How to prepare for EOFY

in Money by Anthony Fensom
(2 Ratings)
prepare for EOFY

It's that time of year again - another end of financial year (EOFY) is approaching and with it an opportunity to get the business in shape.


"This time of year is always about planning," says Michael Cameron, director at Williams Hall Chadwick. "Planning for future growth, reducing tax, succession planning or exit strategies. Coming into June 30 is a really good opportunity to look at where your profit has been and examine strategies to try to build on it."


However, don't leave everything to the last minute. Instead, kick off the tax planning process early by preparing interim financial reports in March or April, using the latest figures to project the period through to June.


For business owners looking to sell in the new financial year, it's important to maximise profits to increase the value of the business. But for others, tax planning measures can be undertaken ahead of the end of the financial year.


The first action item is ensuring your finances are accurate and up to date for your accountant, including compiling bank statements, reconciling the balance sheet, preparing a statement of net financial position and undertaking profit and loss and cash flow forecasts for the year ahead. Issues to be dealt with include director loans, trust distributions and capital gains or other one-off transactions.


Make sure all your business data is backed up, as the Australian Taxation Office requires records to be kept for at least five years. For capital gains tax (CGT) purposes, it may be important to maintain data for even longer concerning property purchases.


Maximise deductions


Small businesses with annual turnover below $2 million can benefit from prepaying expenses such as interest, rent or other costs, so long as the prepayment is not for a period exceeding 12 months.


Other measures can include writing off bad debts, paying accrued leave loading (even if not taken), making charitable donations and realising any unrealised losses, which can be used to offset income. Run a stocktake to identify any obsolete or slow-moving stock, which can also be written off before EOFY.


Defer income


Where possible, defer sales to July along with any assessable capital gains, while recognising any unearned revenue as at June 30.

For a business established as a trust or sole trader, CGT is charged at the individual's marginal rate, therefore it may be preferable to sell an asset the following year if income is expected to be lower, thereby reducing the tax payable and extending the liability due date.


Super check


Businesses can claim a deduction for super paid before EOFY, so it's worthwhile making payments earlier even if the next quarterly amounts are not due until July.


For your own super, consider making the maximum allowable tax-deductible superannuation contribution of $25,000 before the end of financial year, but make sure that you have not already reached the contribution limit.


For self-managed super funds, transfer listed shares now before new rules come into effect on related party transactions, which require such shares to be sold first and the cash contributed to the fund for their purchase.


Plan ahead


A new financial year allows the opportunity to set new targets and goals to improve the business, including retirement planning, investments and budgeting. What areas of the business are lagging and how might they be improved in the new year? Keep on track of performance by ensuring accounts are kept up to date, monitor cash flow regularly and run year-on-year comparative analysis reports.


The late Kerry Packer famously said that anyone who did not do everything possible to reduce tax "wanted their head read because I don't think [the government] is spending it that well that I should be donating extra"1.

Take a tip from Mr Packer and make sure your business affairs are in order well before the end of June to avoid any unforeseen extra "donations" in the new financial year.


Sources:


Quotes from writer's own interview

1http://www.abc.net.au/7.30/content/2005/s1538560.htm


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This article represents the views of the author only and not those of American Express.



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Anthony Fensom

Anthony is a communication consultant at BWH Communication and a freelance writer with 15 years' experience in the stockbroking and media industries of Australia and Asia. He is a regular writer on business and other issues for publications in Australia and Japan. He consults on communication strategy to businesses ranging from private enterprises to professional service firms and publicly listed companies, with a particular interest in entrepreneurship in all its forms.

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