The weekend will see the end of the 2011-12 financial year, one that has seen start-ups under pressure from continued consumer caution and a tricky funding environment, with insolvency figures creeping steadily upwards.
However, the picture is not all doom and gloom. Australia’s economic fundamentals are strong and there is – carbon tax aside – some government help on hand for entrepreneurs.
So how can you get off to a flying start in 2012-13? Here are five top tips:
1. Tick off last-minute tax time housekeeping
We may be in the death throes of financial year 2011-12, but that doesn’t mean you can’t sneak in a bit of last-minute tax time activity to reduce your liabilities.
There are three key areas you really should’ve thought of by now: bonuses and directors’ fees, superannuation, and old stock. However, if you act quickly, you might be able to make some headway even if you’ve left it to the last minute.
Tax expert Greg Hayes, of Hayes Knight, explains: “If you are planning to pay bonuses or directors’ fees, make sure that these are declared before June 30.”
“They don’t have to be paid before June 30 to take the tax deduction, but the company does need to be legally committed.”
“This is normally achieved by a director’s resolution approving the bonus or fee. Do this and the company takes the deduction into this year. The recipient does not need to declare it on their personal return until the year of actual receipt.”
On super, Hayes says: “Make sure that you make your superannuation payments before June 30. The funds need to be receipted by the super fund to be eligible for current-year deduction.”
“Where you have SGC payments for staff for the June quarter, if you can pay these before June 30 you will take a current-year tax deduction.”
Meanwhile, any damaged or old stock that you have hanging around your business needs to be scrapped and written off – ASAP.
“The written off amount forms an immediate tax deduction,” says Hayes. “Also start to review your stock in terms of the appropriate valuation method.”
“While this is often cost price, it doesn’t have to be. You can value stock at the lower end of cost, replacement or net market value.”
“You may have stock that you don’t want to scrap but may be worth less than its cost price. The market value approach will give you the tax saving into this year.”
2. Re-think your business’ structure
If you are yet to launch, the new financial year is a good time to ponder the business structure that you intend to use for your start-up.
Your decision to be a company, partnership, trust or sole trader will have significant tax and other implications that need to be weighed carefully.
Business advisory expert Marc Peskett, of MPR Group, says that you need to think about how your business will operate and then consult your accountant about:
- How you will be taxed under the structure during the life of the business, as the business earns income and then pays or distributes it to directors or beneficiaries?
- How you can use the structure or a group of structures to meet your personal wealth needs and optimise your personal tax position?
- How will you be taxed when you come to sell the business? If you don’t have the right structure, you could find yourself paying a lot more tax than you need to.
“Your structure can also affect which tax concessions, incentives and grants you can take advantage of as well,” says Peskett.
“There are several tax concessions available to small businesses, including the R&D Tax Concession, Small Business Entity Regime and Small Business Capital Gains Tax Concession.”
“Each provide cash back to the business when it undertakes specific activities or at certain milestones in the life of the business, such as at sale.”
Take your time, do a bit of research and work out which business structure is best for you.
3. Get investing
The Federal Government has beefed up the instant asset write-off system for small businesses, with the aim of relieving the pressure on entrepreneurs who wish to invest and grow their enterprises.
The budget measures, which will officially come into force on Sunday, will increase the small business instant asset write-off threshold from the current limit of $1,000 to $6,500.
The measures will apply to businesses with annual turnover of less than $2 million, allowing them to write off depreciating assets costing less than $6,500 in the income year in which they start to use the asset or have it installed ready for use for a taxable purpose during or before that income year.
If you choose to use the capital allowance provisions, you’ll also be able to claim an immediate deduction for additions to existing assets if the assets and the new piece of equipment both cost less than $6,500.
So, for example, if you’re spending money on new in-house software for $4,000, as a depreciating asset, you can claim a $4,000 deduction for the 2012-13 financial year.
While this change is unlikely to radically alter your investment intentions, it should certainly give you food for thought.
Are there any systems or items of equipment that need to be replaced? If so, can you claim a deduction? If so, this could well be the ideal time to start investing sensibly in your start-up.
4. Take advantage of changes to workplace laws
The new financial year will see a raft of changes to the ability of small businesses to employ and pay their staff.
The minimum wage is going up from Sunday by 2.9% to $606.50, or $15.96 per hour, while unfair dismissal laws are changing too – the high income threshold increases from July 1 from the current level of $118,100 to $123,000, essentially meaning that employees who earn more than the high income threshold, and who aren’t covered by an award, can’t make an unfair dismissal claim.
But perhaps the most eye-catching change will be Paid Parental Leave – allowing fathers and other partners earning under $150,000 a year to take two weeks’ leave at minimum wage levels, on top of existing payments.
If you are yet to hire, you should be nimble enough to change tack and position yourself as a parent-friendly employer. Tout your flexibility to potential staff and make it clear that you want people who are committed to an innovative, up-and-coming business (that’s you) for the long haul.
5. Don’t let tax become an obsession
The end of the financial year places an onus on tax – what you need to pay, how you can reduce that amount and how much you can get back.
However, your business’ strategy and business plan shouldn’t be based upon your tax liability. Don’t become so focused on tax in the year ahead that you end up spending money that does nothing to drive sales and growth.
“Tax should be a secondary consideration when balancing the tax management approach against the commercial needs of the business, i.e. don’t spend a $1 just to save 30c in tax,” advises Peskett.
“A number of tax initiatives have been implemented for small businesses in the last few years that can make it tempting for investment dollars to be directed where costs may be recouped via deductions or write-offs.”
Peskett suggests that you should ask yourself a few key questions when you’re about to invest in your business:
- What areas of the business are the priorities for investment and growth?
- How will this investment help generate leads or new potential clients?
- How will it drive greater efficiency?
- What other substantial benefit or return will it bring to the business?