The truth about tax time…

Author: Youth 2 Youth

At the end of the financial year, most small businesses like to review their tax position and consider any strategies for tax planning in order to legitimately reduce their tax. New rules and regulations have been brought about due to the new Simplified Tax System ("STS").

Whether you are a STS or a non-STS taxpayer, tax deductions fall into three categories:

STS Tax Payers:
prepayments are fully deductible in the year that they are paid- as long as they cover a period no more than 12 months

NON STS Tax Payers:
any part of the prepayment relating to the time period up until the 30 June is deductible in full- after the 30 June only 40% of the prepayment is deductible

Both STS and Non STS taxpayers can claim the following prepayments in full:
ð expenditure under $1000
ð salary and wages
ð expenditure required to be incurred under law OR expenditure that relates to the pre September 99' contractual obligation

Expenses that can be prepaid:
- RENT (business premises or equipment)
- LEASE PAYMENTS (on business items, cars/office equipment)
- INTEREST: check with your financier to determine if you can prepay up to twelve months interest in advance
- BUSINESS TRIPS
- TRAINING COURSES
- BUSINESS SUBSCRIPTIONS

Accelerated claims refer to a business taxpayer bringing forward the expenditure on regular, on going deductible items.

For STS Tax Payers:
STS taxpayers are only entitled to deductions on a "cash basis". If you choose to bring forward your expenditure you must ensure the amount is paid by 30 June. This covers the following expenditures:
- general deductions
- tax-related expenses
- repairs

For Non STS Taxpayers:
You are entitled to deductions on an incurred basis and are not required to have paid these expenses by 30 June. As long as the expense has been genuinely incurred then it will be deductible.

Here is a checklist of possible accelerated expenditure for your business:

• REPAIRS: e.g. office premises, equipment, cars.
• PLANT: must be less than $1000 and can be written off in full by STS taxpayers only.
• SOFTWARE: business software costing less than $1000 can be written off immediately by STS taxpayers only.
• CONSUMABLES/ SPARE PARTS
• CLIENT GIFTS
• DONATIONS
• ADVERTISING
• FRINGE BENEFITS
• SUPERANNUATION: relates to age based limit and the superannuation fund.

STS Taxpayers:
- Are only entitled to deductions for expenses they have paid so therefore they cannot accrue expenses as at the 30 June.

Non STS Taxpayers:
- You are still entitled to a deduction for expenses that are incurred as at the 30 June even if they have not been paid.

Below is a list of expenses that can be accrued:
(these are not deductible to STS taxpayers)

• Salary or wages and Bonuses
• Interest
• Commerical Bills
• Commissions
• Fringe Benefits tax
• Directors' Fees

'Copyright 2003 Youth 2 Youth'

Disclaimer: This article is for your information, but it may not apply to or be suitable for your situation, so seek professional advice. Youth 2 Youth cannot be held liable for anything resulting from how you use the information provided in this article.