By Paul Trimble, Director, Westlawn Business Services 18 June 2014
As the end of financial year fast approaches, this business tax overview provides a summary of what you need to know including some recent changes as well as ongoing year end tax issues.
To make sure your business is ready for 30 June, contact your Westlawn Business Services Accountant.
Change in company tax rate
The government has announced that the company income tax rate will be reduced by 1.5% to 28.5% from 1 July 2015.
However, companies which have a taxable income in excess of $5 million will be liable to a 1.5% levy which will be contributed towards the paid parental scheme.
This levy will commence on 1 July 2015.
The proposed parental leave levy will not give rise to franking credits. Therefore, whilst larger companies will be paying the same amount of income tax, the credit flow through to shareholders will be reduced. This will result in a higher after-tax cost to shareholders.
Tax Planning Tip There may be advantages for some shareholders if a company with sufficient franking credits pays franked dividends before 1 July 2015. Although the details of the effect of the company tax rate reduction on the imputation system is not yet known, it’s expected that most individual shareholders will pay less ‘top-up’ tax on the franked dividend if it is paid before 1 July 2015. However, this has to be weighed against the cash flow and lost earnings as a result of the earlier payment of tax.
Super guarantee changes
The rate for superannuation contributions by employers on behalf of their employees under the SGC for the year ended 30 June 2014 will be 9.25%.
The rate will increase to 9.5% from 1 July 2014. The SGC rate will remain at 9.5% until 30 June 2018 then progressively increase to 12% in the 2022/23 tax year.
Employers must make Superannuation Guarantee (SG) contributions for their employees on a quarterly basis within 28 days after the end of each quarter (September, December, March and June).
Tax Planning Tip Although the June 2014 quarter SGC does not have to be paid until 28 July 2014, tax deductions for the superannuation contributions will only be available in the 30 June 2014 tax year if the contribution is received by the superannuation fund by 30 June 2014.
Ongoing Year End Issues
Timing of income derivation
Consider whether the amount is income or capital.
What is the appropriate method of income recognition: cash or accruals ?
Consider deferring income until after 30 June 2014.
Alternatively, if you are in tax loss consider whether you accelerate income receipt prior to 30 June to recoup losses that may not be available in future years.
Incur repairs on or before 30 June 2014 to obtain the deduction in the 2013/2014 income year, but they must not be:
Substantial replacement of an asset, or
Improving an asset.
Donate to deductible charities before 30 June 2014. Ensure the payment is to an endorsed deductible gift recipient (DGR).
Review bad debts before 30 June 2014. Physically write-off bad debts before year end.
Bad debts may not be deductible if there has been a change in ownership or control of a company or trust (unless company passes the same business test).
Consider an appropriate valuation method – you can choose cost, market selling value or replacement price.
Identify any obsolete stock – special valuation rule.
Scrap unwanted stock by 30 June 2014.
For small business entities, stock valuation is not required if the difference between opening and estimated closing value of trading stock for the year is $5,000 or less.
Home office expenses
Home office expenses may be deductible where you carry on business or employment activities at home.
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.
If carrying on business from home, deductibility of interest, rent etc. may be determined by the space occupied by the home office, as well as extent the space is used for income producing purposes.
Converting the spare room is not sufficient to be classified as a home office.
Power, heating and depreciation can be claimed at a flat rate established by the Tax Office even if the room is not exclusively set aside for a home office.
If an office is provided by the employer, working from home as a convenient place to do part of the work will not be sufficient to claim home office expenses.
If claiming actual expenses, check the log book is current and that log book details are correct.
Ensure year end odometer readings are taken.
Ensure all relevant receipts have been kept.
If expenses are not subject to the prepayment rules, prepay deductible expenditure by 30 June 2014 (subject to comments above regarding the Temporary Budget Repair Levy).
The prepayment rules spread a pro-rated deduction over more than one year, where the expenditure provides benefits after end of the current income year.
The prepayment rules do not apply to excluded expenditure, which includes:
Amounts required to be paid by law or a court, and
Expenditure under $1,000.
Depreciation for small businesses
Immediate deduction for items costing less than $1,000 (reduced from $6,500 from 1 January 2014).
Plant costing over $1,000 can be automatically pooled: General small business pool: assets with effective life under 25 years – diminishing value rate of 30%.
Long life small business pool: assets with effective life of at least 25 years – depreciated at diminishing value rate of 5%.
Immediate deduction – non-business assets
Immediate deduction for items less than $300 (non-business taxpayers) for: Income producing assets used predominantly for non-business, e.g. tools of trade or briefcase, or small items of furniture in rental property:
Not part of set of assets costing more than $300, and
Not substantially identical to other assets which in total cost more than $300.
Disclaimer Westlawn Business Services Pty Ltd provides this information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.