Time is short to re­duce tax

Western Suburbs Weekly - - Western opinion -

Q: My wife and I run a small busi­ness and we’re won­der­ing whether there is any­thing we should be con­sid­er­ing for our­selves and the busi­ness be­fore the end of the fi­nan­cial year? Luke and Natasha - Su­bi­aco A: Time is run­ning short. If you would like to min­imise the amount of tax you pay this fi­nan­cial year, you have a lim­ited win­dow in which to or­gan­ise your fi­nances.

With that in mind, here are the top four sug­ges­tions to help you re­duce the tax­man’s cut of your in­come for 2015/2016.

1. Un­der­stand your in­come – and what you can claim as an ex­pense.

Your in­come can po­ten­tially in­clude a lot more than just your fort­nightly pay packet.

Bank in­ter­est on sav­ings ac­counts will count as in­come, as will share div­i­dends (any prof­its you have made through buy­ing and sell­ing shares will be taxed as a cap­i­tal gain, so you need to al­low for that too!).

While neg­a­tively geared prop­er­ties are in the news at the mo­ment, pos­i­tively geared prop­er­ties will also need to be recorded as in­come.

The flip side of this in­come is that in­ter­est and pro­fes­sional fees re­lat­ing to this in­come can be pre­paid be­fore July 1 so you can claim it as a tax de­duc­tion too.

This ap­plies to both busi­nesses and in­di­vid­u­als earn­ing in­come.

2. De­lay in­come if you are a cash­based small busi­ness.

De­pend­ing on the ac­count­ing sys­tem your busi­ness uses, you can re­duce your tax­able in­come by de­lay­ing the re­ceipt of in­come un­til the new fi­nan­cial year.

Ac­crual ac­count­ing counts in­come when it is earned, while cash ac­count­ing counts in­come when it is re­ceived, so if you are a cash-based busi­ness, make in­voice due dates af­ter July 1 and you won’t have as much in­come to de­clare. 3. Pay your bills be­fore July 1. This is the op­po­site of de­lay­ing in­come.

By pay­ing bills in this fi­nan­cial year, even if the due date isn’t un­til af­ter the end of June, you will in­crease your de­ductible busi­ness ex­penses for the 2015-16 fi­nan­cial year and re­duce your tax­able in­come.

While in­di­vid­u­als don’t have the same range of al­low­able de­duc­tions as busi­nesses, the same prin­ci­ple ap­plies.

4. Make de­ductible pur­chases be­fore July 1.

This is more of an ex­ten­sion of pay­ing your bills than a sep­a­rate point, but it is im­por­tant to un­der­stand that if you are con­sid­er­ing any ma­jor pur­chases in the com­ing months, it is worth get­ting or­gan­ised now so you can ei­ther deduct the full pur­chase now or get the first por­tion or de­pre­ci­a­tion in for more ex­pen­sive items.

Troy.MacMil­lan@twd.com.au

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