The end of the financial year is upon us. Happy New Year for businesses!
If you are a business owner, you should be prepared to properly close off the current FY and plan for the next. Your duties and obligations are as legal as they are commercial.
It is critical that you plan ahead to ensure the business remains viable and profitable while meeting all your statutory, contractual and financial commitments for the new FY.
Here are the top 10 things that will assist you in managing your year-end obligations.
1. Prepare Interim Management Accounts
In order to plan for the end of financial year, you need to know the likely level of profits that will be achieved by the business. Preparation of interim management accounts is like a rear view mirror on the year you’ve just had, while giving you a bit of a look of what’s coming down the road. In addition, prepare cash flow forecasts and expenditure budgets for the new year on assumptions taking into account the performance of the business this year.
2. Write Off Bad Debts
If you operate on an “accrual” basis, have a look at all your hard core debtors and write off the bad ones from your receivables before the end of the year. You’ll feel better when you do!
3. Defer Taxable Income
Your accountant will probably advise you to defer taxable income if possible, but only if you operate on a “cash” rather than an “accruals” basis and provided that in doing so the business does not suffer cashflow problems.
4. Accelerate Business Deductions
Small businesses under the Small Business Entity (“SBE”) rules (with turnover of under $2 million) can accelerate business deductions and receive a 100% deduction on some items in the current financial year.
Ask yourself whether any assets should be scrapped from the asset register to obtain a final tax write off prior to 30 June.
Remember that to claim a tax deduction for superannuation in the current financial year, the contribution must be paid before 30 June. From 1 July 2014, the compulsory SGC rate will increase from 9.25% to 9.50%.
7. Trust Distributions
The ATO requires all trust distribution resolutions must be made by 30 June. This doesn’t mean that all distributions must be paid to the beneficiaries before the current year end but the resolution must have been made by the end of the FY.
8. Capital Gains and Losses
A capital loss realised during the current year can only be offset by a capital gain. If there are no capital gains in the current year, then the loss can be carried forward and absorbed by capital gains in future years.
9. Employment Issues
Payment summaries need to be prepared and sent to employees by 14 July 2014. The annual summary is due for lodgement to the ATO by 14 August 2014. Look at your employment contracts for the new financial year and make sure budgets are prepared for each employee.
10. Business Loans to Shareholders
If you have a company and have lent funds to yourself as a shareholder during this financial year, then the debt should also be fully repaid by the company’s current financial year lodgement due date (to avoid additional tax consequences). If the company had an outstanding shareholder loan in the previous year, then you need to comply with ATO Division 7A rules before 30 June in the current year.