Business owners should now be looking at strategies to legitimately reduce their tax liability for the 2012/13 tax year. This is especially important if the business has traded profitably during 2011/12. Business owners should carefully review their current and future cashflow position before embarking upon these measures.
Some tax planning strategies techniques differ depending on whether the business is a “small business entity” (SBE). The most popular strategies to be considered prior to 30 June 2013 include:
Small business entity (SBE) tax concessions
A “small business entity” (SBE) is a business with a turnover less than $ 2million, excluding GST.
SBE qualify for a range of tax concessions that businesses can apply without the need to make a formal election in the tax return. A business can choose which one or all of the concessions to apply.
The major tax planning concessions that are available under the SBE rules are:
- The choice to adopt the simplified depreciation rules which give an immediate deduction for assets costing less than $6,500.00, excluding GST. Depreciable assets costing $6,500 or more are depreciated in an asset pool. A full depreciation deduction of 15 per cent (30 per cent thereafter) can be claimed for 2012/13 where the asset has an effective life of less than 25 years regardless of when the asset was acquired during the income year.
- Claiming an immediate deduction for certain prepaid business expenses where the payment covers a period of 12 months or less that ends in the next income year. Subject to cash flow requirements, the most common expenses that an SBE taxpayer should consider prepaying by 30 June 2013 include lease payments, interest, rent, business travel, insurances, business subscriptions, etc.
- The ability to apply the small business capital gains tax concessions without the need to satisfy the $6 million net asset value test.
Prepayment of expenses
Certain prepayments are not subject to the above 12-month rule and therefore both SBE and non-SBE taxpayers may be able to claim deductions for expenditure that is:
- Less than $1,000 GST exclusive.
- Incurred under a law of the Commonwealth, State, or Territory. Common examples are motor vehicle registration and compulsory third party insurance and Workcover premiums and statutory licences.
- Paid under a contract of service (for example, prepayments of salary and wages, bonuses and commissions).