EOFY 2022

Ultimate Legal Guide to End of Financial (EOFY 2022)

Jun 1, 2022
Reading Time: 9 minutes
Written by Angela Omari

The end of the financial year can be a stressful time for many business owners in Australia, but it’s also a time when you can grow your business and secure it for the future.   

Whilst you have to ensure that you’re meeting all the deadlines and requirements, there is always more that you can do to benefit your business in the meantime. 

This can extend from reframing your marketing to suit the mood of End of Financial Year (EOFY) to claiming the right tax offsets.

Our post will cover everything your business should know to make the most of the EOFY 2022.

Read along!

Common mistakes to avoid this EOFY

1. No contact with your accountant for the majority of the financial year

Utilising a bookkeeper or accountant to keep your accounts in order and to receive timely advice throughout the year is hugely beneficial for your small business 

This ensures that you are kept updated on key accounting or tax changes, and how you can grow your business and maximise your position at tax time.

However, a common mistake for any business owner is only reaching out to a bookkeeper or accountant when their accounts get messy. 

As a business operator, you should engage an accountant throughout the year. This way, you will receive advice throughout the financial year and be confident that your accounts are up to date to ensure smooth sailing through the end of the financial year.

2. Not keeping accounts up to date

Failure to keep accounts up to date can make EOFY harder than is necessary. 

Checking a backlog of accounts can be time-consuming and can hinder the clarity and consistency of information provided in support of your financial statements. 

Furthermore, failing to monitor incoming and outgoing cash flows within a set timeframe can leave a business without vital funds to service its obligations. 

This may be resolved by utilising accounting software available to assist your business keep records and accounts.

3. Leaving financial statements to the last minute

It is only logical to say that leaving financial statements to the last minute is as unnecessary as it is common. 

Points 2 and 3 are interwoven as ensuring financial statements are clearly and accurately represented requires time.  

Keeping accounts up to date will help ensure the burden of preparing financial statements is not last to the last minute. This will ensure better quality and accuracy in statements.

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4. Lacking training and understanding of accounting software functionality

Software and technology can be extremely rewarding for your business. 

Cloud-based accounting technology such as Xero or MYOB can be hugely beneficial to ensure accounts are up to date, making the EOFY a less strenuous time for all. For example, businesses generally do not have the data or software to monitor and track ongoing, fixed and variable costs and ad-hoc expenses. 

Utilising an accounting program like MYOB to track cash flow, key expenditure, payroll, inventory, invoice and billing management, and Australian Taxation Office (ATO) payments such as PAYG and GST is a key necessity for a business. 

Further, you are more likely to be in a better financial position before the EOFY by engaging an accountant who understands the accounting program and can advise on how to use the real-time information to further grow a business.

5. Inadequate record-keeping and a lack of supporting information for financial statements

Unpreparedness culminates in another common mistake of not providing enough detail or supporting documentation. Accounts and records are required to be reconciled and updated. If this is not done regularly, the EOFY may present a challenging time for your business.

A useful example is in attempting to maximise potential deductions. Knowledge of expenses you can claim as a business is vital to ensuring maximum profitability is achieved for your business. 

However, records must be kept for all expenses claimed to ensure ATO compliance.

How to make the most of your EOFY

Now that you’re aware of the common mistakes that may occur at the EOFY, here are 11 useful tips to get you ready and make the most of your EOFY

1. EOFY sales and promotions

Regardless of the products or services you offer, EOFY is a time to dispense with any extra stock by implementing promotional end of financial year sales, promotions and EOFY deals.

Sales are an opportunity to accrue any last-minute income whilst clearing the decks for the business year.

Similarly, it may also be a good time to make any business purchases, such as equipment or accessories.

Many businesses also run events at this time to celebrate the end of another successful financial year. If you want to network with others in your industry or reach out to your customers, now is the perfect time to do it.

2. Know what the ATO is on the lookout for

Each year the ATO issues statements outlining the types of errors they are likely to scrutinise. 

Furthermore, key changes to tax policy will also be listed. Be sure to familiarise yourself with these to ensure you don’t get caught.

In 2022, you can expect to see the ATO focus on the following tax errors:

  • Not properly attributing personal and business use
  • Not lodging your income tax return
  • Omitting to report income, including coupon sales
  • Not providing the proper records to substantiate expense claims
  • Claiming private expenses as business expenses
  • Not understanding how tax applies to different types of business
  • Incorrect tax file number, ABN, superannuation details

If you’re mindful of these and ensure you’re compliant with all of them, you can make sure your business minimises the risk of any misunderstandings with the ATO

If you’re unsure of whether you’re complying with your current obligations, it is worth hiring a lawyer.

3. Keep accurate records

The maintenance of records is extremely important, not just for the purposes of compliance with Australian tax laws, but also because it benefits you as a business owner

The better the records of your business activity, the easier it is to capitalise on any tax benefits you may be able to claim.

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.

ATO Recommendations

The Australian Taxation Office (ATO) recommends some of the basic records you may need to keep are:

  1. Governing documents, such as the company’s constitution, rules and trust deed).
  2. Financial reports, such as financial statements, annual budgets and audit reports.
  3. Cash book records of daily receipts and payments.
  4. Tax invoices and income tax records, such as debtors and creditors list, stocktake records and motor vehicle expenses.
  5. Records relating to employees.
  6. Records of payments withheld from suppliers who do not quote an Australian business number (ABN).
  7. Banking records, such as bank statements, deposit books and cheque books.
  8. Grant documentation.
  9. Registration, certificates and accompanying documents to regulators.
  10. Contracts and agreements, such as maintenance and insurance contracts, finance or lease agreements).
  11. Copies of reviews of entitlement to tax concessions.
  12. 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.

4. Capitalise on tax concessions

The end of the financial year is the perfect opportunity to utilise some of the benefits you may be eligible for. However, many business owners are unaware of all offsets that are actually available to them.

Here are some of the business tax concessions available:

The instant asset write-off scheme

The Instant Asset Write-off threshold has been increased to $150,000 for each asset installed and ready for use.

This means that businesses with an aggregated turnover between $50million and $500 million can deduct the full cost of eligible second-hand assets that cost less than $150,000.  The assets need to be pushed by 31st December and first used or installed by 30 June 2022.

It’s a great time to upgrade equipment for your business, such as company computers, office furniture, cars, phones and more. This is because you can use these expenses to reduce your business’ tax liability.

Business-related deductions

Research what tax deductions you can claim. This will come from your business’s taxable income before lodging your tax return, so your depreciating assets will not be overtaxed. 

This includes but is not limited to

  • Travel expenses – Including car expenses, cents per kilometre method. 
  • Working from home expenses – Electricity, internet, phone expenses, equipment such as desktops. There are 3 methods you can use to claim these WFH expenses:
    1. 80c/hour shortcut method (easy), which is a flat rate method to cover all your expenses.
    2. 52c/hour fixed rate method (easy). This covers a flat rate for certain items but also allows the claiming of actual amounts for items such as dedicated work phone plans.
    3. Actual cost method (advanced)– where you can claim the actual amounts of eligible work-related items.
  • Clothing, laundry and dry-cleaning expenses
  • Other work-related expenses – Overtime meals, COVID-19 tests used for work-related purposes, phone expenses regardless of the phone brand (Samsung, Apple, Android)
  • Capital Gains Tax (CGT) concessions
  • Paying GST and PAYG in instalments
  • Lower company tax rates

5. Plan for the coming financial year

June is also a time you can use to think about your current financial situation and what you want your business to achieve in the 2022/2023 financial year. 

If you want to change business structures or increase your budget, now is a good time to start planning. For example, if you want to change your business from being a sole trader to a company, now is a good time to get your documents in order. 

Other questions you should ask yourself to organise your future business planning includes:

  • How much should I pay myself?
  • Is a dividend payment right for me?
  • I have low-income family members, can we utilise them?
  • How should I distribute my business profits?
  • I have made a loss, what are the tax-loss carry-back provisions?
  • What grants are available for my business?
  • I want to make some investments, how do I structure these?
  • Are my personal assets safe?
  • Does my business structure allow for a sale or part-sale?
  • What can I do to reduce my tax?

If you need assistance in answering those questions, an accountant will have these questions front in mind and can help you to achieve your objectives.

EOFY 2022

6. Use a registered tax agent and/or accountant

When seeking advice or aid in financial statement preparations, hire someone with the right qualifications.

This is crucial because if they aren’t qualified, they may not have the ability to give the right advice. Some tasks your agent or accountant will undertake include:

  • Reviewing your business plans, finances, and also insurance
  • Reviewing your business structure
  • Checking for tax and regulation changes

It would also be wise to keep a lookout for scammers during this time. Taxation scams often target businesses and lure you through either tax refund scams or underpaid tax scams.  

The ATO would not email, SMS or call you for your personal information. You should always confirm with the ATO if such messages were sent by them before taking any action.

7. Perform a stocktake

Businesses that purchase or sell stock should find out whether they are required to do a stocktake

This is because it allows your business to keep records of all stock sold, on hand or broken. For more information regarding stocktake, visit the ATO website

Even if your business isn’t legally required to do a stocktake, it’s always a good idea to keep track of it.

8. Backup your data

All of your records and data should be stored in a secure location off-site.  

This is to protect your information from being exploited by a third party. Further, keeping your records online will mean that they are easier to find and harder to misplace.

If the files are online, it is recommended to have auto-sync to update the file frequently.

9. 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.

10. 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’s 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.

11. Review your insurance

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).

Conclusion

With accounts not up to date, unmet sales targets, and demanding customer expectations, as a business owner, it can be difficult to keep up with the rush.

However, if you take into consideration the common mistakes business owners face and the tips on how to best manage the EOFY, the end of the financial year breeze. To summarise, here is how you can make the most of the EOFY:

  1. EOFY sales and promotions
  2. Know what the ATO is on the lookout for
  3. Keep accurate records
  4. Capitalise on tax concessions
  5. Plan for the coming financial year
  6. Use a registered tax agent and/or accountant
  7. Perform a stocktake
  8. Backup your data
  9. Familiarise Yourself With Tax Changes
  10. Review and Update Your Business Plan.
  11. Review Your Insurances.

If you do need that extra bit of guidance, you can hire a lawyer to ensure that everything is on track.

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