Top 10 tax tips for Small Business

It’s getting round to tax time again and with a lot of information floating around, I thought it opportune to collate what I thought were the top 10 tax tips for 2012.  

These tips have been selected with the small business in mind and as such may not include some obvious tips for individuals.

Instant Asset Write Off

What you need to know

Currently, businesses are able to immediately write off any new asset that is $1,000 or less.  Any asset above this value needs to be depreciated over time.  However, this limit is about to change to $6,500 for the 2012/2013.

In addition, small businesses will also be able to immediately deduct the first $5,000 of a new or used motor vehicle, ute or van purchased from 1 July 2012.

What you need to think about

If you are considering purchasing an item that is more than $1,000 but less than $6,500, you may wish to wait until July 2012 so that you can write it off completely in 2013 rather than having to depreciate it over a few years.


Photo credit – 401k via flickr

Superannuation Guarantee Contributions

What you need to know

If you have employees that you pay the Superannuation Guarantee for, you probably already know that you have until July 28th to meet your obligation for the June quarter, but did also know that if you make your payment in July, it won’t be deductible in this financial year?

What you need to think about

If your wages are certain and there are no bonuses or overtime to account for, you may wish to make your superannuation payments in June rather than waiting until July.  This will increase your deductions for this financial year.

Superannuation Co-contribution ($1,000)

What you need to know

While the super co-contribution isn’t as generous as it has been in previous years, I wouldn’t overlook an opportunity to receive a bonus into my super account.  To access the co-contribution, you need to make a $1,000 personal contribution into your super account, and this has to be a contribution that you are not intending to claim as a tax deduction.

To be eligible, more than 10% of your income has to be from a source of employment or from carrying on a business.  The taxable income thresholds for the 2011/2012 year start from $31,920 and the rate of co-contribution reduces as your income increases.  When your income exceeds $61,920, you will not receive a co-contribution.

Like all things tax-related, it’s never straightforward and the income that is used to calculate your entitlement is adjusted for different things.  You can read the fine print at Australian Tax Office – Super Co-Contributions.

What you need to think about

If you think the co-contribution is relevant to your situation, get your skates on and pop your $1,000 into your super account before 30 June.  Your super fund will probably send you a form asking you whether you intend to claim a tax deduction for this contribution.  The answer is no.  If you claim a tax deduction for this contribution, you will definitely lose any entitlement to a co-contribution!

You can however, make additional super contributions for tax deduction purposes.  Some people get confused thinking that if you do one, you can’t do the other.

Pre-pay expenses

What you need to know

A common tax strategy around this time of year is to pre-pay expenses so that they can be claimed in this year.  Common things that fall into this category include purchasing stock or pre-paying interest.

What you need to think about

Consider your profit and cash flow situation.  If this year looks like it will be ending in profit, you may be thinking about this strategy, however, cash flow may suffer so find an appropriate balance.

Loss Carry-Back

What you need to know

There was quite a bit of noise about the “loss carry-back” provisions which was meant to help businesses who have a loss in one year write that off against a profit in a prior year.  A well-intentioned provision, except it’s only for companies so if you are a sole trader or partnership, you will not benefit from it.

As an example of how the proposal is intended to work, if  a company makes a tax loss in 2012/13, it can use this loss to offset any tax paid in 2011/12 and therefore get a refund in 2012/13. Only tax losses of up to $1m can be carried back each year – effectively providing a cash benefit of up to $300,000 a year.

The provision is only intended to apply to revenue losses and will also be limited to a company’s franking account balance.

What you need to think about

Until the provision is confirmed, this is really for informational purposes only.

Income tax

Photo credit – Alan Cleaver via Flickr

Income Splitting

What you need to know

Splitting income for tax purposes eg. to a spouse on a lower income, is another common tax strategy.  However, if splitting is not already in place, it’s probably too late for this financial year.

“You might have income from your business and income from investments.  If your spouse is on a lower income or isn’t working, it makes sense to have the investments in your spouse’s name.” ~ Michael Temelli, chartered accountant

What you need to think about

If you are splitting your income in the business by having your spouse work in the business, say in an administrative capacity, ensure that the income split is reasonable and justifiable.

“The wife was undertaking some basic bookkeeping for the business and was being paid over $100,000 in salary.  A bit difficult to explain to the tax office!” ~ Michael Temelli

Tax Losses from prior years (sole traders & partnerships)

What you need to know

Tax losses are usually available to be carried forward to future years to be used as an offset against future income.  If you have tax losses carried over from prior years, don’t assume that they are automatically available to offset against this year’s income.

You can offset a business loss against your other income only if you meet the income test – which is broadly that your non-commercial income is less than $250,000, and your business passes one of the following tests:

  • It produces assessable income of at least $20,000
  • It has produced a profit in three of the past five years, including this year
  • It uses real property or an interest in real property worth at least $500,000 on a continuing basis
  • It uses other assets worth $100,000 on a continuing basis

What you need to think about

Another one of those less than straight forward scenarios.  I have to admit that going through the conditions made my head spin so if you are finding it a bit difficult to digest, you aren’t alone!  Your accountant will be able to work this one out for you.

Entrepreneurs Tax Offset

What you need to know

This is a tax offset available to businesses with income of less than $75,000 per year, which is a great bonus except that this is the last year that it will apply.

What you need to think about

Just something to be aware of.  No action required.

Bad Debts

What you need to know

Accrual accounting – an accounting method that records income and expenses when they are incurred regardless of whether cash has exchanged hands.
Do you have debtors going back 3 or more years?  If you do, you probably have a bad debt.  If you are accounting on a accrual basis, you have actually paid tax on this income!

What you need to think about

Review your debtors listings and write off anything that is not reasonably recoverable.  Not only will the write off be an expense that you can claim this year (accrual basis only) but if you have paid GST on it, you will get that back as well.

Even if your business accounts on a cash basis, rather than an accrual basis, it’s still good practice to review your debtors and write off any bad debts.

Debts to the Tax Office

What you need to know

“It’s better to owe money to the bank than to the Tax Office” ~ Michael Temelli

Why?  Because bank interest rates are generally lower than the Tax Office’s General Interest Charge (GIC) rates.  It’s definitely worth a bit of research.

Depending on circumstances penalties can also be applied by the Tax Office on top of a GIC.  To add salt to the wound, penalties are not tax deductible!

What you need to think about

If you find yourself in a situation where you have a tax debt, request a payment plan or consider paying off your debt by using a small business overdraft or line of credit especially if bank rates are lower than the general interest charge rate.

Get a good bookkeeper

This isn’t technically a tax tip but is one worth mentioning given the number of horror stories that arise from poor bookkeeping.  An example discussed while researching this post was of a business that had a superannuation liability of $40,000 more than what was reported on the books.

From a tax perspective, the $40,000 was not deductible because the accrual hadn’t been paid or picked up, and on the superannuation front, the business was liable for interest and penalties for unpaid superannuation and not to mention, a big headache!

A pat on your back for reaching the end of this long post, on a topic most find dry and uninviting.  Hopefully, the points discussed have provided food for thought and if not necessarily applicable for 2012, then perhaps for 2013.



This post was compiled with the assistance of chartered accountant Michael Temelli  (DCG Consulting Pty Ltd) who generously shared his time,  helping me sift through the tax maze.  Michael has extensive experience in providing accounting and tax advice to small businesses in various industries.  Michael can be contacted on:

Tel: (03) 9348 1799 Mob: 0422 224 442 or Email:


This post has been written for informational purposes only and without considering your individual circumstances.  Before relying on any of the information, please seek professional advice.

About the Author

Coach Mi

I'm a business coach passionate about helping women make the impossible possible! Do get in touch. I would love to have a chat to see how I can help.

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Comments 2

  1. I think finance/accounts are something I really despise. I had head that for Entrepreneurs Tax Offset, this is the last year that it will apply. Would certainly like to know how are you going to be affected with it?

    1. Post

      Hi Molly, yes you are right. This is the last year that the Entrepreneurs Tax Offset will apply. I hope I’ve understood your question correctly – basically, a tax offset, if you are entitled to it, reduces the tax that you pay.

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