So it's the end of another financial year and you just don't care?
Here’s why your startup or scale up should (at least a little).
Okay, so the lead up to 30 June this year has been a bit different with politicians competing on federal election promises.
But most of that is just noise, at least for now. Any promises that do follow through to policy will take a while to get there – in other words, they don’t really affect this end of financial year (EOFY).
There are other things that affect your taxes this year though so here’s a wrap up of them for startup founders and owners of fast-growing businesses. First though, just a reminder that this article is not personal tax or financial advice (you’d need to speak to us for that).
EOFY mantra – repeat after us
First thing’s first, our mantra with our startup and scale up clients as we approach EOFY is the same each year: “Push out revenue. Bring forward expenses.” It’s the simplest way to minimise your tax.
Here’s how to do it:
- Hold off on invoicing (if you can) to push revenue past 30 June and reduce your taxable income
- Pay any invoices you can, even prepay things like rent, subscriptions, utility bills if possible
- Bring forward the purchase of any equipment or other business assets that you’re planning to buy so you can claim the tax on their purchase (buy them before 30 June). Don’t buy assets for the sake of it though – only buy things your business actually needs and can afford
The ATO is watching
Next, be aware of what the ATO is watching closely this year. If you have an accountant, they should be keeping an eye on these things for you, too.
CRYPTOCURRENCY
Yep, crypto’s surging popularity hasn’t escaped the ATO’s attention. They are watching this closely and expect any crypto gains and losses to be included in tax returns. That means in your individual tax return if you’re investing in crypto personally and in your company return if your startup or scale up is investing in it.
Generally, crypto is treated as an asset for tax purposes so you need to calculate all the costs associated with purchasing the crypto and subtract the market value of what you’ve sold it for. Remember, you still need to calculate the gain or loss even if the crypto was traded or sold but is sitting on the exchange and not in your bank account.
There’s a bit more to it than that so the bottom line is: If you’re into crypto, you need an accountant who is too.
FRINGE BENEFITS TAX (FBT)
Working from home (WFH) during the pandemic has created more opportunities to trigger this tax, which kicks in when an employer provides benefits to employees in addition to wages/salary.
So if, for example, your startup bought coffee cards or home office equipment to make team members more comfortable when working from home, you might have to pay FBT on those purchases. If you do have to, you can usually claim a deduction for the cost of those purchases and for the FBT that you pay on them plus you can usually claim GST credits too.
ATO DEBTS
The ATO was more lenient on any debts, such as unpaid GST, super or PAYG withholding tax, when the pandemic first began in 2020. Now, they are starting to crack down by holding company directors personally liable for outstanding debts. If you have any outstanding debts with the ATO, now’s the time to contact them and put a payment plan in place (or get your accountant to do it for you).
WFH DEDUCTIONS
Working from home might mean you can claim a higher proportion of some bills, such as your phone/internet and electricity, but the ATO is keeping an eye on this. If you’re claiming more for WFH, they’re expecting to see a reduction in any claims associated with going into work, such as travel and parking costs. This is worth letting your teams know about for their individual tax returns.
Also, if you’re reimbursing your team for any working from home expenses, they can’t claim tax on them too.
RECORD KEEPING
ATO Assistant Commissioner, Tim Loh, last month announced that the ATO was focusing on record keeping this year. He warned not to copy and paste from previous year’s tax returns and said the ATO would take “firm action” to deal with taxpayers who weren’t able to substantiate their claims. While his comments were directed at individual taxpayers, the ATO’s laser focus on record keeping will include businesses.
Tax reminders
There are a few tax changes to remember this EOFY. In good news, the company tax rate for the 2021-22 year is 25%, down from 26% in the previous year. This also means reduced franking credits – definitely one to talk to your accountant about if you use these credits.
And just a reminder about tax on super. If your combined salary and super contributions total more than $250,000 in the 2021-22 financial year, you might have to pay an additional 15% tax on some or all of that.
Temporary full expensing
It’s never a good idea to buy an asset if your startup doesn’t really need it or can’t afford it. But if you do need equipment or other business assets, now is the time to plan for it, either this side of 30 June or before 30 June 2023 when the current temporary full expensing allowance ends.
But what is temporary full expensing? It’s complicated but basically, it’s very similar to the former instant asset write-off. It means your business – as long as it’s eligible – can claim an immediate deduction for the business portion of an eligible asset’s cost in the year it is first used or installed for use. It applies to new and used assets and can apply to improvements to existing assets.
Seize the (R&D) day
If you’re eligible for the R&D Tax Incentive, why not get your 2021-22 claim underway? Sure, you have until 30 April next year to register for it but you don’t have to wait until then. The sooner the claim is in, the sooner the cash flows into your bank account (for our keen clients, this is often as early as July).
In case you don’t know much about it, the R&D Tax Incentive can provide up to 43.5% of your development costs back as a cash refund through the annual tax process. It can apply to many different businesses from software startups to engineering, as long as you meet the eligibility requirements. You can read more about these here.
Super in the future
As the calendar rolls into a new financial year, don’t forget the superannuation changes that come into effect on 1 July 2022. They were announced in the 2020-21 Budget and include the removal of the $450/month income threshold, meaning businesses need to pay super for all employees.
It’s also worth planning for the incremental rise in the super rate. The mandatory contribution rate is rising from 10% to 10.5% of salary and is set to increase by 0.5% every year until it reaches 12.0% from 1 July 2025.
Whether or not you agree with the super changes, if there’s one thing all founders and business owners agree on it’s the importance of cashflow. And we wouldn’t be worth our salt as accountants if we didn’t use EOFY as a reminder to maintain good cashflow management – or improve it if you need to – because it remains the surest path to success financially in any economy, particularly in our current inflationary one.
Getting help
This article isn’t personal financial or tax advice (you need to speak to us for that).
If you’re looking for more free and helpful financial info, head to our articles and resources, including a cashflow template.
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