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Specialist SME accountant Davie Mach from Box Advisory Services outlines insider EOFY accounting tips to brokers.
Mr Mach provided his top 10 EOFY tips to brokers at the recent LendED Small Business Accounting webinar, hosted by Donelle Brooks, head of third party.
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During the webinar, Mr Mach offered extensive insights into how to minimise tax, and what tax write-offs should be on the radar at this time of year.
Here are the ‘LendED small business accounting top 10 tips for EOFY’ that may benefit individual brokerages and small-business clients alike:
1. Take advantage of limitless asset write-off
The limitless asset write-off allows businesses to claim 100 per cent of the equipment or motor vehicle purchase (new or used) upfront, less the personal use portion. In addition, there is no limit to the purchase price made before June 30, 2022 (previously capped at $150,000).
The other significant win is that businesses can claim upfront versus over the life cycle of the asset. This means that tax deductions can now be brought forward, negating the need to wait years for the asset to depreciate, before writing it off. This tax concession allows businesses claim the asset write off in the first year, which reduces taxes significantly.
It’s also worthwhile considering the asset purchase structure. If the asset is acquired via a loan, chattel mortgage, or hire purchase, it means the business physically owns the asset and can claim the GST and tax write-off that year.
If the business leases the vehicle, it can only claim the GST and tax deduction on each instalment payment (normally monthly or weekly).
2. Use profit to prepay the next 12 months’ bills to minimise tax
For companies with healthy profit and cash reserves, we recommend the prepayment of bills to bring forward tax deductions and reduce current financial year taxes. As long as the bill is for the next 12 months and it’s paid before June 30, the expense can be brought forward and claimed in the current financial year rather than the next financial year.
Common business-related bills include:
- Business travel
- Marketing expenses
- Lease payments
- Rent payments
- Accounting fees
- IT services
- Business-related subscriptions
- Insurance premiums
3. Be in charge of superannuation
Pay superannuation by 15 June to claim a tax deduction (this allows time for the payment to get processed – which often takes up to 10 days).
4. Get your bookkeeping and documents ready asap
Don’t wait till the last minute! Be proactive about your accounts to make the EOFY process more efficient and streamlined.
5. Use your bookkeeping as the barometer for making decisions about your business
Bookkeeping will provide an estimate of the businesses profit and liabilities. This will allow you and your accountant to plan what should happen to grow the company, to include hiring extra staff, investing in equipment, redoing your website, upgrading IT, conducting more marketing, etc.
6. Make sure you’re claiming all tax deductions
Common business-related tax deductions include:
- Gifts for clients
- Working from home expenses, to include telephone and internet
- Travel expenses
- Motor vehicle expenses
- Superannuation
- Wages to director
7. Set up the next financial year to pay yourself a set wage vs draining down company profits
8. Restructure your brokerage as a company versus a sole trader
Last year, small business tax rates were reduced from 30 per cent to 27.5 per cemt. They’re now 26 per cent and expected to become lower. It’s therefore far more attractive to run finances through the business versus personally (by comparison, the average broker is often taxed up to 47 per cent including Medicare levy). This means your business could save around 20 per cent in taxes being in a company structure.
It’s also best practice to keep personal and company finances separate from an accounting and general liability perspective.
9. Speak to your clients about getting EOFY ready now and suggest this be done in collaboration with an accountant
The upside of this approach is significant: the more the broker gets involved with clients, the greater the opportunity.
As such, this approach:
- Helps brokers upskill in financial literacy around accounting organically
- Supports brokers in becoming a necessary part of their client’s business
- Bypasses being transactional by building proactive advisory relationships
- Builds loyalty
10. Schedule to check in with your small business clients monthly
Become more integrated with your small business clients by asking questions, like:
- What’s the plan for the next 12 months?
- Are you looking to buy any assets?
- How are you planning to grow the business?
- What cash flow do you have for a rainy day?
Note: It’s best practice to have three to six months’ turnover, at a minimum, as a cash reserve.
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