What's your accountant talking about?

For traditional accountants, this time of year is mostly about tax returns. Which might explain why this is what happens when you ask Google what accountants are.

Oh dear!

Needless to say, we’re always striving not to be those things, which is why we talk about more than just tax returns at this time of year, like tax deductions, incentives and a common trap that business owners often fall into around EOFY.

And also, your tax options if you make a profit. We’ve created a free tax calculator tool that you can use for this too, which we’ll get to in a bit. But first ...

Between now and EOFY

You might want to consider spending more. Why? Two reasons:

1. First, the instant asset write off, which was recently extended so you can write off asset purchases up to $30,000 (if your turnover is under $50 million). So while we don’t recommend spending for the sake of it, if there is something you need, now's a good time
2. Second, there's the option to prepay expenses, like rent, utilities, internet and insurance up to a year in advance and claim the tax back

Between now and EOFY, you might also want to consider pushing out revenue.

Pushing out what? Basically, it means holding off invoicing a client or chasing a payment that you’re owed so that you’ll get the revenue in the next financial year (after 30 June). This will reduce your income and your profit this financial year, and therefore it should reduce the tax you pay too.

Of course, this is only an option if you have enough cash at the moment, which we know is often not the case for startups and SMEs. It’s worth keeping in mind though.

Get next year's R&D happening

The R&D tax incentive is a cash lifeline for many startups and high-growth businesses. And while you have until April 2020 to lodge your application for the 2018-19 tax year, if you need the money, why wait?

We're already working with clients on theirs so we can lodge it ASAP after 30 June 2019. The earliest you can get the money from the ATO is likely around September, but there's also the possibility of forward funding to get it earlier.

Help your investors (or future ones) get tax breaks

We're seeing a lot of queries from startups wanting to become an ESIC (early stage innovation company) ahead of 30 June so they can offer investors the tax incentives that go with it.

Like all things tax, these incentives can get technical but to summarise, investors can claim a tax offset of up to 20% of their investment and if there's an exit in the next one to 10 years, their investment is capital gains tax free.

The offset is capped at $200,000 per year for sophisticated investors. Non-sophisticated investors are able to invest up to $50,000 per year, on which they can claim the 20% offset.

While being an ESIC does give you an edge in capital raising discussions, it's not a guarantee to securing funding so you don't want to spend thousands on it. But you do also want to make sure you’re ESIC status is qualified - which means supported by an ATO ruling - so that it’s better recognised by investors.

Watch out for this if you've lent company money to anyone

Once a company becomes profitable, it might loan or advance funds to owners, private shareholders or their associates.

This is okay, as long as the funds are paid back before the end of the financial year they were loaned in.

Why? Because of the ATO’s Division 7A rules, which basically view this money as a taxable dividend in a bid to stop company profits being distributed to shareholders tax-free.

If a company does end up in this position, we work with clients on the best possible treatment, which might be a loan-with-interest, dividends or even salary. 

Now to that tax calculator ...

If you've made a profit this financial year, the last thing you’ll feel like doing after all your hard work is paying tax on it.

Unfortunately, you do have to but at least you have options. We’ve built a free tax calculator to help you understand them and choose which way to pay tax.

You can download it here and see some examples of how to use it here. We’re pretty sure it’s unique to the startup and small business community.

Learn more about EOFY tax stuff

We run free EOFY tax workshops at coworking spaces each year. There's still one left - book for Melbourne to spend an hour learning your tax need-to-knows. Don't worry, there will be some light refreshments afterwards!

Before you go

Just a reminder that this article is general in nature - it's not personal tax advice. And thank you for reading.