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 2017.
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 2017. You should make a record of your odometer reading as at 30 June 2017, 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.
Tax Planning for Individuals
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.
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.
Low income super contribution
If you earn up to $37,000 you may also get a ‘low income super contribution’ of up to $500 from the government. You will get this payment whether or not you add extra money to your super. The ATO will automatically make these payments if you meet the criteria
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 2017 income year.
Superannuation – personal deductions
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 $30,000 for individuals under 49 years of age on the 30th June 2015, or $35,000 for all other individuals. Concessional contributions above these caps are assessed to the individual at their marginal tax rate, and also incur an interest charge from the ATO.
Superannuation – Government Co-Contribution
The maximum co-contribution amount that you can receive is $500, based on an after-tax contribution of $1,000 (i.e. for every $1 contribution made, the government contributes $0.50). This is reduced by 3.33 cents for each $1 of income over $35,454 p.a. up to $50,454 p.a. 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 before 30th June 2016, 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; and
- Concessional tax treatment within your super fund.
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
Maximise use of the available concessions now
When the 2016-17 federal budget was announced, many older Australians may have drawn a sharp breath around the changes to concessional contribution caps. What this means for Australians and their finances will depend on their personal circumstances.
For many, now is an opportune time for SMSF trustees to contribute more under the existing rules.
This is because from 1 July 2017 the concessional caps will be reduced to $25,000 regardless of age.For those aged 49 or older on 30 June 2015, the current cap of $35,000 remains in place until 30 June 2017
Lowering of non-concessional contribution cap to $100,000 from 01 July 2017
The non-tax deductible super contribution cap decreases from $180,000 to $100,000 per year. The cap will be reduced further to nil for a year if your total super balance is above $1.6 million at the end of the previous financial year.
Last chance for $540,000 non-concessional contributions
Bring forward rule, which allows individuals to bring forward two future years of non-concessional contributions (NCC) will be retained for those under age 65.
Individuals who are under age 65 at any time in the 2016/17 year and have not already reduced their NCC capacity through earlier contributions, may contribute up to $540,000 (3 years x $180,00 a year) before 1 July 2017.
From 1 July 2017, this will be reduced to a $300,000 potential non-concessional contribution into super (3 years x $100,000 a year), depending on their total super balance.
Transition to retirement pension
Earnings inside a TTR pension will 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.
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.