Tax Strategies for Businesses
If your entity structure is a trust, then it is crucial that your trustee resolution to appoint or distribute income to beneficiaries is effective as at 30 June. This means that tax planning for trusts should be done as soon as possible to ensure the resolution can be made with tax effective considerations in mind and also finalised/documented prior to 30 June.
Deferral of Income
If cash flow and business reality allows, consider deferring the derivation or receipt of income until the next financial year. If on a cash basis, consider trying to defer the receipt of cash. If reporting income on an accruals basis, defer the derivation of income by holding back invoices if possible until after 30 June.
If you have any bad debts and use accrual system of accounting, ensure you write them off prior to 30 June and prepare minutes approving the write-off. This will also enable an adjustment for any GST charged on the original invoice
Maximizing allowable deductions
Expenses that are incurred before year end can reduce taxable income.
Consider upcoming liabilities and the value in incurring them before year end. Allowable deductions may include:
- Paying directors’ fees and bonuses;
- Repairs on property and machinery;
- Pooling depreciating assets; and
- Scrapping of depreciating assets which are no longer being used.
Deduct any office expenses
You should purchase any necessary office equipment and expenses before the end of the financial year so you can claim a deduction, and perhaps utilise tax concessions on depreciating assets. Make sure you have kept receipts for purchases made throughout the year.
Small business entities can claim an immediate deduction for depreciating assets that cost less than $20,000 and first used or installed ready for use on or before 30 June.
Make sure any superannuation contributions are made no later than 30 June so you can claim the deduction in this financial year.
Required super guarantee (SG) contributions for employees of the business should be made by no later than 28 days after the end of the quarter to ensure that the contribution is deductible and no SG charge becomes payable to the Australian Tax Office.
Make sure your log books are up to date and represent the car’s business use
If you have a car that you use for business purposes, check that all of your motor vehicle log books satisfy the substantiation requirements.
Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2018. You should make a record of your odometer reading as at 30 June 2018, and keep all receipts/invoices for your motor vehicle expenses. Once prepared, a log book can generally be used for a 5-year period.
An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
PAYG payment summaries
PAYG payment summaries must be provided to employees by 14 July and lodged with the ATO by 14 August, unless the ATO have granted your business an extension of time.
If you or your associates borrowed money, received a benefit, or had a debt forgiven from a private company during the year, the Division 7A rules may apply to you
Please make sure that you physically count the stock you have at the end of the year. Stock to be valued at cost or realisable value whichever is less.
Single Touch Payroll
If you have more than 20 employees as on 01.07.2018 get ready for STP reporting.
Tax Planning for Individuals
First Home Super Saver Scheme
The First Home Super Saver (FHSS) scheme was introduced by the Australian Government in the Federal Budget 2017–18 to reduce pressure on housing affordability.
The FHSS scheme allows you to save money for your first home inside your superannuation fund. This will help first home buyers save faster with the concessional tax treatment within super.
From 1 July 2017 you can make voluntary concessional (before-tax) and non-concessional (after-tax) contributions into your super fund to save for your first home.
From 1 July 2018 you can then apply to release your voluntary contributions, along with associated earnings, to help you purchase your first home. You must meet the eligibility requirements to apply for the release of these amounts.
Call me if you need further information
Maximising allowable deductions
Expenses that are incurred before year end can reduce taxable income. Consider up and coming liabilities and the value in incurring them before year end.
If you have a rental property, consider whether you are maximising claims for capital allowance and capital works deduction on the property.
Pay income protection insurance premiums before year end.
Salary sacrifice/ Superannuation – personal deductions
By ‘sacrificing’ some of your before-tax salary and putting it into your super fund, you get taxed at the special rate of 15%. That’s why it’s also known as ‘concessional contributions’ because there are tax concessions with these types of contributions. This suits higher income earners due to their higher marginal tax rate.
From 1 July 2017 you can make a personal superannuation contribution to your super fund and can claim a tax deduction in your tax return. However please make sure appropriate notice of intent to claim is provided to your super fund. You should check that the total of your personal contributions (for which you are eligible to claim a tax deduction) and any employer contributions during the income year do not exceed $25,000.00.
Low income superannuation tax offset
Effective 1 July 2017, eligible individuals with an adjusted taxable income up to $37,000 will receive a LISTO payment to their super fund. The LISTO payment will be equal to 15% of their total concessional (pre-tax) super contributions for an income year, capped at $500.
Low income earners
The tax-free threshold of $18,200, together with the low income tax offset, means that some low income earners will not need to lodge income tax returns for the 2018 income year.
Superannuation – Government Co-Contribution
If you are a low or middle-income earner and make personal (after-tax) super contributions to your super fund, the government also makes a contribution (called a co-contribution) up to a maximum amount of $500. As there are also other qualifying criteria, please contact me if you wish to access this benefit.
Transition to Retirement Income Streams
If you have reached preservation age, you may be eligible to commence a “Transition to Retirement” pension. Benefits may include:
- Receiving pension income while still working;
- Ability to salary sacrifice to superannuation to access lower tax rates;
You may be able to claim an 18% tax offset on super contributions of up to $3,000 you make on behalf of your non-working or low-income-earning spouse.
Property Depreciation Reports
If you have an investment property, a Property Depreciation Report (prepared by a Quantity Surveyor) will allow you to claim depreciation and capital works deductions on capital items within the property and on the property itself.
The cost of this report is generally recouped several times over by the tax savings in the first year of property ownership.
Tax Essentials for Self-Managed Super Funds
The concessional contribution cap for everyone, no matter their age, is $25,000 for 2017/18. Those with salary sacrifice arrangements in place need to ensure they don’t breach this lower concessional cap and should review/revise their arrangement accordingly.
Also, those employees who cannot salary sacrifice to super are able to make personal contributions and claim as a tax deduction. The restriction, known as the ‘10% test’, was removed from 1 July 2017. There are specific notice requirements in place and again, you need to ensure that the total of personal deductible and employer contributions does not exceed the $25,000 limit for 2017/18.
Non Concessional Contributions
The non-concessional cap for 2017/18 is $100,000. However, for anyone who has a ‘total super balance’ of at least $1.6m as at 30 June 2017, their non-concessional cap is reduced to zero.
For those under age 65 during 2017/18, the bring forward rule can be used, where eligible, for non-concessional contributions. However, this also depends on the member’s total super balance at 30 June 2018.
Don’t leave contributions to the last minute
It’s vitally important to ensure that any contributions for 2017/18 are received by the fund no later than 30 June 2018, which is a Saturday. If contributions are made by internet banking, be aware of the service conditions that apply, the date the transaction will be processed and importantly, when the deposit will show in the fund’s bank account. Where an electronic contribution is made on 30 June 2018, generally, the deposit will not appear in the fund’s bank account until the following day, which is the next financial year (and some banks may not process until the next business day).
Ensure that the minimum required amount of pension is paid by 30 June 2018.
Transition to retirement pension
Earnings inside a TTR pension accounts no longer receive a tax exemption and will be taxed in the same way as accumulation phase assets at 15% w.e.f 01.07.2017. If you are currently using this strategy, you may need to review it to ensure it is still beneficial for you.
Downsizing Contributions into superannuation
From 1 July 2018, if you are 65 years old or older and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home.
Market valuation of assets
Although this is a simple process for assets that have a quoted market price, like listed stocks and managed funds, if the SMSF has assets that are not on-market, such as real estate and collectables, it’s a good idea to line up the relevant assessors, where needed, early. External valuations may not be required every year, however, superannuation law requires the SMSF trustee(s) to turn their mind to and determine market value for each year’s annual financial statements.
Ensure you have the right support network
Running an SMSF is not easy, even for the most engaged trustees. The rules can be complex and new and proposed legislation can affect the way the SMSF operates.
But it’s important for SMSF trustees to know that they have the necessary support to manage their SMSF. You might choose to run your own SMSF for control and choice, but it doesn’t mean you’re alone.
Also if you are an SMSF trustee, some of questions to ask yourself:
- Do I have the necessary records for all of my superannuation contributions and accounts?
- What is the total amount that I have contributed this year (including my super guarantee amounts)?
- Can I make a contribution for my spouse? And is this an effective tax minimisation strategy?
- Were there any contributions from the previous financial year that I can super split into this current financial year?
- Should I consider making any additional contributions before the end of financial year (concessional and non-concessional)?
- Have I withdrawn the minimum pension for the year?
- Is my investment strategy updated?
- Do I have adequate insurance in place?
The above is just a summarised list and all may not be applicable to you. If you wish to discuss any of the matter in details please call Mitesh Modi of MM Consultancy, Chartered Accountants on 02 8960 5702 or email firstname.lastname@example.org
Disclaimer: The material contained is in the nature of general comment and information only and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information without taking appropriate professional advice.
All financial figures are quoted in Australian Dollars unless otherwise indicated.