Tax tips for tradies ahead of EOFY

As June 30 approaches, it’s always tempting to splash out. New ute? Sure. More tools? They’ll come in handy. But wait a minute Montgomery Brewster, put on your business hat before you make any big spending decisions.

As the early months of the year begin to tick by, business brains start thinking of the end of financial year – and ways to minimise the tax you’ll pay once everything’s done and dusted on June 30.

You’ll be inundated with TV commercials promoting EOFY sales on utes, and website ads trying to convince you to part with your hard earned money on anything from coffee machines to TVs. (Office essential, obviously.)

So, what’s the best course of action? Spend now to reduce the tax you pay for this financial year, or keep your cash where it is and ignore the external pressures to buy?

As it turns out, it really depends on your individual situation.

Tax agent Stacey Price of Healthy Business Finances agrees, “Panic spending at EOFY needs to stop being ‘glamorised’ with the expectation of massive tax benefits.

“Before any money is spent, you need to know both your profit position and potential tax positions. Spending money without understanding those two things is utterly pointless most of the time.

“If you are making a loss, spending has no immediate tax benefit so why spend?

If you are making a profit and have cash in the bank and will be in a tax payable position, then what to spend will depend on what benefits are obtained.”

With that in mind, it’s important to consider three key aspects of any purchase as you approach EOFY.

EOFY spending: Does the business actually need it?

Might sound like an obvious question but it’s one that you need to ask yourself, says Morgan Wilson, Founder at Creditte.

“Will it increase revenue, improve efficiency, or reduce stress? Or is it just a shiny purchase because ‘it’s tax deductible’?.

“If it doesn’t improve capacity, margins, or time, it’s probably not strategic.

We see this all the time. The deduction becomes the justification.”

So, first things first, be honest – is it something the business needs? If it’s a resounding yes, it’s on to the second consideration point…

EOFY spending: Can the business afford it?

If you’ve got a positive tax position then it could be a smart move to invest in something the business needs if the price is right, but it’s important to ensure the business can actually afford it.

Morgan says, “Cashflow strength matters more than tax savings. A purchase that creates pressure isn’t building anything better.

“After GST, loan repayments, super, BAS, and wages, is there still a buffer?”

EOFY spending: Are there incentives or tax benefits?

If the business needs it, and the business can afford it, the question moves on to the reason for buying now. Are there any incentives or tax benefits involved?

“For example,” says Morgan, “instant asset write-offs, depreciation rules, or energy incentives can improve the outcome, but they shouldn’t drive the decision.

“Tax should support good business decisions, not be the reason you make them.”

EOFY spending: Logic wins out every time

If you’re approaching EOFY with money in the bank and the prospect of a decent tax bill, it can be smart to look at those things the business will need during the next financial year. For example, can you pay a year’s subscription to any systems or platforms you use, or can you pay your insurance premiums up front?

Stacey asks: “Do you need more tools? Should you contribute more to super? Do you want to make a large deductible donation? Can you give staff (or yourself) a bonus via payroll?”

All of those questions, of course, need to be looked at in the context of your business, but the key message from our experts is don’t get sucked into EOFY spending for the sake of it.

Other businesses want you to part with your cash – regardless of the time of year. As Stacey says, it’s important not to glamorise EOFY spending. Maintain perspective, put your business hat on, and seek professional advice from a tax agent or accountant who can give you a truly objective view – not one that’s been distracted by that new, shiny thing over there…

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