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With the end of financial year fast approaching, and a new one right around the corner, it’s time to think about ways to cut down your business expenses. Some hacks are more obvious than others, so here is a list of the ones you might not know about.
Capitalising on commercial property depreciation deductions
Across the board, tax experts agree that businesses often pay more tax than they actually need to. They also agree that a great way to cut your tax bill is by capitalising on depreciation deductions on the commercial property you own or rent – something many businesses miss out on.
What does the ATO say? Basically, if you’re a commercial property owner or tenant, you can claim deductions in two categories: a capital works allowance for structural features, and plant and equipment items. It’s worth wrapping your head around the depreciation rules, as the value of claiming deductions can make a big difference to your cash flow.
Think about all the assets you need to fit out your business (air conditioning, security systems, furniture, farming equipment, etc) and chat to your accountant about what you can and can’t claim.
A charitable business is a win-win
Are you passionate about a certain cause? If you donate money to a registered charity, you may be able to claim back some of the donation as a tax deduction. It’s a great way to support those in need – as well as your business.
So which charities are registered? Generally, most medical foundations and international aid charities are. If you’re unsure, you can simply ask the charity directly. You can also jump online to the ACNC (Australian Charities and Not-for-profits Commission), where you’ll find information on thousands of charities.
As far as the finances go, every donation over $2 to a registered charity is tax deductible. If your donation is more that $10, you should ask for a receipt. Come tax time, chat to an accountant about the types of deductions you’re entitled to.
Track your kilometres
Use a car for work? Then chances are you’re entitled to deductions. But this means you’ll need to keep a proper vehicle logbook – to show how your car is used to help carry out your duties.
In your logbook, you’ll need to record the start and end dates of the logbook period, the odometer readings at those dates, and the total kilometres travelled and business-use percentage for the whole period. You’ll also need to jot down the odometer readings and kilometres travelled for each journey, the start and finishing times, and the purpose for each trip.
If you don’t maintain a logbook, you might be able to use the cents per kilometre method. Basically, this means you need to justify your business travel up to 5000 kilometres, which can be anything from client meetings and airport trips, to study and transporting equipment.
Manage your Capital Gains Tax (CGT)
If you make a capital gain on the sale of an asset this year, did you know you could use any capital losses in the past to offset your capital gain? To manage your cash flow better, you should also think about the time of selling your assets.
If it’s likely you’ll have a capital gain in the new financial year, another option is using your superannuation to your advantage. This means salary sacrificing to hit your pre-tax contributions. In turn, you’ll reduce your taxable income and the tax on your capital gains. If you need assistance figuring out the numbers, or knowing whether you’re eligible or not, it’s best to chat to an accountant.
The other thing to keep in mind is that the money you put into your assets can often be used to offset tax. For example, property maintenance costs is an area that’s easy to miss when calculating your CGT.
Get your life insurance in order
When the worst happens, it’s best to be covered. And life insurance is one of the most important types of cover your business should have. Why? Simply put – the life of your business depends of the lives of the people working in it.
There are three types of products that will protect your family, employees and business owners. These are Key Person Insurance, Business Partner Insurance and Business Expenses Insurance. Keep in mind that Income Insurance is good for yourself as well. 43% of surveyed Australians say they would feel the financial impact of the death of the primary breadwinner in 6 months or less. In a worst case scenario covering all your bases is the best business practice.
The truth is, you don’t want to learn about life insurance the hard way. If you lose a business partner or key member of your team (without insurance), the repercussions could be disastrous for your business.
Keep on top of your records
The more organised your business is, the better. Keeping good records will help you make important business decisions, keep tabs on how your business is performing, and analyse your cash flow. It will also help you properly present your financial position to lenders, businesses, accountants and potential buyers.
Legally speaking, your records must explain all your transactions. They also need to be in writing (on paper or electronically), in English (or easily convertible to English), and kept for five years (sometimes longer).
It’s up to you whether you choose to look after your own record keeping, or to employ a bookkeeper or accountant to take care of things for you. Either way, make sure you do your homework, understand which records to keep, and the best method of doing so.
Ready to cut down and save more?
When you’re planning for the new financial year, it’s worth keeping these hacks in mind. Because when it comes down to it, by cutting your expenses you’ll be saving more money. In turn, you’ll have more freedom to focus on growing your business. Simple.