The financial year has finally ended. You’ve breathed a sigh of relief as you closed your business’ books and completed your very last tax return. But you’re not done yet! There are still preparations to be made for the upcoming new financial year. There is no better time to start reviewing, planning and prioritising your business goals, and evaluating your business performance. Don’t wait until July 1 to start. Here are some tips to help you stay on track, organised and less stressed.
If you need help with preparing for the next End of Financial Year (EOFY), meeting your tax obligations or compliance with ATO requirements, it will be beneficial to consult with an experienced business lawyer.
How To Get Ahead This New Financial Year
1. Maintain A System of Record Keeping.
As a business owner, you should set up the right record keeping system to help you work efficiently and ensure compliance. You are legally required to keep records in printed or electronic form for five years for tax purposes. There are two reasons why you should keep good records. First, when you meet with your tax adviser, you can give them well-prepared records so they can quickly inform you what you are entitled to. Second, the cost of managing your tax affairs may be minimised.
The Australian Taxation Office (ATO) recommends some of the basic records you may need to keep are:
- Governing documents, such as the company’s constitution, rules and trust deed).
- Financial reports, such as financial statements, annual budgets and audit reports.
- Cash book records of daily receipts and payments.
- Tax invoices and income tax records, such as debtors and creditors list, stocktake records and motor vehicle expenses.
- Records relating to employees.
- Records of payments withheld from suppliers who do not quote an Australian business number (ABN).
- Banking records, such as bank statements, deposit books and cheque books.
- Grant documentation.
- Registration, certificates and accompanying documents to regulators.
- Contracts and agreements, such as maintenance and insurance contracts, finance or lease agreements).
- Copies of reviews of entitlement to tax concessions.
- Records to help prepare tax statements and returns.
The ATO has a helpful record keeping evaluation tool that will tell you how well you are keeping your business records.
There may be certain laws and requirements your business must adhere to depending on the state you are from and your industry sector. Such laws will determine how long you will need to keep records for. For example, the ATO specifies if you have acquired or disposed of an asset, you must keep written evidence for five years from the date you lodge your tax return.
It is recommended you contact a business lawyer before setting up a record keeping system.
2. Identify What Tax Deductions You Can Claim.
Generally, you can claim most business expenses as tax deductions as long as they directly relate to earning your income. You may be able to claim deductions if your business:
- Has motor vehicle expenses;
- Uses diesel fuel;
- Is based at your home;
- Has website expenses;
- Has travel expenses; or
- Uses machinery, tools or computers.
Be aware if you claim business deductions, you must keep paper or electronic records of your business expenses for five years.
3. Familiarise Yourself With Tax Changes.
It is important you keep up to date with tax changes each year. For small businesses, there may be changes in tax breaks and deductions. It is recommended you check the ATO website before you complete your tax return. For example in 2016 changes were made to personal income tax. As a result, the marginal tax rate of 37 per cent starts at $87,000 instead of $80,000. This means, for a business to benefit, the taxable income must be more than $80,000.
4. Review and Update Your Business Plan.
If you have any spare time, you can sit down with your accountant or bookkeeper and review your finances together. You can look at what you can do differently in the next financial year so you can improve your business’ financial position. There is no better time to set performance targets for the year, and assess your business’ shortfalls.
The Department of Industry, Innovation and Science suggests business owners should assess whether their strategies are working, and whether it is necessary to change their business structure.
5. Review Your Insurances.
Lastly, it may be prudent to check whether your current insurance scheme is suitable for your business. If your circumstances have changed, it may be necessary to update your level of cover or look for another insurance scheme. To determine whether or not your current insurance is suitable, you should refer to your insurance policies and read the product disclosure statements (PDS).
There are common mistakes business owners can make during EOFY. If you want to avoid these mistakes, check out our previous guide 5 Common Mistakes To Avoid At End Of Financial Year.
EOFY is a busy time for business owners, and there are a ton of tasks that must be done. By making preparations early, you can maximise your returns for the new financial year.
If you have any questions about EOFY or improving your business, it is important to consult with a business lawyer who can assist you.
Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 700+ expert lawyers or to get answers to your legal questions.