Small Biz Tax Tips

The end of the financial year may not be your favourite season, but it doesn’t need to be a nightmare or even a headache if you’ve got the right information - Garry Addison answers the questions small business owners need to be asking at tax time.

Small business owners are looking for ways to legitimately reduce their tax burden. Here’s a guide to what you must do to keep the taxman happy, and how to make it work best for you.

Do I have to keep a record of absolutely everything?

You are normally required to retain records for tax purposes for at least five years, but special requirements apply in some areas such as capital gains tax (CGT), fringe benefits tax (FBT), and the substantiation rules. You should ensure that your records are both adequate and complete to stand up to an audit review. Check that you have all the relevant documentation for your business, such as bank statements, deposit books, cheque butts, cashbooks, as well as your accounting records.

Can I just make an estimate of my stock?

It’s not sufficient to simply make an estimate of your stock, or to take a guess. Each year you need to include a value in your accounts of stock-in-hand and work-in-progress at June 30. Closing stock can be valued at cost, replacement or market value or less if obsolete, but you have to document which method you use.

What is the position regarding private company loans?

It is important that you make sure private company loans which extend beyond the end of the income year are properly documented, to ensure that a tax liability is not triggered under the tax rules in this area. Adequate annual repayments of a properly documented loan are also required.

I’ve got a couple of bad debts—can I claim them as a deduction?

If you want to claim for bad debts, remember they must be bad and written off before the end of the financial year. To do this, the debt must generally have been brought to account as assessable income and you must have given up all hope and, more importantly, all action for recovery.

Will I be liable for CGT?

CGT may apply to any gain made on the sale of certain assets (such as shares or property) purchased since September 19, 1985, so assets purchased after this date must be fully documented for CGT purposes. For capital losses, make sure you keep a record so they can be carried forward to offset against future capital gains. You should also be aware of the special CGT concessional rules that apply to certain small business capital gains—including the general 50 percent discount for individuals and trusts and the special small business CGT rollover relief and retirement exemptions—as they can save you big bucks.