The end of the financial year is fast approaching. While there are businesses that glide through this period, the majority often leave things a little last minute. But that’s fine by us.
The reality is the end of the financial year can be incredibly stressful for business owners, as well as accountants and bookkeepers. As deadlines approach, your books need to be wrapped up and your accounts reconciled. It’s where business accounting really ramps up, with long hours and headaches. The heavy lifting starts here.
But there is help available. We’ve pulled together everything you need to do before the end of the financial year. Here, you’ll find all the important information and tips that will help you navigate the tax season curtain raiser.
When is the Australian financial year?
First of all, it’s worth outlining when all of this needs to be done by. The financial year is a period of twelve months running from July 1st to June 30th the following calendar year. This is scheduled on tax purposes which sees businesses finalise their accounting paperwork and books before midnight June 30th.
What do SMEs need to do before June 30th?
With the end of the financial year just around the corner, business owners need to get everything in order ready for tax season. This is to ensure that all your paperwork is accurate and correct when you go to complete your tax return before October 31st.
1. Know your tax deductions
The end of the financial year is characterised by only paying as much as you should. One way to do this is through tax deductions – relief for all businesses, especially SMEs. Deductions reduce your taxable income and, therefore, the amount of tax you have to pay. As long as they’re ‘ordinary, necessary and reasonable’ then expense away. Luckily, tools like Dext Prepare allow you to manage your expenses on the go, at all times – so there’s no stress searching for them when it comes to year-end.
Other methods include asset write offs. This useful initiative was recently updated in line with Covid-19 and now determines that assets installed between 12 March 2020 and 30 June 2021, and purchased before 31 December 2020, can be written off. The threshold for each asset is also now $150,000 up from $30,000.
2. Organise your paperwork
Good bookkeeping is an all-year-round essential. It’s simple: if you stay on top of your books throughout the financial year, on a monthly basis, you can easily track and source important documents from months gone by when deadlines are approaching.
Going paper-free is one way to simplify getting your documents in order. With software, like Dext, you can keep all of your receipts, bills and invoices in one place. Come tax season, everything is right in front of you – ready to be reconciled and sorted. These days, there’s no need to lose sleep over the paper chase.
3. Write off bad debts
Another deduction that’s worth knowing about is bad debt. You may be entitled to one if you’re unable to recover amounts owed to you by customers. If you account your income on an accruals basis, then you can claim a bad debt deduction, as long as you do three things:
- Include the income in your tax return – it must be visible in your assessable income
- Check that the debt is bad – make sure receiving that amount is highly unlikely through any reasonable attempt
- Confirm your writing off the debt – this decision should be made in writing before the end of the income year
This can be quite a complex process. So if it’s something you think may apply to your business, then it’s always best to get help and advice from your tax adviser or accountant.
4. Sort your stocktake
It’s time to take stock. If you’re a business that sells or exchanges goods, then it’s likely you’ll have to carry out an end of year stock check. Of course, this is something we recommend keeping on top of throughout the year. When you do, you get a consistent idea of what’s selling and what’s not, and the state of your ordering process.
A stocktake is time consuming, so it’s not something you want to leave last minute. They are a great way to see the bigger picture and also provide a tangible reflection of how your business is doing; if you’re under pressure that insight may be overlooked or missed out on. Above all else, a stock take is a moment to pause, assess and plan for the year ahead.
5. Track your hours working from home
As we all know, thousands of Australians have been forced to work from home in the last year. Thankfully, the Australian Taxation Office (ATO) responded and introduced a temporary shortcut method that allows home workers to claim expenses at tax time.
Initially, the shortcut method could be applied from 1 March to 30 June 2020, but it is now available up until 30 June 2021. The shortcut allows you to claim 80 cents (previously 52) for each hour you worked at home on things like internet costs and cleaning bills. If you’ve been affected by the implications of working from home, this is definitely something worth exploring.
6. Payment to workers
Back in 2019, some changes were made around the deductions businesses can claim from payments to workers. Now businesses cannot claim these deductions unless their workers have met Pay as you go (PAYG) withholding obligations. It’s really important that this process is monitored; if payments go through that aren’t correctly reported to the ATO, your business will be denied the deduction.
This is something that small businesses should take note of, especially family businesses with family employee members. If they are paid below the tax threshold, they will now need to register as a witholder and provide a PAYG summary.
7. Review and Plan
When anything comes to a close, it’s always a good idea to reassess before making your next move. The end of the financial year is a chance for business owners to look back at what went well and what didn’t – was your business agile enough to adapt to situations, like Covid-19? If not, what needs to change?
You can look at where your money went and whether you’re satisfied with how you spent it. An honest review is always a great way to help you plan better and prepare for what’s around the corner.
The build up to June 30th will always be a mad rush for businesses and the accountants and bookkeepers who help along the way. While, at times, the stress is unavoidable, it can be contained if you plan ahead and keep on top of your books all-year-round.
There are also a host of digital platforms to help streamline the entire process – making the build-up to tax season simple. This is where Dext comes in. Through accurate data extraction, we categorise all the important information from receipts, expenses, invoices, bank statements and more. Everything you need is right in front of you in one single dashboard – ready for the end of the financial year and the tax season ahead.