Planning For Your Tax Return

10.06.08

Ideally, tax planning is something you should be looking at regularly throughout the year. The reality, however, is that most of us tend only to look at it about now. Whilst there is no magic formula for the ‘best’ tax planning strategies, good planning practice aims to:

• cover the basics - such as including all your assessable income and maximising all the tax deductions to which you are entitled; and
• look at opportunities to improve your tax situation – this depends on your particular circumstances but may include things like ensuring any capital gains are offset with any available capital losses or maximising your superannuation contributions for the year.

Here are some key tax-time issues for you to consider when preparing your 2007-08 return.

Maximise your deductions now

One of the more popular strategies to legitimately maximise your deductions is by prepaying some items of your business expenditure before 30 June.

Common Prepayments

Commonly prepaid business items include rent, lease payments, interest, audit and accounting fees, repairs and maintenance,
and business related subscriptions.

Before you prepay any business expenses, you should be aware that there are some rules that may affect your entitlement to claim a deduction for prepaid business expenses (eg, you may have to apportion your deduction over more than one tax year).

Watch out for GST traps

It’s not hard to make a mistake keeping track of and working out your businesses GST reporting obligations, payments and refunds.

Here are some common traps to avoid.

• Be careful not to understate the total value of goods and services supplied.
• Make sure you are not overstating your entitlement to input tax credits.
• Make sure you report supplies and purchases in the correct period.
• Classify your supplies correctly – be particularly careful if you think a supply is GST free.

Keep an eye on your Business Losses

Has your business received income from more than one activity during the year and one (or more) of these activities made a loss?

You may be able reduce your overall taxable income by offsetting this loss (or losses) against profits from your other business activities during this year.

You should be aware that if you carry on business alone or in partnership, there are some special ‘commerciality tests’ that your business will need to satisfy so you can do this.

New Business Activities

If you have started-up a new business venture during the year which has made a loss, not uncommon in the early stages of a new venture, you’ll need to check whether you can claim this loss against your other income.

Check your Bad Debts Now

If your business has a debt that has already been brought to account as assessable income and you can’t collect that debt, you want to make sure you don’t end up paying tax on income you can’t collect.

The way you do this is to claim a deduction for this debt, where such a debt is ‘bad’ and is written off in your accounts before 30 June.

When is a Bad Debt?

When you have made an effort to collect it, there is little likelihood that you will ever be successful in collecting it and you have abandoned any debt recovery action.

Value your trading stock at 30 June

You’ll need to value your closing stock on hand and work-in-progress at 30 June. Resist the temptation to guess – this is a common mistake that businesses make!

When you value your trading stock, clearly identify which valuation method you use – cost, replacement, market value (or less if the stock is obsolete).