With a new calendar year just starting, another type of year is drawing to a close; the financial year! While we at All Accounted For look to ensure that all your filing obligations are met, you can think about what you can do to put yourself in the best position heading into the 2021 financial year.
One consideration for this time of year is the timing of purchases and expenses. Expenses reduce your taxable profit and therefore the amount of tax your business needs to pay. Any expenses incurred before year end (31 March) will be recognised in the 2020 tax year, in turn reducing your tax for 2020 tax year. Although expenses paid after year end will still be deductible, you will have to wait an additional 12 months to realise the tax benefits.
For example, if you are planning to have your rental property painted before winter sets in, you could substantially reduce your taxable income for 2020 tax year by ensuring it is done before 31 March. If the rental property made a loss for 2020 tax year, this would be carried forward to offset future years profit.
Although there is a tax benefit in incurring expenses prior to 31 March, this investment should still be considered from the business perspective first and foremost, with tax deduction being a secondary benefit. There is no point in purchasing items not required for your business in order to save on tax as for every $100 spent you will at best save $33 of income tax.
If you would like to discuss your particular situation, please get in touch with us.