2017 Tax Highlights BOURKE O BRIEN KENNEDY Year End Tax Highlights Summary June 2017 Please consult us at BOK to discuss your specific circumstances before acting on the information in this document. TAX RATES Income Tax Rates The tax rates for individuals are as follows: From 1 July 2016 to 30 June 2017 From 1 July 2017 to 30 June 2018 Taxable Income Rate Taxable Income Rate ($) (%) ($) 0-18,200 0 0-18,200 0 18,201-37,000 19 18,201-37,000 19 37,001-80,000 32.5 37,001-87,000 32.5 80,001-180,000 37 87,001-180,000 37 180,000 + # 47 180,000 + 45 # includes 2.0% Budget Repair Levy; Budget Repair Levy does not apply for 2018 financial year. Medicare Levy The above tables exclude Medicare levy of 2.0%. (%) WORK RELATED DEDUCTIONS ATO Approach The ATO are continuing to focus on work related deductions such as mobile phones, internet claims, computer claims and home office expenses. In order to justify a claim it is now necessary to keep a log of usage for a one month period. Home Office Expenses Portion of interest, rent and insurance are not deductible unless you are carrying on business from home and the area is separate and distinguished from private living areas. Converting the spare room is not sufficient. Power, heating and depreciation can be claimed at a flat rate established by the ATO even if the room is not exclusively set aside for a home office.
Motor Vehicle Expenses A reminder of the substantiation requirements under the following log book method: o Log Books must be kept for at least 12 weeks in the first year and then every five years. o Odometer records are to be kept in each year in which the method is used. Odometer records must also contain details of the make, model, registration number and engine capacity of the car and all entries must be made before lodging the Income Tax Return. o Written evidence of expenses is also required. SUPERANNUATION Superannuation Changes effective 1 July 2017. Refer attached Summary of Superannuation Changes. Minimum account based pension drawdown Minimum pension requirement Age 2017 <65 4% 65-74 5% 75-79 6% 80-84 7% 85-89 9% 90-94 11% 95 + 14% Statutory Superannuation Rate The rate remains at 9.50% until 1 July 2021. PLANNING CONSIDERATIONS - BUSINESSES Non-commercial Business Losses Losses for High Net Worth Individuals Business losses by individuals are quarantined where the individual s adjusted taxable income is $250,000 or more, unless a determination is received from the Commissioner of Taxation. Super Guarantee and Contractors Under the SGC rules, employers are required to make contributions for eligible employees. Employees include independent contractors who are engaged under a contract primarily for the provision of labour. Where you engage independent contractors, you should determine whether the individuals are really employees for SGC purposes. Clauses in contracts which push the SGC obligations down to the contractors are not effective. Super Guarantee and Hours of Work SGC contributions are generally based on an employee s ordinary hours of work. Ordinary hours of work generally refer to standard hours which a relevant employee is required to work (not necessarily 9am to 5pm). SGC contributions do not apply to overtime payments.
Company Loss Integrity Tests Where you control a company or trust which has carried forward tax losses, ensure the entity can satisfy the loss integrity tests prior to 30 June. Division 7A Loans or financial assistance by private companies to shareholders or their associates can be deemed dividends. Associates include trusts, companies and partnerships controlled by shareholders or their relatives. Loans for income producing purposes can be caught by Division 7A. Ensure you have loan agreements for all loans. Ensure minimum repayment amounts are paid. The private use of company owned assets is now assessable under Division 7A. Unpaid trust distributions made to private companies may attract Division 7A. Unpaid Trust Distributions Unpaid trust distributions to private companies may be subject to Division 7A. Ensure these unpaid distributions that were created between 16 December 2010 and 30 June 2017 are : o Placed in a sub-trust for the exclusive benefit of the company by 30 June 2017; o Turned into a complying loan by the lodgement due date for the 2017 trust tax return; or o Repaid by the lodgement due date for the 2017 trust tax return. Reporting of Contractor Payments in the Building & Construction Industry A reminder that businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year. These payments need to be reported on the Taxable Payments Annual Report. Ongoing Year End Issues SMALL BUSINESS ENTITIES The taxpayer is eligible to be a small business entity for the 2017 financial year if their annual turnover is less than $10 million, up from $2million. Benefits include simplified depreciation and trading stock rules. Note : Small business CGT concessions are only available for businesses with an annual turnover of less than $2 million. Depreciation Increase depreciation rate by reassessing effective life of assets if the use of the assets exceeds ATO estimates of effective life. For items that cost less than $1,000 consider putting them into a low value pool, this will provide a diminishing value rate of 37.5%. Replacement of some items of less than $100 ($300 if not in business) may be immediately deductible. Small business entity depreciation concessions : o Immediate deduction for items costing less than $20,000 (formerly $1,000).
Income Received in Advance Income received in advance is not taxed until the services are provided as long as the income is credited to an unearned income account, and released to profit only when the services are provided. Rent is an exception to this and is taxed as received. Timing of Expenses Expenses are deductible if incurred by 30 June 2017. Provisions are generally not deductible. Some accruals are not deductible. Some prepayments are not deductible. Interest paid after business ceases may continue to be deductible. Repairs Deduct expenses for repairs and maintenance incurred before 30 June 2017, unless expenses relate to initial repairs, substantial replacement or improving an asset. Gifts Check the recipient is an endorsed deductible gift recipient. Gifts are not deductible if some benefit is received by the donor except when given at an eligible fundraising event. Trading Stock Valuation choose cost, market value or replacement. Identify any obsolete stock special valuation rule. Small business entity taxpayers do not have to undertake a stock valuation if the difference between opening and closing value is less than $5,000. Prepayments/Expenditure in advance Prepayment rules can operate to spread the deduction over more than one year. The prepayment rules do not apply to salary, amounts required to be paid by law or a court, or expenditure under $1,000. Small business entity taxpayers and non-business individuals are allowed prepayments if the benefit does not extend beyond 12 months. Imputation If shares are not held at risk for at least 45 full days the franking offset may not be available (except for individuals whose franking offset is less than $5,000). For non-fixed trusts receiving dividends, the franking offset will be lost unless beneficiaries have a vested and indefeasible interest or a family trust election is made. Rental Properties Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property are not allowable from 1 July 2017. Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties from 1 July 2017.
Small business tax rate reduction The company tax rates for small business entites that satisfy the new $10m threshold will reduce to 27.5% (from 28.5%) from the 2016-17 income year. The tax discount (or tax offset) for unincorporated small businesses will increase from 5% to 8% on 1 July 2016 and then increase over a 10 year period to 10% before reaching 16% in 2026-27. The threshold will increase to turnover of $5m. The maximum value of the discount per individual will remain at $1,000. Staggered reduction in the corporate tax rate over a 10-year period. A corporate tax rate reduction will start in 2016-17 and culminate in a 25% rate for all taxpayers by 2026-27. This will be achieved by progressively increasing a qualifying turnover threshold from <$10 million in 2016-17 to $1billion in 2022-23 for a 27.5% rate and then reducing the rate by up to 1% annually for all taxpayers until the 25% rate is reached. It should be noted that this staggered reduction is subject to legislation being passed to include companies with a turnover in excess of $50m. Company income tax rate table 2016-17 income year and following : Income Year Turnover Threshold (in $) is less than Company Tax Rate (%) 2015/16 2m 28.5 ^ 2016/17 10m 27.5 * 2017/18 25m 27.5 2018/19 50m 27.5 2019/20 100m 27.5 2020/21 250m 27.5 2021/22 500m 27.5 2022/23 1bn 27.5 2023/24 All companies 27.5 2024/25 All companies 27.0 2025/26 All companies 26.0 2026/27 All companies 25.0 ^ the company tax rate for certain small business entities 28.5% * Company tax rate for small business entities reduced to 27.5%