The end of the financial year is a critical time for Australian businesses. It’s when you close the books, prepare financial statements, lodge tax returns, and plan ahead.
However, the EOFY period can also be a source of stress and costly ATO tax mistakes if you’re not well-prepared. To help you navigate this busy season smoothly, here are the top five EOFY mistakes to avoid, with practical examples and solutions for each.
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1. Neglecting regular contact with your accountant throughout the year
Many small and medium business owners only reach out to their accountants at the last minute when their financial records are in disarray, and they have little understanding of their current financial position. This reactive approach can lead to rushed, inaccurate reporting, missed tax-saving opportunities, and unnecessary stress.
Example:
A café owner waits until June to contact their accountant. Their bookkeeping is incomplete, receipts are missing, and they are unsure about their tax obligations. This results in last-minute scrambling, rushed tax preparation, and missed deductions.
What you should do instead:
Engage your accountant or bookkeeper regularly throughout the year. Many accountants offer monthly or quarterly packages that include regular financial reviews, advice on tax planning, and assistance with cash flow management. You can:
- Schedule regular check-ins with your accountant.
- Use cloud accounting software (like Xero or MYOB) that your accountant can access in real time.
- Ask for advice on how to improve your financial position before EOFY.
2. Failing to keep accounts up to date
Leaving bookkeeping tasks until the end of the year creates a backlog of unrecorded transactions and unreconciled accounts. This makes EOFY preparation more time-consuming and increases the risk of errors, overlooked income, or missed expenses.
Example:
A small retail business owner has not recorded cash sales or supplier invoices for several months. When EOFY arrives, they struggle to reconcile their bank statements and accurately report income and expenses, risking inaccurate tax returns.
What you should do instead:
- Record transactions weekly or monthly.
- Reconcile bank statements regularly to catch discrepancies early.
- Use accounting software to automate transaction recording and categorisation.
- If overwhelmed, hire a bookkeeper to keep your records current.
Regular bookkeeping ensures your financial statements are accurate and reduces EOFY stress.
3. Leaving financial statements and tax preparation to the last minute
Procrastinating in preparing financial statements or tax documents can lead to rushed, incomplete, or inaccurate submissions. This increases the likelihood of errors, penalties from the ATO, and missed opportunities to optimise your tax position. You may also risk late tax lodgement.
Example:
An SME owner waits until late June to compile financial reports and gather supporting documents. They then have to pay for expedited accounting services and risk filing errors due to the rushed process.
What you should do instead:
- Set internal deadlines for completing bookkeeping and financial reviews.
- Regularly update your asset registers and depreciation schedules.
- Ensure all invoices, receipts, and bank reconciliations are complete by May.
- Use accounting software to generate reports early and identify any issues.
This approach leads to more accurate financial statements and smoother tax lodgement.
4. Not understanding or using accounting software effectively
Many small businesses invest in accounting software but do not fully utilise its features. Lack of training or understanding can result in miscoded transactions, missed deductions, and inefficient processes.
Example:
A trades business owner uses Xero but does not know how to track GST correctly or manage payroll within the system. This leads to errors in Business Activity Statement (BAS) lodgement and superannuation payments.
What you should do instead:
- Invest time in training or tutorials for your accounting platform.
- Explore features like automated bank feeds, expense tracking, and payroll management.
- Regularly update software to ensure compliance with current tax laws.
Proper use of accounting software saves time, reduces errors, and provides real-time financial insights.
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5. Inadequate record-keeping and lack of supporting documentation
Failing to keep detailed and organised records can jeopardise your ability to claim deductions and comply with ATO requirements. Without proper documentation, you run task audit risks and may face denied claims or even penalties.
Example:
A sole trader claims home office expenses but cannot provide evidence of hours worked or related costs when audited by the ATO, resulting in disallowed deductions and fines.
What you should do instead:
- Keep receipts, invoices, and bank statements in one accessible place.
- Use digital tools to attach photos or scans of receipts to transactions.
- Document business use percentages for mixed-use expenses (e.g., phone, internet, vehicle).
- Regularly reconcile and update your asset register and depreciation schedules.
Good record-keeping ensures you can substantiate all claims and maximise your tax benefits.
Additional tips and things to consider at EOFY
The end of the financial year is not just about closing your books; it’s a strategic moment to optimise your business’s financial health, ensure compliance, and prepare for the year ahead. Below are key considerations that can help you avoid pitfalls and maximise opportunities during EOFY.
Separate business expenses from personal ones
Maintaining a clear separation between your business and personal finances is essential for accurate bookkeeping and tax compliance. One of the most effective ways to do so is using a dedicated business bank account and credit card, which simplifies transaction tracking and bank reconciliations.
This separation also protects you during ATO reviews by clearly demonstrating which expenses are business-related. Even if you are a sole trader, a separate business account can help you increase business performance visibility and separate your expenses.
You can also pay yourself a regular salary from your business account to your personal account, reinforcing the boundary between personal and business expenses.
Review asset values and stock
Conducting a comprehensive stocktake and reassessing your asset values at EOFY ensures your financial statements accurately reflect your business’s true position. A physical stocktake helps identify obsolete or slow-moving inventory that may need to be written off, which can reduce your taxable income.
Similarly, reviewing your asset register allows you to update depreciation schedules and account for any new purchases or disposals. Accurate asset and inventory valuation is crucial for calculating the cost of goods sold (COGS) and managing potential capital gains tax liabilities.
You should always keep detailed records of these adjustments to ensure compliance and provide a clearer picture of your business’s financial health.
Bring forward purchases to maximise deductions
If your business has sufficient cash flow and is profitable, consider prepaying certain expenses before June 30 to claim immediate tax deductions in the current financial year. Eligible prepaid expenses include rent, insurance, subscriptions, software licenses, and equipment purchases.
However, the ATO only allows deductions for expenses covering 12 months or less, so it’s important to plan accordingly. This strategy can reduce your taxable income and improve your EOFY tax position, but it should be used with care.
Consider consulting our accountant before making large prepayments to ensure you comply with tax rules and avoid overextending your cash flow.
Comply with superannuation rules
Meeting your superannuation obligations on time is critical to avoid penalties and maintain the tax deductibility of contributions. For the 2024-25 financial year, the super guarantee rate is 11.5%.
As an employer, you must ensure all eligible employee super payments are made by the quarterly due dates to avoid the Superannuation Guarantee Charge. Using payroll or accounting software can help track and manage these payments efficiently. It’s also important to keep proof of payment and reconcile super liabilities regularly.
Meet all deadlines
EOFY comes with numerous critical deadlines, including BAS lodgement, PAYG instalments, super guarantee payments, GST reporting, and tax returns. Missing these deadlines can result in penalties, interest charges, and cash flow disruptions.
To stay compliant, maintain a detailed calendar of all relevant dates and set reminders well in advance. Using accounting software with alert features can help you prepare and lodge reports early.
Plan for the next financial year
EOFY is an ideal time to reflect on your business’s financial performance and set goals for the upcoming year. Analyse your profit and loss statements, cash flow trends, and expense patterns to identify areas for improvement or investment. Use these insights to update your business plan, adjust budgets, and explore opportunities for growth or restructuring.
For example, you might consider changing your business structure for better tax efficiency or planning capital expenditures strategically.
Protect your financial data
Protecting your financial data is vital, especially as you prepare sensitive EOFY documents. Data loss due to system failures, cyberattacks, or accidental deletion can disrupt your reporting and compliance efforts.
To protect yourself, regularly back up your accounting data, preferably using cloud-based software with automatic backups. This ensures you have secure, accessible copies of your records. You should also implement strong cybersecurity measures such as complex passwords, two-factor authentication, and staff training to reduce risks.
Additionally, having a disaster recovery plan in place allows quick restoration of data if needed, safeguarding your business continuity and peace of mind.
Beware of tax scams
EOFY is a peak time for tax-related scams targeting businesses. Fraudsters often impersonate the ATO or other authorities through emails, phone calls, or messages requesting personal or financial information.
Always verify any communication claiming to be from the ATO by contacting them directly through official channels. Never provide sensitive information in response to unsolicited requests. Educate yourself and your staff about common scam tactics and report suspicious activity promptly.
Staying vigilant protects your business’s finances and reputation.
Preparing for EOFY and avoiding common tax mistakes
The end of the financial year can be a stressful time for many business owners. However, by avoiding these common mistakes and following our tips, your business can navigate the EOFY period with confidence.
Do you need help ensuring compliance and protecting your business from tax return errors? Get in touch with Lawpath’s professional compliance team. We are here to help.
