2013 Tax Planning Checklist

Transcription

1 Phone: Web: taccountants.com.au Suite 404, Level 4, 25 Lime Street, Sydney NSW 2000 GPO Box 280, Sydney NSW Tax Planning Checklist Table of Contents Note from the Writer... 2 Individuals Individual Tax Rates: SMSF Double Deduction for Superannuation Motor Vehicles Travel Expenses % Medical Expenses Offset Timing of Medical Expenses School Kids Bonus Removal of Discount on Voluntary Payments of HECS/HELP Debts Capping of Work Related Self Education Expenses Capital Gains Rental Properties... 8 Small Businesses Personal Services Income Directors Loans or Payments to Shareholders with no Tax Consideration Non-commercial Business Losses Immediate Deduction For Small Businesses On Asset Purchases Small Business Entity Concessions Company Loss Carry-Back Changes to Superannuation Obligations for Employers Bad Debts Trading Stock Taxable Payments Reporting Regime for Building and Construction Industry Self Managed Superannuation Funds Superannuation Contributions for Spouse Superannuation Contribution Limits Upcoming Changes to Pension Drawdown Relief Life Insurance Needs Analysis Investment Strategy Review Page 1 Liability limited by a scheme approved under Professional Standards Legislation. ABN

2 Note from the Writer Dear valued client, 2013FY: The year of the unexciting budget and mild performance As the 2013 financial year draws to a close, we are taking this opportunity to raise some issues for you to consider as you finalise your affairs for the year and prepare for the financial year. At this time last year we were the bearer of bad news in warning clients that the outlook for the year was to be flat to negative and that there was a real need to plan and budget for the follow year. Now with the benefit of hindsight, I don t think we were far off the mark. Economics According to the RBA s figures, whilst the Australian economy has grown on trend, measures of current business conditions remain soft and business lending has been slow in returning to historic levels. Both employment rates and wage growth have remained subdued over recent quarters as well. On a positive note, it looks as though the housing sector has improved markedly from 2012, coinciding with increases in approvals for housing and personal loans over recent months. Although housing prices are down on average 4% from 12 months ago, it is expected that further recovery to prices, low interest rates and continued demand will support property investments over the coming year. Looking towards the future, GDP growth is expected to remain below trend before picking up in the 2014 year. In line with the subdued outlook in economic growth, unemployment is expected to remain at their current levels before tapering off in For those looking for a silver lining, interest rates are not expected to increase significantly from their current levels as inflation forecasts remain low. Households Against this backdrop, both businesses and households are likely to continue conservative cash flow management as they have for the past couple of years. The considered timing of borrowing, expenditures, tax payment management, contributions to superannuation, business transactions and structuring remain as important as ever. We have noticed a steady increase in clients selling and consolidating property assets, as well a positive increase of new property purchases particularly in the last two months, which has been well timed with the current interest rate cycle. 4.8% fixed for two years from competitive lenders has definitely been a motivator! Page 2

3 Business The challenge for business clients for the past and coming 12 months is to grow and expand revenues in a price sensitive market. Cost cutting and staff reductions/consolidations have already taken place in 2012 and the first half of 2013 calendar year has been a continued grind for most. We are hoping that the post election mood and some increasing confidence in the second half of the year will start to ease the burden on business and make for a profitable 2014 financial year. We do recommend that you work with us however to step back and review your current revenue strategies and opportunities to ensure you are best placed for this. It is common for business owners to not take the time out and look at the bigger picture and only focus on managing the numbers for the tax man. Tax minimisation and structuring are important tools but they are only properly unleashed in a growing and profitable business. Looking at growth factors and potential business opportunities, sourcing synergies and joint ventures, and looking at what will provide your business with the drive to prosper in 2014 are all important. Moving into 2014, please take the time to review the 2013 financial year, and review your growth potential. We will be doing this with our clients who work with us for their yearend tax planning review but please let us know if you would like a separate session. Whilst this places pressure your business expectations it also provides the opportunity to inwardly focus on you and your plan ahead for your revenue and business strategy, and to aim and shoot for that so as to make the most out of the year ahead. Key Focus Points for Tax Time Discounts for voluntary payments of HECS/HELP debts cease on 31/12/13 plan to pay before then if you were considering taking advantage of this; Changes to superannuation thresholds be weary of your year to date contributions if you are considering salary sacrifice or additional deductible contributions; SMSF clients in pension mode have you taken your minimum withdrawal? Discretionary trusts if you have profitable distributions please be aware of the need for pre 30 June 2013 resolutions/minutes to be made. We have already contacted all of our clients in relation to this; Building industry sector clients be aware of the taxable payments reporting regime; Small business clients have an immediate deduction for assets < $6,500 and a one off $5,000 deduction up front for motor vehicles in excess of $6,500; Make sure you have all your receipts for deductions and they are all received prior to 30 June Page 3

4 To address these important issues, plan for 30 June 2013, and the year ahead, please: 1. Talk with us (and most have already) before 30 June 2013 so we can help minimise your exposures and take advantage of any timing on deductions or asset disposals; 2. If you think you have a potential tax liability we should clarify and estimate it shortly after 30 June 2013 so we can plan a payment strategy well in advance forewarned is forearmed ; 3. Review income tax structuring early in the 2014 FY as a result of legislation changes; 4. Reviewing asset sale/purchasing decisions early in the 2014 FY to maximise tax benefits; 5. Help to keep in contact with you so that we re maximising any opportunities that come your way. If you have any questions or would like to discuss any of the issues raised please feel free to call our office on (02) On behalf of all of your trusted advisors here at Traverse we look forward to hearing from you and extend our best wishes to you for the new financial year. Yours Sincerely, Jarrod White Director Page 4

5 Individuals 1. Individual Tax Rates: No changes were made to individual income tax rates for the tax year. Tax scales Threshold $ Marginal rate (not including 1.5% Medicare levy) Margin Rate (Including 1.5% Medicare Levy) 1 st rate 0-18,200 0% 0% 2 nd rate 18,201-37,001 19% 20.5% 3 rd rate 37,001-80, % 34% 4 th rate 80, ,000 37% 38.5% 5 th rate 180, % 46.5% LITO Up to $ % withdrawal rate on income over $37,000 Effective tax-free threshold (assuming no other income) 20, SMSF Double Deduction for Superannuation A SMSF can use a contribution reserve for the purpose of allocating contributions to members in a relevant financial year. This means that contributions in excess of the concessional caps for a particular year can still be deductible when made to an SMSF if the trustee has allocated the amount in excess of the contributions cap to a contributions reserve (ATO ID 2012/16). Under this method part of the contributions made in June of the financial year are credited to a contributions reserve and then allocated to the member s account in the next financial year by 28 July. This practice was confirmed in the recently issued ATO Interpretative Decision 2012/16 whereby the Commissioner confirmed that the amount received by an SMSF counts towards the member s cap for the financial year when it is allocated, not the year in which the contribution is made to the fund. Of course in setting up a contributions reserve for this purpose trustees should: only create the reserve if the fund's governing rules do not prohibit it from doing so (s. 115 of the SIS Act) and ideally the governing rules of the fund would specifically contemplate a contributions reserve being established; Page 5

6 formulate and give effect to a strategy for the prudential management of the contributions reserve (s 52(2)(g) of SIS Act); be aware that they must generally allocate contributions received to the relevant members' accounts by 28 July (but should also be cognisant of section 1017E(4) of the Corporations Act 2001 which generally requires that such allocation be made within 1 month of the contribution being received by the trustee); provide appropriate disclosure to members. 3. Motor Vehicles Where you have maintained a log book of business kilometres for your car, you may be entitled to a deduction for the business use component under one of four methods: Cents per kilometre methods; Logbook method (% of business use is claimed on total expenses) 12% of original value methods (available where business use exceeds 5,000 Km s); 1/3 actual expense method (available where business use exceeds 5,000 Km s); A log book has to be maintained for a period of 12 weeks and is valid for up to five years provided there are no changes in usage. 4. Travel Expenses To be able to claim travel expenses, you need to follow some guidelines: Overseas travel: A full itinerary and trip diary needs to be maintained to substantiate your expense claim and to differentiate between business and private expenditure; Domestic travel: A diary has to be maintained for travel lasting more than 6 nights recording the activities of the trip % Medical Expenses Offset A 20% rebate is available on medical expenses above $2,120. To maximise the rebate, we recommend for medical expenses for all dependants to be bundled and claimed in a single return so that the $2,120 threshold needs only be satisfied once. The offset will be means-tested from 1 July 2012, will be means-tested from 1 July 2012, which will mean that for most clients it will be harder to access. The means test will apply to people with adjusted taxable incomes in excess of $84,000 for singles and $168,000 for couples. For these taxpayers, the offset next year will only be available on out-of-pocket expenses in excess of $5,000 and it will be reduced to 10 per cent Page 6

7 6. Timing of Medical Expenses If possible, payment of medical expenses could be brought forward or deferred to maximise the deduction in a single year. 7. Schoolkids Bonus The Australian Government announced in the 2012 Budget that the Education Tax Refund (ETR) would be replaced by a new payment called the Schoolkids Bonus. Starting from 1 January 2013, the payment will help Family Tax Benefit Part A eligible families with children at school pay for expenses such as uniforms, books, school excursions, stationery and other costs like music lessons and sports registration fees. The bonus will be paid automatically in January and July. Each year, families will receive: $410 for each child in primary school (two instalments of $205) and $820 for each child in high school (two instalments of $410). 8. Removal of discount on voluntary payments on HECS-HELP debts From 1 January 2014, the following changes to HECS-HELP program will cease to be available: the 10% discount for upfront payments; the 5% bonus on voluntary payments made to the Australian Tax Office of $500 or more to voluntarily reduce HECS-HELP debt. Be sure to make any voluntary payments pre 31 December 2013 in order to take advantage of this. 9. Capping of work-related self-education expense deductions From 1 July 2014, a cap of $2,000 will be imposed on work-related education expenses incurred by individuals. Deductible expenses include costs of courses of study or other education activity (such as conferences and workshops) including tuition fees, registration fees, textbooks and professional and trade journals. It is worthwhile to consider commitments to courses and journals in advance of this date. 10. Capital Losses Many individuals have carried forward capital losses to the current year. To maximise the benefit of such losses, we recommend you follow the procedure below: 1. Identify CGT assets sold that were held for less than 12 months; 2. Offset the gains on these items against capital losses first; 3. Identify CGT assets sold that were held for more than 12 months; Page 7

8 4. Offset gains on these items against balance of C/F loss, if any, and then apply 50% discount to the remaining gain. Since capital losses can only be used to offset capital gains, we suggest you review your asset portfolio to identify underperforming assets that could be sold to help offset any current year capital gains. 11. Rental Properties Borrowing Costs These costs will be deducted over 5 years or the life of the loan, whichever is shortest. If you have bought an investment property in the past year, you can claim: Stamp duty charged on the mortgage ; Loan establishment fees ; Title search fees charged by your lender ; Costs for preparing and filing mortgage documents ; Mortgage broker fees ; Fees for a valuation required for loan approval ; Lender's mortgage insurance. Depreciation & Capital Works The ATO allows you to claim depreciation on depreciable assets on an accelerated basis. You are also entitled to claim a capital allowance of 2.5% on the construction costs of the property as well as costs of renovations and other fixed assets. To make sure you are claiming the maximum allowable deduction on your rental property, you need to correctly classify assets as either depreciating or capital works assets. We recommend engaging a quantity surveyor or depreciation reporting company to undertake a formal depreciation report for newly acquired properties. This will mean more efficient processing of your income tax return at tax time. Please contact us to arrange this. Repairs & Maintenance Repairs and maintenance expenses incurred on your rental property are deductible where they restore an asset to its working condition but not where they either replace or improve upon the original asset. (Note: To be able to claim any deduction, the rental property must be generating or be able to generate assessable income). Page 8

9 Small Businesses 1. Personal Services Income If you personally consult or contract through a business, any income you earn may be deemed as Personal Services Income ( PSI ). Typically this would happen where 80% of income is earned from a single source or where you fail the PSI tests. Where your business is assessable under the PSI regime: Your business cannot claim certain deductions against the PSI; The PSI (less relevant deductions) your business received will need to be attributed (treated as belonging) to each individual who performed the services - that is, the profits can't be retained in the business or split to other employees; Your business needs to meet certain tax return obligations; Your business may have additional pay as you go (PAYG) withholding obligations. If this concerns you, please contact us and we can discuss your specific circumstances. 2. Directors Loans or Payments to Shareholders with no Tax Consideration If a privately owned company of which you are a shareholder makes a payment or loan to you or forgives a loan owed by you, the company could be taken to have paid an unfranked dividend to you under Div 7A of the ITAA97. The amount treated as a dividend will generally be equal to the: Payment made; Amount of the loan that has not been repaid before the lodgement day Amount of the debt which has been forgiven. Any deemed dividend will be assessable to you individually. There are strategies available to help deal with such loans: Declare amounts paid as fringe benefits on which FBT is payable. Whether FBT is payable, Div 7A does not apply; Classify amounts taken as an excluded loan, in which case the loan will attract a statutory rate of interest (2013: 7.05%) along with other minimum terms and conditions; Repay monies taken to the company within 12 months; Declare wages or franked dividends to reduce the loan to nil. 3. Non-commercial Business Losses (Sole Traders) Where you have made a loss from non-commercial activities as a sole trader, this loss may not be allowed to be used to offset your assessable income. ATO will quarantine this loss unless: The activity has generate income greater than $20,000; The business has real property in excess of $500,000; Page 9

10 The business has other assets in excess of $100,000; The business has taxable income in 3 of the past 5 years. Taxpayers with taxable incomes above $250,000 will not be entitled to claim non-commercial losses regardless of whether they pass the above tests. 4. Immediate Deduction for Small Businesses on Asset Purchases From 1 July 2012: The small business immediate asset write-off threshold increases from $1,000 to $6,500. This means your business can claim an immediate deduction in full for an asset purchased that is less than $6,500; If purchasing a motor vehicle costing $6,500 or more post 1 July 2012, an initial deduction of $5,000 can be claimed immediately, and the remainder if the motor vehicle value is depreciated over eight years, or pooled in the general small business pool (depreciated at 15% in the first year then 30% thereafter). 5. Small Business Entity ( SBE ) Concessions Where your business has turnover of less than $2 million, you may be able to access a range of SBE concessions. Type Concessions Income tax Simplified trading stock rules; Pooling of assets to simplify depreciation calculations and immediate deduction of assets <$1,000; Immediate deduction of prepaid expenses (<12 months); Two year amendment period. Capital gains CGT retirement exemptions; 50% active asset reduction; CGT rollover on purchase of replacement assets. GST Cash accounting for GST; Annual apportionment for private use. Fringe Benefits Tax FBT exemption on car parking benefits. 6. Company loss carry-back The introduction of the company loss-carry-back measures as announced in the 2012/13 budget is progressing through Parliament, and may soon become law; however at the date of writing is yet to receive royal assent. This measure will allow companies (and entities taxed like companies) the opportunity to carry-back losses. This is capped at $1 million of losses per year, applies to revenue losses only, and will be limited to the company s franking account balance. Page 10

11 The ATO has also set out on its website how it plans to administer this measure. The ATO s main advice is that companies who are able to lodge their 2013 tax returns already are not advised to try and carry back losses until the changes become law. Once the law comes into effect, the ATO will issue advice about how to claim the loss carry back tax offset if a company has already lodged its 2013 income tax return. A company affected by this will then also be able to amend its company tax return and claim the loss carry back tax offset. Interest on overpayment of tax will be paid where applicable. 7. Changes to superannuation obligations for employers If you are an employer, in April this year, the ATO may have sent to you some information regarding superannuation guarantee obligations. Employers across Australia will have new super obligations under a range of reforms that are being implemented from 2013 to From 1 July 2013, employers must: increase the minimum rate for super guarantee payments on behalf of their employees from 9% to 9.25% start making super guarantee contributions for employees aged 70 years and over with the removal of the existing upper age limit. Accordingly, you may need to update your processes and systems to incorporate the changes. 8. Bad Debts To be entitled to a deduction for bad debts, the debt has to be written off by 30 June. Writing off a debt typically includes providing evidence that the debt is uncollectable such as minutes of directors meeting which identify the debts to be written off. 9. Trading Stock The ATO requires that you perform a stock take at year end and stock on hand can be valued (on and item-by-item basis) using the following methods: Cost price; Market price; or Replacement price. 10. Taxable Payments Reporting Businesses in the Construction and Building Sector We note that from the 1 July 2012 businesses in the Construction and Building industry had increased reporting requirements from the ATO. These businesses will be required to report the payments made to contractors during the financial year. Page 11

12 The purpose of these majors is to use data matching to detect those contractors who have not lodged their income tax returns or have not included all of their income in the returns that they have lodged. You will be considered to be a business in the building and construction industry if any of the following apply: in the current financial year, 50% or more of your business income is derived from providing building and construction services in the current financial year, 50% or more of your business activity relates to building and construction services in the financial year immediately before the current financial year, 50% or more of your business income was derived from providing building and construction services. You will be required to report the following details each financial year, for each contractor: ABN, if known. Name Address Gross amount you paid for the financial year (this is the total amount paid inclusive of GST) Total GST included in the gross amount you paid. This report will need to be lodged with the ATO by the 28 July We note that for the first year if you lodge using a registered tax agent you will have an extension to the 25 August Page 12

13 Self Managed Superannuation Funds 1. Superannuation Contributions for Spouse Where your spouse has less than $10,800 in taxable income, a tax offset of 18% is available up to a maximum contribution of $3,000 (phasing out at an income of $13,800). This benefit will be treated as a non-concessional contribution in the super fund (i.e. tax free). This means you can claim a maximum rebate of $540 on a $3,000 contribution if they earn less than $10,800 (the rebate phases out after that). 2. Superannuation Contribution Limits From 1 July 2012, the standard $25,000 concessional contribution limit applies to all taxpayers. Please be aware of the contribution caps for the 2013 tax year: Concessional contributions cap (for those below 50) Concessional contributions cap (for those aged 50+ at 30 June 2013) Non-concessional contributions cap $25,000 $25,000 $150,000 in any one year $450,000 over three years where > $150,000 in one year is exceeded The Government has proposed to increase the above concessional contributions cap from the 1 July 2013 for individuals aged 60 and over from $25,000 to $35,000 and for individuals aged 50 and over will be able to access the higher cap from 1 July Excess concessional contributions tax is payable on excess concessional contributions at a rate of 31.5%. This is on top of the 15% paid by the fund on its taxable income and it is payable by you individually. We recommend you review your superannuation contributions in the current year to ensure there are no excesses to the above thresholds. This will mean that, given the very large number of excess contribution tax cases that the Australian Taxation Office has pursued, these contribution limits must be carefully monitored. 3. Upcoming Changes to Pension Drawdown Relief The following table summarises minimum pension rates for the current and following financial year on an age bracket basis: Page 13 Age at start of pension (and 1 July each 2012/ /14 year thereafter) Under 65 3% 4% % 5% % 6%

14 % 7% % 9% % 11% % 14% Those receiving pensions must work with their financial planners and advisors to ensure that their fund maintains the required level of liquidity to maintain the pension liabilities of the fund. We also recommend to those in pension mode that you review your pension receipts in the 2013 financial year versus the minimum required pension to ensure you are complying with the terms of the draw down. 4. Life Insurance Needs Analysis The Superannuation Industry (Supervision) Amendment Regulation 2012 (No. 2) ( SISAR2 ) released on 6 August 2012 amends the investment strategy operating standard to require SMSF trustees to consider whether to hold a contract of insurance that provides life and TPD cover for one or more of their members. We will be working with our clients to meet these requirements and if as a trustee you require introduction to an advisor who can assist you in considering life insurance products please let us know. 5. Investment Strategy Review In addition to the consideration of insurance cover the investment strategy operating standard has also been revised to require the trustee of the fund to review regularly the fund s investment strategy. The investment strategy should formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the fund Whilst there is no requirement to formally document an investment strategy, SMSF auditors will require evidence of compliance with the investment strategy operating standard. Trustees should consider documenting their regular review and consideration for insurance in the fund s year-end minutes. Page 14