The financial year-end is approaching fast, especially if your balance date is 31 March. This time is often a great time for businesses to reflect on the last 12 months and set new goals and objectives for the next financial year. Before the recent dry weather period, many farmers were seeing increased financial performance over that of past seasons. Whilst this is great for business, it leaves many farmers pondering how to reduce their tax burden.
Whilst we wouldn’t recommend spending for the sake of spending, below are our top five tips on how to maximise tax opportunities that many businesses including farmers are entitled to. The following is by no means an exhaustive list.
- Do your employees have leave and bonuses owing at year end? You are able to claim a deduction for these as long as the payment for this is made within 63 days of balance date- so encourage staff to use their leave entitlements during this period.
- Review your fixed asset register and inform your accountant of any assets that you no longer have at balance date as a deduction can then be claimed for the book value of that asset.
- Any large assets to be purchased or sold around balance date? Consider purchasing assets just before balance date (remember you do not have to pay, just have an invoice dated before balance date) in order for depreciation to be claimable in your current financial year. If you are selling an asset and will make a loss, consider selling before balance date and equally, if you are making a profit – delay the sale until after balance date.
- Staff rewards such as bonuses, gifts and work shouts have the benefit of energising staff and are deductible expenses (some have limited deductibility and must meet certain criteria in order not to be liable for fringe benefit tax). Consult BDO for more details on how to reward staff tax effectively.
- Prepaid expenditure is a large area of opportunity. In many circumstances, if you pay for an item or service in the current financial year you are able to claim the deductions for this even if the goods/services relate to the next financial year. Certain rules apply so consult BDO for a full list. Popular expenses for farmers include but are not limited to:
- insurance for up to 12 months after balance date as long as the premium does not exceed $12,000
- rent for any amount prepaid one month in advance, or for up to six months (not exceeding $26,000)
- subscriptions & membership for up to 12 months not exceeding $6,000, newspaper and stationery unlimited amount
- unlimited vehicle registrations and road user charges
- any other charges up to 12 months in advance including accounting fees up to a limit of $14,000
- service or maintenance contracted expenditure for up to three months after balance date as long as the year’s contract cost does not exceed $23,000
- regular repairs – consider incurring the cost before balance date
Of course you do need to realise that bringing forward expenses will also have an impact on the following financial year’s expenses. This may be a useful way to even out taxable income over years in times of fluctuation, or you may need to consider this exercise on a yearly basis.
If you would like further clarification on how to best maximise your deductible expenses contact the team of experts at BDO Taranaki today.