End of financial year checklist for businesses
What can businesses do before 30 June to prepare for the end of financial year as well as legally reduce tax liability for 2022 financial year?
Conduct a stocktake
Businesses are encouraged to conduct a formal stocktake by 30 June 2022 to work out the stock on hand. This also provides them with an opportunity to write off obsolete stock.
However small businesses with turnover under $10 million may be able to apply simplified trading stock rules and skip conducting a stocktake IF they estimate that the value of their trading stock changed by less than $5,000 in the year.
When providing the stocktake information to us, business owners can provide both the cost value and the market value of the stock, as businesses can choose to value their stock under either values.
Asset write off
For businesses who have been depreciating assets: If the business has lost or damaged assets during the year, it is now a good time to review and write them off the depreciation schedule.
Temporary full expensing
Eligible businesses can apply the temporary full expensing on purchases of assets from 6 October 2020 onwards.
Temporary full expensing applies to businesses with turnover under $5 billion and assets installed and ready for use from 6 October 2020. For businesses with turnover under $50 million, it also includes second hand assets installed and ready to use from 6 October 2020. It allows businesses to claim 100% of the business portion of the cost of the asset in the year it was purchased.
Car limit still applies to the cost of passenger vehicles with a load of less than 1 tonne and less than 9 passengers. The limit for 2022 financial year is $60,733.
Have bad debts? Write them off!
Consider writing off some of the receivables if you believe that the debt is not likely to be repaid/recovered. The written off debt can be claimed as a deduction against other business income.
Prepayments
Businesses can claim a deduction if they prepay tax deductible expenditure where the prepayment period ends by 30 June 2022. This can be payments like 12 months subscription to professional journal. Note certain types of expenditure are excluded from the prepayment rules. For example:
- amounts of less than $1,000 (excluding input tax credits)
- amounts required to be incurred by a court order or law of the Commonwealth, state or territory
- payments of salary or wages (under a contract of service)
- amounts that are capital, private or domestic in nature (except certain research and development amounts)
- certain amounts incurred by a general insurance company in connection with the issue of policies or the payment of reinsurance premiums.
Bonuses/review wages
Consider paying out bonuses or additional wages by 30 June 2022 as the wages paid would be tax deductible to the business.
Super
To ensure the employer super contributions is tax deductible for the 2022 financial year, businesses need to pay for the contribution amounts and the funds need to arrive at the employee’s super fund accounts by 30 June 2022.
For those who use ATO’s Small Business Super Clearing House, the deadline for lodgment and payment is 11:30pm AEST 25 June 2022.
For those who use Xero’s Auto Super, the deadline for submitting a super payment on Xero platform is 14 June 2022. Please ensure there are sufficient funds in the nominated bank account to avoid rejection of submission.
Of course we are always here if you need help!
