You’ve got a lot on your plate. It is important to get a jumpstart on your end-of-financial year accounts. Are you scrambling to get your records in order?
It's easy to get overwhelmed by all the things you need to do, but don't worry! We've got an end-of-financial year checklist for your small and medium enterprise that will help make your life easier. These tips will make navigating the EOFY easier for you.
SMEs & EOFY: Preparing Your Financial Accounts
First, you'll need to get your end-of-year accounts in order. This is a difficult task for many small and medium enterprises (SMEs).
You should know what financial reports are needed for the end of the year. If you're not sure about this, have a chat with your tax advisor. The last thing you want is to provide incorrect information which could affect future tax returns!
Keep Your Financial Data Organised
Check you have all necessary records, including a list of expenditures incurred in the last 12 months (it's easy to forget!)
If your small and medium-sized enterprises hold records manually, give them to your accountant at the end of the year. Ensure individual documents are filed with your regular filings to the ATO to make your accountant's task easier. This can lower your costs.
Many small companies file digital records online and have a cloud-based (online) accounting system. If your business does this, check that all records are up to date.
Immediate Asset Write-Offs
The threshold for immediate asset write-offs has increased to $150,000 in the June 2021 tax year. Eligible businesses can claim this asset write-off for both new and second-hand assets. Eligible businesses have an overall turnover of less than $500 million from the 2021 tax year.
If your small business is eligible, you can claim an immediate tax deduction on the purchase of assets up to the threshold value.
Capital Gains Tax (CGT) Changes
If you sell an asset for more than book value, then you are deemed to have made a profit on sale which is subject to capital gains tax.
If you have incurred any loss on the sale of business assets you can deduct that from any capital gains made before calculating your capital gains tax.
There are also other exemptions for small businesses including a reduction in tax rates and an increase in the threshold at which capital gains tax is applied.
Your Tax Deductions
Small companies that have engaged in a small business activity can deduct the cost of carrying out this activity from their assessable income.
These include cash expenses and non-cash expenses like depreciation on your business assets. With the change in immediate asset write-off values, this is an area to pay attention to.
Ensure you keep personal bills separate from business expenses. Some at-home expenses can be charged against your business. Speak with your tax advisor or the ATO to clarify these items.
Income Tax Offset
In the tax year to June 2021, you are entitled to an income tax offset of 13%, if your business turnover is less than $5 million. The maximum offset permitted is $1,000.
For the June 2022 financial year, this offset raises to 16%of business income. Turnover and maximum offset remain at $5 million and $,1000 respectively.
To be eligible for the income tax offset you need to be in business as a sole trader, in a partnership, or receive business income from a trust.
Using Business Funds for Personal Use
You should not use business funds for personal use. This complicates the record-keeping and accounting for the business. What can happen is these personal use items end up being allocated as shareholder loans or shareholder dividends and can lead you to have higher personal tax to pay, but not necessarily having the personal funds to pay it.
It causes problems. If you do use business funds for personal spending, it is best to stop this practice and see if the business can increase your income earned.
The golden rule is to keep business and personal finances separate.
Cloud-Based ERP Software for Small and Medium Enterprise
Enterprise Resource Planning software integrates major business activities including accounting, stock control, accounts payable and receivable, and payroll, providing a safe and secure tool for most small and medium enterprises.
Using cloud-based ERP software for small and medium enterprises has become popular in recent times. It enables you to access your accounting and business records from anywhere, and your staff can keep everything up to date. This is particularly helpful when working from home or in a remote location.
The best ERP software for small and medium enterprises can be scheduled for regular backups keeping financial data both secure and protected. And you won't outgrow it as your business grows.
Get Expert Advice
The EOFY is upon us again and not only will the annual Balance Sheet and Income Statement determine how much tax you have to pay, but it also gives you a picture of your business health and strength going into the June 2022 financial year.
Your accountant or tax advisor can give you an insight into how your financial accounts translate into forwarding momentum for your business.
This is also a great time to take stock of your growth plans for the coming year. Cash flow is perhaps the most important issue in business. Check out our Finance page for more details on cashflow solutions.
It is best to get expert advice before making any financial decisions. It can be helpful to consult with an accountant or other qualified professional. Speaking with someone who understands small and medium enterprise cash flow issues can give you insight and strategies for the year ahead.
For more information check out the Australian Tax Office website.