As another end of financial year approaches, a few simple tax planning actions can help agribusinesses reap the rewards, writes Ross Paterson*.
It’s that time of year again (it seems to roll around even more quickly than Christmas).
Agribusinesses should now be undertaking tax planning actions that help them legitimately minimise tax liabilities and maximise profits.
Agri retailers, should start reviewing stock on hand. While stock on hand lets you meet customer demand and generate all-important cashflow, it is also money tied up until stock is sold.
Identify obsolete stock now and write it off before June 30. This is proactive tax planning rule number one for retailers.
Beyond obsolete stock, look carefully for reduced value stock that still retains some value despite being on the shelf for a while and take the opportunity to clear it (EOFY sales happen for a good reason).
Service businesses: crack the whip (or WIP)
For service-based agri businesses, the key is to be ruthless with your work in progress (WIP) at year end: “bill it or write it off” should be your mantra.
For example, if you are an agronomy services business and feel your time is not going to be recoverable there’s probably no point having it on your books at the end of June.
While these two actions – stock and WIP – are very much in your control, you have less control over debtors. However, it still pays to take action on the debtor front each end of financial year.
Review your debtors at the end of June. If you’ve made a consistent effort to recover debt and your debtors still haven’t paid you by year end, it can often make sense to write it off as a bad debt and at least get the tax deduction benefit in this financial year.
Obviously, you want to get paid but if you’ve made multiple attempts and it looks unlikely, it’s probably best to just write it off. There’s no point paying tax on something you may not recover.
It’s not the end of the recovery process, because if your invoice gets paid eventually you just add it back in as income.
Get in quick if you want to use temporary full expensing (Instant Asset Write-off). As of June 30, this scheme is no more.
It only makes sense to use the instant asset write-off this financial year if:
a) you can be assured the plant or equipment will be on hand and operational by June 30, otherwise it will not be eligible, and
b) your business is in a good position to take advantage of this scheme (if you’ve had a poor financial year, you might be better off saving your use of depreciation until you have a profit to offset – seek professional advice if you are unsure).
Agri business proprietors could also take a look at superannuation carry forward rules –if you haven’t made all your concessional superannuation contributions over the past few years you can bring forward unused concessional contributions.
This can be a good sugar hit at tax time. To do this, you must have a super balance of less than $500,000. If you’re an agri business owner who, for example, has been paying themselves dividends instead of wages, you could have three years of $27,500 available to you via concessional contributions.
Finally, keep in mind the usual tax planning measures – bring forward expenditure whether it be plant maintenance, buying consumables such as fuel before the end of June, pre-paying expenses or undertaking staff training.
Speaking of staff, one useful strategy if you want to keep good staff happy is to pay them a bonus before the end of financial year.
The main reason you’d do this is for staff retention rather than tax strategy, but if you want to reward people who are integral to your business it can be quite tax effective to pay them a bonus.
I highly recommend agri business proprietors engage with their tax accountant well before the end of the financial year to prepare a tax estimate based on year to date and projections forward to June. By doing this, business proprietors can quantify tax savings on proposed tax planning measures and make fully informed decisions.
*Ross Paterson is a partner and national head of agribusiness at professional services firm RSM Australia. A Certified Practicing Accountant with a background in broadacre farming, Ross specialises in advising small to medium agribusinesses on a range of issues including taxation, cash flow management, asset protection and business restructuring. Contact ross.paterson@rsm.com.au
