be claimed from tax. In other words, a subscription for next year that is paid this FY should be included in this EOFY filing. Some businesses might consider prepaying certain expenses now to claim the deductions sooner rather than later.
4. Review online resources
The ATO website offers comprehensive guides and a wealth of information related to tax deductions for small businesses. To help ensure you understand exactly what you are and what you are not entitled to claim, consider spending some time online reviewing their resources.
5. Use a registered accountant
Professional tax agents are registered and verified. They can help provide you with customised advice based on your specific business situation. Of course, this guide is a good starting point but we can only provide general tips. A tax agent will be able to work with you to make the most of your tax deductions. The cost is more than outweighed by the potential benefits–besides, the expense of paying a registered tax agent is deductible in and of itself!
ScotPac – Helping Small Businesses Grow
In addition to claiming tax deductions, the end of the financial year provides a good opportunity for small business owners to take stock of where their company is and where they would like to be.
While a registered tax agent is the right port of call for tax deductions. If your paperwork gathering and expense reviewing has inspired you to explore new ways in which you can improve your business’s cash flow and growth opportunities, reach out to the ScotPac team today.
We specialise in fast and flexible funding solutions to help businesses of all sizes. We are the largest non-banking business lender in Australia and with over 35 years of experience behind us, we know how to add the fuel to ensure your business’s sustainable and long-term growth.
Find out more by giving your nearest office a call on 1300 177 485.