Michelle Maynard, Partner at Carbon Accountants and Business Consultants, discusses what to do now to maximise your tax savings and ensure you don’t panic come EOFY. June is not the time to start considering how to structure your affairs to get the best tax outcomes, she writes.
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Halfway through the Financial Year – what should you be doing?
As Accountants, we often get asked for our tax saving tips as 30 June fast approaches. However this is not the time to be considering how to structure your affairs to get the best tax outcomes. So with four months until 30 June arrives, now is a good time to starting thinking about this financial year’s tax return.
Diaries to help your claim
There are several personal or business tax deductions that require you to substantiate your claim. Leaving these until May/June will not give you the best outcome. Do it now to ensure you get the best return.
Motor Vehicle
There are two methods to claim work/business related motor vehicle deductions. The first allows you to claim up to 5,000km at a set rate (68c). While you do not have to keep a logbook, you have to be able to substantiate the kilometres claimed.
The second option is to keep a logbook for 12 consecutive weeks so you determine your work/business related percentage. You can then claim that percentage of your yearly motor vehicle expenses (registration, fuel, repairs and maintenance, insurance, interest etc). Planning ahead to keep this logbook during a business time will ensure that you can maximise this deduction. If you haven’t kept a logbook already – make sure you keep it for 12 weeks before the financial year ends!
Home Office/Telephone/Internet expenses
These are other expenses that the ATO requests you to “diarise your use” to substantiate your claim. With the ATO focussing on these areas of deductions, it would be mindful to take time and diarise your use of these items relating to work or business. Again, by allowing yourself the maximum time to compile these records now, it won’t leave you panicked at year end.
Records, records and more records
The biggest mistake I find clients making, is not keeping adequate records to support their claims. Take regular stock of your work/business related expenditure and ensure that you keep records to support this. Receipts fade, they get lost or destroyed. Take time each week or month to scan or take photos of your receipts. Utilise technology to your benefit. There is no requirement to keep a physical copy of your receipts to substantiate your claims, a digital copy will suffice.
Tax Planning
Tax planning should be an exercise for every person in business. Have you spoken with your clients about how they are going to handle their tax affairs for the current year? I find that most people are focussed on the year that was, delaying paying that tax for as long as possible, but the real tax planning happens while the year is occurring.
All business owners should sit with their Accountant around March, to analyse the 9 months that were, and predict what the remaining 3 months holds. This gives your Accountant ample time to run you through various scenarios that can assist in minimising your tax.
Cash flow and Pay As You Go
Most 2018 tax returns, if lodged through an Accountant, are due around May. The trap I see many small business owners fall into is cash flow to meet their tax liabilities, especially if they have had an extremely profitable year.
If you have investment or business income over $4,000, you will more than likely be put into the Pay As You Go Instalment (PAYGI) system. This is where the ATO gets you to pay quarterly instalments towards your estimated tax liability for the year.
The issues lies when taxpayers enter the PAYGI for the first time, or when their income rises substantially from previous years. If they do not anticipate and plan around these liabilities, they run into cash flow problems.
When the 2018 income tax return is lodged, the ATO will assess PAYGI for the 2019 year. However, id the 2018 return is not lodged until May 2018, not only will the taxpayer have to pay their 2018 liability in June 2019, they will have to pay 4 quarters of 2019 PAYGI (September 2018, December 2018, March 2019 and June 2019) soon after (in July 2019). This PAYGI can sometimes be the same as their tax liability, which essentially is double the liability.
Alternatively, if the taxpayer was in the PAYGI system, but experienced a large increase in income, they will have to “make up” the ATO’s determined PAYGI in the June 2019 quarter once the 2018 income tax return is lodged.
Being aware of these issues for clients, allows us to plan the lodgement of the 2018 income tax return, as well as managing their cashflow.
It is important that we not just focus on the financial year gone by, but pay close attention to the current financial year.
Michelle partnered with Carbon in 2017, bringing a wealth of experience in accounting and bookkeeping. Her extended suite of services covers everything from tax accounting, planning and estimates, to cloud integration, payroll and SMSF. Michelle started her career as a cadet in the Australian Taxation Office, then as a graduate at PwC. Before joining Carbon, she was a manager at PKF, bringing a wealth of knowledge and experience to the team at Carbon. Michelle specialises in providing tax and accounting advice to SMEs and HNWIs and their family groups, working to achieve the most effective strategies for them, both financially, tax effectively, and to help achieve their desired lifestyle.
Contact Michelle at Michelle.m@carbongroup.com.au
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