End-of-year Balance Date Accruals

Deductions

Deductible expenses may be claimed in the year in which they are incurred, even though payment may be made in the following year. Following are some special expenses which are either deductible in full or in part when they are incurred, but are related to the next income year.

The following expenses have no restrictions on the amount deductible:

• Stationery;
• Subscriptions to newspapers, journals, and other periodicals;
• Postage and courier costs;
• Rates;
• Road user charges; and
• Audit and accounting fees.

Advertising

Prepaid amount less than 6 months and under $14,000.

Bad debts

To be deductible, bad debts must be written off during the income year. A mere provision or reserve is not deductible.

Consumable aids

Amount on hand under $58,000.

Depreciation

• Taxpayers have the option of depreciating fixed assets on either a diminishing value or straight line basis.
• Fixed assets can only be depreciated from the month of purchase, eg plant and machinery purchased on 25 March 2007 is depreciated for one month.
• Items costing up to $500 (net of GST) and purchased on or after 19 May 2005, may be written off in the year of purchase if certain criteria are met. Items purchased 1 April to 18 May 2005 may be written off if under $200.

Disability/loss of profits insurance

Premiums are deductible in full where the taxpayers are in business on their own account, or are employees.

Discount reserve

A deduction for a discount reserve, such as a prompt payment discount reserve, is allowed if debtors are entitled to this discount.

In the first year, a deduction of 2.5% of the debtors' amount is allowed, and in subsequent years adjustments are made which maintain the discount level at 2.5% of the debtors' amount. If a higher discount is generally given, this could be used instead of the 2.5%.

Equipment service contracts or warranties

The full amount is deductible, provided it forms part of the consideration for the assets.

Holiday pay

The amount accrued at balance date is deductible, if paid within 63 days of the balance date.

Prepaid insurance premiums

Where the total insurance expense in the year does not exceed $12,000, a 12-month prepayment is claimable.

Lease or bailment of livestock

Prepaid amount less than 6 months and under $26,000.

Other services

Prepaid amount less than 6 months and under $14,000.

Rent for land and buildings

Prepaid amount less than 6 months and under $26,000.

Repairs and maintenance

Generally no deductions are allowed for a repairs and maintenance reserve, except for the periodic overhaul of business aircraft and the maintenance obligations of a construction firm under its building contracts.

Royalties

Royalties accrued to balance date are fully deductible.

Service or maintenance contracts

A prepayment of 3 months' expenses is deductible, provided the total expense on the contract does not exceed $23,000 in the income year.

Subscriptions for trade professional associations

A prepayment of 12 months is deductible provided the total amount for that association in the year does not exceed $6,000.

Telephone and other communication equipment expenses

A prepayment of 2 months is deductible.

Trading stock valuation

Don't forget to do a stocktake!

New stock and work-in-progress valuation rules were introduced from the 1998-99 income year, and have applied since.

The valuation methods differ depending on whether or not you are a 'small taxpayer'. Small taxpayers are those who, together with their associates, have an annual turnover of $3m or less.

From the 2002-2003 year tax payers will no longer be required to value closing stock or include any change in value if:

• turnover (total gross income) is $1.3 million or less for the year; AND
•  the trading stock on hand at balance date is reasonably estimated at less than $5,000.

Travel and accommodation expenses

Prepaid amount less than 6 months and under $14,000.