EOFY tax strategies for small businesses

Transcription

1 As we apprach the end f the financial year (EOFY), there are a number f smart strategies yu culd cnsider t help yu streamline yur finances and legitimately save n yur tax bill. Insurance premiums Sme insurance premiums, such as thse fr incme prtectin insurance, are generally tax deductible as the prceeds in the event f a claim are taxable t yu. Wrk-related expenses Dn t frget t keep any receipts fr wrk-related expenses such as unifrms, training curses and learning materials, as these may be deductible fr tax purpses. Prepay investment lan interest If yu have an investment lan, yu can prepay up t 12- mnths interest in advance. Yu may be able t claim a tax deductin fr the prepayment in this financial year (subject t the relevant prepayment rules), further reducing yur taxable incme. This may wrk well if yur ttal taxable incme is ging t be lwer in the next financial year. Cnsult yur tax agent t learn mre. Tax deductins fr investment expenses Expenses yu incur while earning assessable investment incme may be tax deductible. These expenses may include accunt-keeping and management fees and interest payments n investment lans. Claiming a tax deductin fr these expenses culd reduce yur taxable incme fr the financial year, althugh nt all expenses are immediately deductible. Yur tax agent can help yu determine what can be claimed. Review wnership structure f investments Transferring the wnership f yur investments t yur self-managed super fund (cnditins apply) r t yur spuse, if they are n a lwer marginal tax rate, may reduce the tax yu pay n future investment incme and capital gains. Hwever, these transfers may have capital gains tax (CGT) implicatins s yu shuld seek qualified tax and legal advice befre prceeding. Managing capital gains It s imprtant t assess if yu have made any capital gains r lsses frm yur investments. The mst cmmn way yu realise a capital gain (r capital lss) is by selling assets such as prperty, shares r managed fund investments. Managed funds als distribute capital gains which yu must reprt in yur tax return. The Australian CGT system is quite cmplex s it s imprtant t cnsult with yur tax agent. Timing is everything Sme f these strategies can take time t plan and implement. S, stay ahead f the curve and get in tuch with yur tax agent sn t find ut hw yu can plan t get the mst ut f this end f financial year. EOFY tax strategies fr small businesses When times are tugh, small businesses need all the help they can get. We take a lk at the tax cncessins that may be available t yur small business and strategies yu may be able t use t minimise yur end f financial year tax liability. What qualifies as a small business entity? If yur small business qualifies as a small business entity, yu may be eligible t access a number f tax cncessins that culd help reduce the end f financial year tax liability fr yur business. Fr mst cncessins, small businesses are thse with an aggregated turnver f less than $10 millin. T meet the definitin, the business must satisfy ne f the fllwing criteria: aggregated turnver fr the previus incme year was less than $10 millin aggregated turnver in the current incme year is likely t be less than $10 millin (nte that this test cannt be used if business incme in the last tw years was greater than $10 millin) aggregated turnver fr the current incme year is actually less than $10 millin, calculated at the end f the incme year. Hwever, a lwer threshld applies fr sme cncessins: Fr small business capital gains tax (CGT) prvisins, aggregated turnver must be less than $2 millin. Fr the unincrprated small business tax ffset, aggregated turnver must be less than $5 millin.

2 Accelerated depreciatin Small businesses are able t claim an immediate deductin n assets that cst less than $20,000. The deductin applies t assets that small business start t use r install ready fr use between 12 May 2015 and 30 June Expense prepayments Eligible businesses can claim an immediate deductin fr prepaid expenses where the gds r services t be prvided are fr a perid f 12 mnths r less and ends befre the end f the next financial year. Capital gains tax (CGT) Small businesses may be eligible fr a range f CGT cncessins, which may prvide substantial tax savings. These cncessins are available t small business wners wh have dispsed f active assets in the current financial year, r wh are lking t dispse f an active asset. T be eligible fr these cncessins, the business must qualify as a small business entity r have net assets f $6 millin r less (nte, a range f ther eligibility criteria applies depending n the small business CGT cncessin being claimed). Pay as yu g (PAYG) tax Small businesses shuld review their PAYG instalments and ntify the Australian Taxatin Office (ATO) if the expected prfit fr this financial year is lwer r higher than previus years, s instalments can be adjusted accrdingly. Lease repayments Make repayments befre 30 June t ensure a deductin can be claimed. Office expenses Purchase any necessary ffice equipment befre the end f the financial year s yu can claim these expenses. Ensure yu have kept receipts fr purchases made thrughut the year. Superannuatin Ensure any eligible superannuatin cntributins are made n later than 30 June s yu can claim the deductin in this financial year. Ensure that required super guarantee (SG) cntributins fr emplyees f the business are made by n later than 28 days after the end f the quarter, s that n super guarantee charge becmes payable t the ATO. Lg bks Check that all f yur mtr vehicle lg bks satisfy the substantiatin requirements. Changing tax rates fr small businesses The tax rate fr small business cmpanies, and the definitin f a small business cmpany t access these lwer rates, has been gradually changed frm 1 July 2016 as fllws: Financial year Definitin f small business cmpany Aggregated than $10 millin Aggregated than $25 millin t Aggregated Aggregated Aggregated Aggregated Crprate tax rate 27% 26% 25% Surce: Australian Tax Office, Changes t Cmpany Tax Rates, 12 December 2017, In additin, the unincrprated small business tax ffset f up t $1,000 is available. Frm , the ffset is 8% f eligible net business incme. EOFY superannuatin tax strategies As we apprach the end f the financial year, there are a number f smart strategies yu culd cnsider t help yu effectively reduce yur individual tax liability. Salary sacrifice Currently, mst emplyees receive super guarantee (SG) cntributins frm their emplyer f at least 9.5% 1 f their salary. Adding t these cntributins directly frm yur grss (pre-tax) salary can be an easy and tax-effective way t tp up yur super. This is called salary sacrifice. Sme f the benefits f salary sacrifice are: It s simple, autmatic and cnsistent. Yu d nt pay incme tax n salary sacrifice cntributins t super (up t certain limits). Yur super cntributins are generally taxed at 15% 2, which may represent a significant tax saving, particularly if yu are n the highest marginal tax rate f 45% plus applicable levies. By making a salary sacrifice cntributin, yu can reduce yur taxable incme. The difference in taxatin may mean mre mney is available t invest in super than if yu were t receive the mney as after-tax incme and then invest it. Future earnings n cntributins made t super are cncessinally taxed at a maximum f 15%.

3 Yu shuld check with yur emplyer first t see whether salary sacrifice arrangements are available and that adpting a salary sacrifice strategy will nt reduce the amunt f SG cntributins yur emplyer pays n yur behalf. Persnal tax-deductible cntributins Prir t , nly peple wh were substantially selfemplyed r earning passive incme culd claim a tax deductin fr superannuatin cntributins. Hwever, frm , this requirement has been remved s that all eligible cntributrs can claim a tax deductin fr their persnal cntributins. This means that emplyees wh were previusly unable t make a persnal tax-deductible cntributin may nw be eligible. While still subject t the $25,000 cncessinal cntributins cap, this strategy may prve timely if yu have made a cnsiderable capital gain frm the sale f a prperty r shares as yur deductible cntributin t yur super fund may help t ffset yur assessable capital gain. Nt nly culd it reduce yur marginal tax rate, it may als bst yur super balance fr retirement. Nte that if yu are nt able t claim yur super cntributins as a tax deductin (fr example, yur incme fr the year is t lw), they will be treated as after-tax (nn-cncessinal) cntributins. Take advantage f the gvernment c-cntributin T encurage yu t save fr yur retirement, if yur ttal incme 3 is $36,813 pa r less and yu make a $1,000 after-tax cntributin t super, the Gvernment will cntribute $500 t yur super. The c-cntributin is calculated as 50% f yur after-tax cntributin, but the maximum $500 gvernment ccntributin als reduces by 3.33 cents fr every dllar yu earn ver $36,813 pa and ceases nce yur ttal incme reaches $51,813 pa. When determining eligibility fr the Gvernment ccntributin, earnings that are salary sacrificed t super and reprtable fringe benefits cme under the definitin f ttal incme. If yu fit within the incme threshlds utlined abve, and satisfy sme ther cnditins, cntributing t yur super frm yur after-tax salary befre the end f the financial year may be a great way t tp up yur super, and get an extra bst frm the Gvernment. Yur financial adviser can give yu the latest updates and mre infrmatin n this pprtunity. Split super cntributins with yur spuse If yu have a spuse, yu are permitted t transfer certain super cntributins frm the previus financial year ver t the super accunt f yur partner. If the receiving spuse is ver preservatin age at the time f the split request, he r she must declare that they are nt retired. Splits cannt be dne nce the receiving spuse turns 65. Yu can d this every year, nce the financial year has ended. Up t 85% f taxable (cncessinal) cntributins such as SG, salary sacrifice and persnal tax-deductible cntributins made t super can be transferred. There are several reasns fr cnsidering splitting super with yur spuse: There may be ptential tax advantages t withdrawing the mney frm tw super accunts rather than ne (between preservatin age and age 59). Transferring cntributins frm the yunger spuse t the lder spuse culd enable yu t access mre retirement mney earlier. Transferring mney frm the lder spuse t the yunger spuse culd enable the lder spuse t receive mre Age Pensin by delaying the date at which their super becmes an assessable asset. Splitting superannuatin mnies des nt cunt twards the receiving spuse's cntributins cap. 4 T help equalise balances between yu and yur spuse. Frm 1 July 2017, a $1.6 millin transfer balance cap applies t limit the ttal amunt f super savings yu can use t cmmence retirement phase incme streams (where earnings n assets are tax free). Because this cap applies n an individual basis, equalising super balances between members f a cuple can ensure that bth members stay belw this cap. Super splitting is nt ffered by all funds, s yu will need t check whether yur fund ffers this feature. The benefits f spuse cntributin tax ffsets Anther ptential tax cncessin is a spuse cntributin tax ffset. This strategy may be available if yu make after tax cntributins directly t yur spuse s super accunt these are knwn as eligible spuse cntributins. T take advantage f this strategy, yur spuse will need t be under age 65, r aged 65 t 69 and have satisfied a wrk test during the financial year. Yu can pen a super accunt in yur spuse s name and make cntributins t that accunt frm yur after-tax pay. Yu can als make these cntributins t yur spuse s existing super accunt.

4 If yur spuse s assessable incme, reprtable emplyer super cntributins and reprtable fringe benefits are under $37,000 pa, yu will receive an 18% tax ffset n the first $3,000 yu cntribute n their behalf, up t $540 pa. The ffset perates n a sliding scale and phases ut t zer nce their incme exceeds $40,000 pa. A wrd n cntributins caps When cnsidering any super strategy, it s imprtant t assess hw much yu are cntributing t super in any ne year. The Gvernment has set annual limits knwn as cntributins caps. The cntributins caps fr the financial year are: $25,000 (indexed) fr pre-tax (cncessinal) cntributins, regardless f age. $100,000 fr after-tax (nn-cncessinal) cntributins, r $300,000 ver a three-year perid if yu are under 65 any time during the financial year yu make the cntributin. In additin: Yur nn-cncessinal cap reduces t Nil nce yur ttal super balance (just befre the start f the year) is $1.6 millin r mre. The cap yu have available under the bring frward rule will reduce nce yur ttal super balance (just befre the start f the year) is $1.4 millin r mre. If yu triggered a bring frward rule in r (the bring frward cap during thse years was $540,000) but did nt use all f yur cap by 30 June 2017, transitinal rules reduce the remaining cap yu have available. Vluntary cntributins generally cannt be made nce yu have reached age 75. Mini super checklist D I have a recrd f all my super accunts and cntributins? Des my emplyer allw salary sacrifice cntributins? What are my current cntributins fr this financial year? Can I make a spuse cntributin? Did I make a cntributin last year that I culd super split this financial year? Shuld I make a persnal tax-deductible superannuatin cntributin? Talk t yur financial adviser, they can help simplify yur end f financial year preparatins and ensure yu maximise the tax benefits. 1 The SG rate will be 9.5% until end f financial year 2020/21. After that it will increase gradually each financial year by 0.5% until it reaches 12% n 1 July Individuals with incme greater than $250,000 pay tax n sme r all nn-excessive cncessinal cntributins at 30%. 3 Ttal incme equals assessable incme plus reprtable fringe benefits plus reprtable emplyer super cntributins, less business deductin (ther than fr wrk related expenses r persnal super cntributins). 4 The riginal cntributin made des cunt twards the members cncessinal cntributins cap. Cntributin eligibility In rder t make vluntary super cntributins, at the time f the cntributin, yu must be: Under age 65 Aged 65 t 74 and have been emplyed fr gain r reward fr 40 hurs in a 30 cnsecutive day perid during the financial year This includes up t 28 days after the end f the mnth in which yu turn 75 Spuse cntributins cannt be made where the receiving spuse is aged 70 r ver.

5 SPEAK TO US FOR MORE INFORMATION If yu wuld like t knw mre, talk t Jasn Ck, Financial Adviser. Jasn can give yu mre detailed infrmatin n the best apprach fr yur situatin IMPORTANT INFORMATION This dcument has been prepared by Financial Wisdm Limited ABN , AFSL , (Financial Wisdm) a whlly-wned, nn-guaranteed subsidiary f Cmmnwealth Bank f Australia ABN Financial Wisdm advisers are authrised representatives f Financial Wisdm. Infrmatin in this dcument is based n regulatry requirements and laws, as at 20 March 2018, which may be subject t change. While care has been taken in the preparatin f this dcument, n liability is accepted by Financial Wisdm, its related entities, agents and emplyees fr any lss arising frm reliance n this dcument. This dcument cntains general advice. It des nt take accunt f yur individual bjectives, financial situatin r needs. Yu shuld cnsider talking t a financial adviser befre making a financial decisin. Financial Wisdm is registered with the Tax Practitiners Bard as a Registered Tax (Financial) Adviser. Hwever, yur authrised representative may nt be a Registered Tax Agent. Cnsequently, tax cnsideratins are general in nature and d nt include an assessment f yur verall tax psitin. Yu shuld seek tax advice frm a Registered Tax Agent. Shuld yu wish t pt ut f receiving direct marketing material frm yur adviser, please ntify yur adviser by , phne r in writing.