Cutting Your Small Business Tax Bill Can Be as Simple as Timing

MEDIA RELEASE

CUTTING YOUR SMALL BUSINESS TAX BILL CAN BE AS SIMPLE AS TIMING

Many of Australia’s two million small businesses could lower their tax bills by changing accounting methods, the Australian head of online accounting software provider Xero says.

Xero Australia Managing Director Chris Ridd says many small businesses start out employing cash accounting, which recognises income and expenses as they are physically paid, but many could be better off using accrual accounting methods. Accrual accounting recognises income as bills are issued and expenses as invoices are received. It can help minimise income and maximise expenses in order to reduce the amount of tax business owners have to pay.

“On the expense side of the ledger, bringing forward regular expenses like insurance and rent under the accrual method can help lower your tax bill,” says Mr Ridd. “You don’t have to actually spend the money before June 30 to get the deduction if an invoice is issued before then.”

Mr Ridd says there are limits to the benefits of bringing forward expenses: “There’s little point in buying supplies or equipment you won’t use for 11 months because you’ll have to manage without a swag of cash for the sake of deducting only some of it.”

Conversely, issuing invoices after the end of the tax year means you won’t be taxed on the related income until the following year - thus freeing up cash.

“The same applies with sales of assets, such as your business premises or goodwill,” says Mr Ridd. “If you’re likely to make a gain on the sale, think about deferring it until the new year as this gain is taxable. Likewise, if you think you’ll make a loss selling an asset, see if you can bring forward the sale to the current tax year so you can offset it against current income.

“There are additional tax concessions available to small businesses for the sale of some assets, so check with your accountant before you offload anything.”

Mr Ridd advises those wanting to change to accrual accounting to start planning now. “Once the calendar tips past June 30 you will have missed your chance to take advantage of accruals so now’s the time to comb through your expenses to see what you can bring forward and look for any income you can delay.”

Accrual accounting creates debtors and creditors, so it’s a good idea to use accounting software, which makes it easy to keep track of a business’s cash flow and its true financial position.

ENDS             

For more information contact:

Chris Ridd             

Managing Director, Xero Australia             

chris.ridd@xero.com             

0414 987 026             

Marina  Holmes             

Marketing Communications Manager             

marina.holmes@xero.com             

0416 663 396

About Xero

Xero provides easy to use online accounting software for small businesses and their advisors. The company now has over 280,000 customers in more than 100 countries around the world and is listed on the NZX and ASX.