JUNE 2018 YEAR END TAX PLANNING GUIDE

Transcription

1 JUNE 2018 YEAR END TAX PLANNING GUIDE The end f anther financial year is fast appraching and as yur accuntant, we believe part f ur client brief is t help yu minimise yur tax liability within the framewrk f the Australian taxatin system. The purpse f this newsletter is t highlight sme end f year tax planning pprtunities but yu need t act quickly and we encurage yu t schedule a meeting as sn as pssible t assess yur ptins and the steps yu need t take well befre the 30 th June, Please nte, this is a pre-budget guide and things may change after the Federal Budget is handed dwn n Tuesday May, 8, T assist yu we have put tgether a list f strategies t cnsider and nte: T maximise benefits fr the current financial year, we suggest yu prepare a preliminary calculatin f yur taxable incme fr the year ending June 30, 2018 t establish if yu have a tax 'prblem' and identify the size f yur likely tax debt. Review all tax deductible expenses and assessable incme in the latest available figures t determine the pssibility f pre-paying sme expenses befre June 30 r deferring sme revenue until after July 1. The fllwing list f tax planning pprtunities is certainly nt exhaustive and depending n yur circumstances (including yur turnver and whether yu are n a cash r accruals methd f accunting), terms and cnditins may apply t sme f these tactics. If yu wuld like t discuss yur tax planning ptins we urge yu t cntact us tday and mst imprtantly, dn't leave it until the last minute as sme f these strategies require sme time t implement. Disclaimer: This newsletter cntains general infrmatin nly. N respnsibility can be accepted fr errrs, missins r pssible misleading statements. N respnsibility can be accepted fr any actin taken as a result f any infrmatin cntained in these newsletter articles. This newsletter is nt designed t be a substitute fr prfessinal advice and des nt take int accunt yur individual circumstances.

2 Tax Minimisatin Strategies CONSIDER THE FOLLOWING OPPORTUNITIES 1. Delay Deriving Assessable Incme One effective strategy is t delay deriving yur incme until after June 30, 2018 by: a. Delaying the Timing f the Derivatin f Incme until pst June 30. b. Timing f Raising Invices fr Incmplete Wrk (Businesses) Where this strategy will nt adversely affect yur cash flw, cnsideratin shuld be given t deferring the recgnitin f incme until after 30 June Please nte, nt banking amunts received befre June 30 until after June 30 des nt qualify because the incme is deemed t have been earned when the mney is received r the gds r services are prvided (depending n whether yu are n a cash r accruals basis f accunting). Cash Basis Incme - Sme incme is taxable n a cash receipts basis rather than n an accruals basis (e.g. rental incme r interest incme in certain cases). Yu shuld cnsider whether sme incme can be deferred in thse instances. Cnsider delaying yur invices t custmers until after July 1 this will push the derivatin f the incme int the next financial year and defer the tax payable n that incme. If yu perate n the cash basis f accunting yu simply need t delay receiving the mney frm yur custmers until after June 30. Lump Sum Amunts - Where a lump sum is likely t be received clse t the end f a financial year, taxpayers shuld cnsider whether this amunt (r part theref) can be delayed r spread ver future perids. 2. Bringing Frward Deductible Expenses r Lsses Prepayment f Expenses - In sme circumstances, Small Business Entities (SBE) and individuals wh derive passive type incme (such as rental incme and dividends) shuld cnsider pre-paying expenses prir t 30 June A tax deductin can be brught frward int this financial year fr expenses like: Emplyee Superannuatin Payments including 9.5% Superannuatin Guarantee Payments fr the June 2018 quarter (that have t be received by the Superannuatin Fund by June 30, 2018 t claim a tax deductin). Superannuatin fr business wners, directrs and assciated persns Wages, bnuses, cmmissins and allwances Cntractrs Page 2 f 8

3 Travel and accmmdatin expenses Trade creditrs Rent fr July 2018 (and pssibly extra mnths) Insurances Printing, statinery and ffice supplies Utility expenses telephne, electricity and pwer Advertising including directry listings Mtr vehicle expenses such as registratin and insurance Subscriptins and memberships t prfessinal assciatins and trade jurnals Accunting fees A deductin fr prepaid expenses will generally be allwed where the payment is made befre 30 June 2018 fr services t be rendered within a 12-mnth perid. While this strategy can be effective fr businesses perating n a cash basis (nt accruals) basis, we never recmmend yu spend mney n items yu dn t need. Hwever, paying expenses in June that are due in July culd save yu sme tax this year and prvided yur cash flw permits, it makes gd business sense. Superannuatin Cntributins - sme lw r middle-incme earners wh make persnal (after-tax) cntributins t a superannuatin fund may be entitled t the gvernment ccntributin. The amunt f gvernment c-cntributin will depend n yur incme and hw much yu cntribute. (Refer t the Superannuatin Sectin belw fr mre infrmatin) Capital Gains/Lsses the timing f the sale f assets is critical and deferring the sale until after June 30 will defer the tax expsure n the prfit. Of curse, if yu have made ther capital gains during the financial year it culd be wrth bringing frward the sale and crystallizing the lss, s yu can ffset it against the ther capital gains. Nte that the cntract date is ften the key date fr when a sale has ccurred fr capital gains tax purpses, nt the settlement date. Accunts Payable - If yu perate n an accruals basis and services have been prvided t yur business, ensure that yu have an invice dated June 30, 2018 r befre, s yu can take up the expense in yu accunts fr the year ended 30 th June Businesses shuld als cnsider: Stck Valuatin Optins - Review yur Stck n Hand and Wrk in Prgress listings befre June 30 t ensure that it is valued at the lwer f Cst r Net Realisable Value. Any stck that is carried at a value higher than yu culd realise n sale (after all csts assciated with the sale) shuld be written dwn t that Net Realisable Value in yur stck recrds. Page 3 f 8

4 Cmpulsry Superannuatin Guarantee as mentined abve, if yu want a tax deductin in the 2017/18 financial year, the superannuatin fund must receive the funds by 30 June The Tax Office desn t cnsider a cntributin t be made until the amunt is actually credited t a super fund s bank accunt s an electrnic transfer t anther bank accunt n June 30 is nt necessarily cnsidered paid. We strngly recmmend yu make the payment a week r s befre June 30 and then fllw up with the super fund t ensure the funds have been received. Dn t risk the tax deductibility f what can ften be a significant amunt by leaving payment t the last minute. Write-Off Bad Debts if yu perate n an accruals basis f accunting (as distinct frm a cash basis) yu shuld write ff bad debts frm yur debtrs listing befre June 30. A bad debt is an amunt that is wed t yu that yu cnsider is uncllectable r nt ecnmically feasible t pursue cllectin. Unless these debts are physically recrded as a bad debt in yur system befre 30th June 2018, a deductin will nt be allwable in the current financial year. Repairs and Maintenance Csts Where pssible and cash flw allws, cnsider bringing these repairs frward t befre June 30. If yu dn t understand the distinctin between a repair and a capital imprvement, please cnsult with us because sme capital imprvements may nt be tax deductible in the current year and culd be claimable ver a number f years as depreciatin. Obslete Plant and Equipment shuld be scrapped r decmmissined prir t June 30, 2018 t enable the bk value t be claimed as a tax deductin. Immediate Write Off fr Individual Small Business Assets Csting Less than $20,000 Fr the current 2017/18 financial year businesses may want t cnsider bringing frward asset purchases t befre June 30 t take advantage f this cncessin. Businesses with a turnver less than $10m can claim an immediate deductin fr assets csting less than $20,000 up until 30 June Nte that the business turnver threshld fr this cncessin increased frm $2 millin t $10m n July 1, Here are sme key pints t cnsider: T be eligible, the asset must be purchased by a business turning ver less than $10m The asset can be new r secnd hand The amunt must be under $20,000 exclusive f GST (i.e. $22,000 including GST) If yu brrw t purchase the asset the asset is still eligible Page 4 f 8

5 The asset must be installed and ready t use by the deadline (purchasing a car t be delivered in the future wn t qualify until the car is delivered) T claim the write ff n a mtr vehicle yu will need t have a valid lg bk and claim nly that percentage f the cst as an immediate write ff Sme taxpayers may try t reduce the cst f an asset t under $20k by using a trade-in when purchasing the asset (fr example a car). Hwever, the mnetary value f the trade-in will frm part f the asset cst and nt reduce the cst f the asset. Any attempt t manipulate invices etc. will attract the ATO's use f the antiavidance rules, thereby eliminating the $20,000 write ff. If yur business has a small prfit r even a lss, the write ff will be f little r n benefit in the current year (lsses are nt refundable but can be carried frward t the next year) Building structural imprvements are nt eligible fr the instant write ff Depreciating assets valued at mre than $20,000 will be depreciated in ne pl at a rate f 15% in the first year and 30% in future years If yur pl balance at the end f the year is less than $20,000 befre applying any ther depreciatin deductin, the entire pl balance can be written ff If yur business is nt a Small Business Entity yu will need t depreciate all assets purchased ver $300. Any assets purchased fr $300 r less can be written ff immediately IS YOUR BUSINESS A SMALL BUSINESS ENTITY? Small businesses can access a range f tax cncessins frm the ATO. T qualify as a Small Business Entity, the business must have an aggregated turnver (yur annual turnver plus the annual turnver f any business cnnected / affiliated with yu) f less than $10 millin and be perating a business fr all r part f the 2018 year. REDUCTION IN COMPANY TAX RATES FOR SMALL BUSINESSES The cmpany tax rate fr businesses with less than $10 millin turnver is nw 27.5%. If yu use a Trust structure, ne strategy is t allcate prfits t a Bucket Cmpany and cap yur tax at 27.5% fr the 2018 year. Nte that this cmpany must have business peratins t qualify fr the reduced cmpany tax rate. Page 5 f 8

6 Checklist f Other Year End Tax Issues In additin t the tax planning pprtunities, there are a number f bligatins in relatin t the end f the financial year that shuld be cnsidered: If yu use a Mtr Vehicle in prducing yur incme yu may need t: Recrd Mtr Vehicle Odmeter readings at 30 June 2018 Prepare a lg bk fr 12 cntinuus weeks if yur existing ne is mre than 5 years ld. Please nte, if yu cmmence the lg bk prir t the 30 th June 2018, the usage determined will still be apprpriate fr the whle f 2017/18. As such, it is nt t late t start preparing ne fr the current financial year. If yu have started an accunt-based pensin: Ensure that yu have withdrawn the annual minimum required. If yu are in business r earn yur incme thrugh a Cmpany r Trust: Emplyer Cmpulsry Superannuatin Obligatins: The deadline fr emplyers t pay Superannuatin Guarantee Cntributins fr the 2017/18 financial year is the 28 July Hwever, if yu want a tax deductin in the 2017/18 tax year the super fund (r Small Business Superannuatin Clearing Huse) must receive the cntributins by 30 June Yu shuld therefre avid making cntributins at the last minute because prcessing delays culd deny yu a tax deductin in this financial year. Fr Private Cmpany - Div 7A Lans - Business wners wh have brrwed funds frm their cmpany in prir years must ensure that the apprpriate principal and interest lan repayments are made by 30 June Current year lans must be either paid back in full r have a lan agreement entered int befre the due date f ldgement fr the cmpany return. Failure t cmply risks having it cunted as an unfranked dividend in the individual s tax return. Preparatin f Stck Cunt Wrking Papers. Preparatin and recnciliatin f Emplyee PAYG Payment Summaries (Grup Certificates). Page 6 f 8

7 Trustee Reslutins - ensure that the Trustee Reslutins are prepared and signed befre June 30, 2018 fr all Discretinary ( Family ) Trusts. Please nte we will be cntacting yu regarding yur reslutins befre the end f June Frm 1 July 2018: The Cmpulsry Super Guarantee rate stays at 9.50% fr the 2018/2019 financial year. SUPERANNUATION & TAX PLANNING NEW CONCESSIONAL CONTRIBUTION CAP OF $25,000 FOR EVERYONE The tax-deductible superannuatin cntributin limit r cap is nw $25,000 fr all individuals under age 75. Individuals ver 65 need t satisfy a wrk test t qualify. The advantage f making the maximum tax-deductible superannuatin cntributin befre June 30, 2018 is that superannuatin cntributins are taxed at between 15% and 30% cmpared t persnal tax rates f between 34.5% and 47%. Typically, self-emplyed individuals and thse wh earn their incme primarily frm passive surces like investments make their super cntributins clse t the end f the financial year t claim a tax deductin. Hwever, this is the first financial year that individuals wh are emplyees may als use this strategy. Individuals wh may want t take advantage f this pprtunity include thse wh wrk fr an emplyer wh dn t permit salary sacrifice, thse wh wrk fr an emplyer wh d allw salary sacrifice (but it s disadvantageus due t a reductin in entitlements) and thse wh are salary sacrificing but want t make a tpup cntributin t utilise their full cncessinal cntributins cap. ADDITIONAL TAX ON SUPER CONTRIBUTIONS BY HIGH INCOME EARNERS The incme threshld at which the additinal 15% (Divisin 293) tax is payable n superannuatin cntributins has reduced frm $300,000 t $250,000 per annum effective 1 July, Where yu are required t pay this additinal tax, making super cntributins within the cap is still a tax effective strategy. With super cntributins taxed at a maximum f 30% and investment earnings in super taxed at a maximum f 15%, bth these tax pints are mre favurable when cmpared t the highest marginal tax rate f 47% fr individuals. Page 7 f 8

8 GOVERNMENT CO-CONTRIBUTION TO YOUR SUPERANNUATION If yu are a lw incme earner and earn at least 10% f yur incme frm emplyment r carrying n a business and make a nn-cncessinal cntributin t yur superannuatin, yu may be eligible fr a Gvernment c-cntributin f up t $500. In 2017/18, the maximum c-cntributin is available if yu cntribute $1,000 and earn $36,813 r less. A lwer amunt may be received if yu cntribute less than $1,000 and/r earn between $36,814 and $51,812. SALARY SACRIFICE TO SUPERANNUATION If yur marginal tax rate is 19% r mre, salary sacrificing can be an effective way t bst yur superannuatin and als reduce yur tax. By putting pre-tax salary int superannuatin instead f having it taxed at yur nrmal marginal tax rate yu may save tax. This can be particularly beneficial fr emplyees appraching retirement age. SELF-MANAGED SUPERANNUATION A SMSF may prvide significant tax savings but they are nt fr everyne. With the end f the financial year appraching nw is a gd time t discuss the pr s and cn s f a SMSF t assess whether it might be apprpriate fr yur circumstances. It might be apprpriate t establish a SMSF in cnjunctin with ther tax planning pprtunities s talk t us tday. Page 8 f 8