Not as fun as Christmas, but just as regular…

Please note that the information in this article was based on trends from 2012 and may now be outdated. 

Yup, we’re talking about tax time! As we head into the last few days of the 2012 financial year, now is the time to take stock of your affairs so you have a good idea of what your taxable position is. ServiceSeeking.com.au accountant Craig Ball from Bentley Partners details the things you should be considering. 

1) Pre-pay loan interest –  This relates to individuals as well as businesses that have a loan on their balance sheet. You may be able to negotiate with your lender to pay the interest on the borrowings up front, receiving the deduction for the 2013 interest in the 2012 financial year. You can claim up to 12 months upfront. Make sure your lender allocates the interest payments correctly, as the deduction is only allowed for the interest component, not the principal amount.

2) Defer income & bring forward expenses – If possible, try to bring forward expenses that you would normally pay in the following month. By bringing forward expenses you may get a better after tax benefit in the current financial year where it is more immediately beneficial, an example of this is superannuation  By deferring income into the 2012-2013 financial year defer the tax payable on that income. This will be more beneficial for the 2014 financial year, where the company tax rate is reduced to 29%

3) Review assets – Many businesses don’t review their asset registers each year and are still carrying assets that have been scrapped or obsolete. The remaining balance of these assets can be written off, which will increase the deduction you receive.

4) Do a comprehensive stock take – Stock at the end of the financial year can be valued at either the cost price to purchase or the market value. If you are carrying obsolete stock on 30 June, then the value of this stock can be written off.

5) Bad debts – Review your trade debtors at the end of the financial year for any that are outside your normal terms of trade.  If you want to claim for bad debts, remember that they must be bad and written off before the end of the financial year. To do this, the debt must generally have been brought to account as assessable income, and you must have given up all hope and, more importantly, all action for recovery. Bad debts cannot be claimed by taxpayers who recognise income on a cash basis.

6) Prepayments – Most business taxpayers must pro-rata the deduction for prepaid expenses over the period to which the expenditure relates. However, individual non-business and Small Business Entity  taxpayers can prepay some expenses up to 12 months in advance, provided they meet the prepayment rules

7) Are you receiving Personal Services Income? – The Personal Services Income (PSI) measures are designed to limit the level of deductions available to certain contractors whether they are operating as a sole trader or through a company, trust or partnership, and to also extend the PAYG withholding rules in such cases. A taxpayer that meets certain specified tests, such as the ‘results’ test, will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. However such taxpayers need to be aware of the ATO’s strict approach to income retention and income splitting.