John Knight’s end of financial year top tax tips

It can be difficult to determine where to draw the line with tax deductions.

While we all want to make the most of the end of financial year (EOFY) savings, it can be easy to slide into dubious territory. 

BusinessDEPOT founder John Knight outlines the simple ways you can improve your EOFY with his top (and legitimate) tactics. 

Instant assets

We’ve all seen the EOFY advertising spruiking sparkling new cars with major savings. It can be an enticing concept. 

However, there are limitations you should consider before getting behind the wheel. 

The write-off is limited to the luxury car cost limit ($59,136). So don’t get your heart set on an Italian sports-car before you check the numbers. 

If you purchase the car in a company or trust that qualifies for the simplified deduction rules, fringe benefits tax (FBT) may be payable on the car. 

Otherwise, the write-off will be limited to the work-related portion of the cost.

Bonus and commission deductions 

If you pay commissions, bonuses and wages either monthly or fortnightly, review any amount you’re legally committed to paying and accrue these as an expense.

It matches the cost to the income and makes sure you are getting every dollar of tax deductions you are entitled to. 

Scrap underperforming assets 

It might not be Spring, but its certainly time for a clean-out. 

Review your depreciation schedule and scrap any old assets. But don’t bother if an asset has previously been written-off. This could include items that generally depreciate in value quite quickly, such as office furniture and older technology.

The oldest tax planning trick in the book

Push your income into the next financial year and pull forward expenses into June.  

But beware! If you don’t do the same next year, the timing will catch up with you.

If you’re a shareholder or director, you can reduce payroll tax obligations and push out the timing of tax payments by simply taking dividends, instead of wages.

Write off bad debts 

A debt is considered bad when a commercial decision has been made that the debt is no longer recoverable.  

If you classify the advertising as an asset in the books of the business, the expense may still be deductible – even if not yet recovered from the vendor.

Well that’s super! 

A business owner or agent can top up their superannuation to $25,000 before EOFY. 

You could save up to 47 per cent of every dollar contributed in your name. 

You can also claim personal tax deductions for contributions up to $25,000. Seek advice before making contributions.

Cheap thrills 

Entertainment is generally not tax deductible. There are a couple of exceptions, such as meals at business seminars, but you may still have to pay some FBT.

A general rule of thumb: If there’s alcohol, the ATO thinks you’re having too much fun.  

Car logbooks are a must

The ATO expect agents to have a high business usage. But you must keep a logbook for a three-month period to prove it. And they really do check! 

This way you can claim a percentage of all costs including interest on loans, repairs, registration, insurance and fuel. 

Investments

If you have an investment property, maximise your depreciation deductions by getting a quantity surveyors report.

Typically, you can get a deduction equal to 2.5 per cent of the original cost per annum. 

Law and order 

The best long-term way to minimise tax is to get your structure right from day-dot, depending on your strategic plans, funding and ownership mix. 

The most common structure for real estate businesses is a company structure with a discretionary trust as shareholders. The second most common would be trading as a discretionary trust with a company as trustee.