By Andrew Hayes, Director, Westlawn Business Services
24 May 2016
There are many ways in which taxpayers can defer income, maximise deductions and take advantage of other tax planning initiatives to manage taxable income. In order to maximise any of these opportunities, start your year-end tax planning now. Of course, whenever undertaking tax planning, be aware of the potential application of anti-avoidance provisions.
If done correctly, however, tax planning can provide a number of tax savings.
This End of Financial Year tax planning checklist highlights a number of important taxation changes and opportunities to consider now in consultation with your Westlawn Business Services Accountant. These include:
- Deferring assessable income
- Maximising deductions for business and non-business taxpayers
- Tax planning for companies
- Considerations for trusts
- Changes for small business entities
- Capital gains and losses
- Super strategies and changes, and
- Fringe benefits tax changes.
Deferring assessable income
- Income received in advance of services being provided is generally not assessable until the services are provided.
- If providing professional services you may consider, in consultation with your clients, rendering accounts after 30 June in order to defer the income.
- Taxpayers are required to calculate the balancing adjustment amount resulting from the disposal of a depreciating asset. If disposal of an asset will result in assessable income, consider postponing the disposal to the following income year.
- Rollover relief may be available for balancing adjustments arising from an involuntary disposal of assets where replacement assets are acquired.
For business taxpayers
- Review all outstanding debts before year end to identify any debtors who may be unable to pay their bills. Once you have done everything in your power to seek repayment of the debt, consider writing off the balance as bad debt.
- The entitlement of corporate tax entities to deductions in respect of prior year losses is subject to certain restrictions. Entities need to satisfy the “continuity of ownership” test before deducting prior year losses. If the continuity of ownership test fails, the entity may still deduct the loss if it satisfies the same business test.
- A deduction may be available on the disposal of a depreciating asset if you stop using it and expect never to use it again. Therefore, review asset registers for any assets that fit this category.
- Small business entities are entitled to an outright deduction for the taxable purpose proportion of the adjustable value of a depreciating asset, subject to conditions.
For non-business taxpayers
- Non-business taxpayers are entitled to an immediate deduction for assets that are used predominantly to produce assessable income and that cost $300 or less, subject to conditions.
- Self-employed and other eligible people are entitled to a deduction for personal superannuation contributions, subject to meeting conditions such as the “10% rule”.
Tax planning for companies
- Companies should ensure that all dividends paid to shareholders during the relevant franking period (generally the income year) are franked to the same extent to avoid breaching the “benchmark rule”.
- Loans, payments and debts forgiven by private companies to their shareholders and associates may give rise to unfranked dividends that are assessable to the shareholders and their associates. Shareholders and entities should consider repaying loans and making payments on time, or have appropriate loan agreements in place.
- Companies should consider whether they have undertaken eligible research and development (R&D) activities that may be eligible for the R&D tax incentive.
- Companies may consider consolidating before year-end to reduce compliance costs and take advantage of tax opportunities available as a result of the consolidated group being treated as a single entity for tax purposes.
Considerations for trusts
- Review trust deeds to determine how trust income is defined. This may have an impact on the trustee’s tax planning.
- Trustees should consider whether a family trust election (an FTE) is required to ensure that any losses or bad debts incurred by the trust will be deductible and that franking credits will be available to beneficiaries.
- Taxpayers should avoid retaining income in a trust because it may be taxed in the hands of the trustee at the top marginal tax rate.
Changes for small business entities
- From 2015–2016, the tax rate applicable to small business entities that are companies is 28.5% (rather than the standard 30% rate) and other types of small business entities are entitled to a tax discount in the form of a tax offset.
- Small business entities are entitled to an immediate deduction for certain pre-business expenditure incurred after 30 June 2015.
- Eligible small business entities can access a range of concessions for a capital gain made on a CGT asset that has been used in a business, provided certain conditions are met.
- An optional rollover has been introduced for the transfer of business assets from one entity to another for small business owners who change the legal structure of their business.
- A CGT “look-through” treatment for eligible earnout arrangements has been introduced.
- From the 2016–2017 FBT year, small business entities will be able to provide more than one work-related portable electronic device to an employee and claim the FBT exemption for each device, even if the devices have substantially identical functions and are not replacement items.
Capital gains and losses
- Consider crystallising any unrealised capital gains and losses to improve your overall tax position for an income year.
Super strategies and changes
- If you wish to take advantage of the concessionally-taxed superannuation environment, you should keep track of your contributions.
- If you have salary sacrifice superannuation arrangements, you may want to have early discussions with your employer to help ensure contributions are allocated to the correct financial year.
- Individuals earning above $300,000 are subject to an additional 15% tax on concessional contributions. However, despite the extra 15% tax, there is still an effective tax concession of 15% (ie the top marginal rate less 30%) on contributions up to the relevant cap.
- For SMSFs that have investments in collectables or personal-use assets that were acquired before 1 July 2011, time is running out to ensure the requirements of the superannuation law for these assets are met.
Fringe benefits tax changes
- The rules for individuals claiming car expense deductions have changed. As a result, if employers reimburse expenses relating to an employee’s use of their own car, only two methods are available for calculating the taxable value of this fringe benefit (when employers apply the “otherwise deductible rule”).
Contact Westlawn Business Services
To take advantage of any of these End of Financial Year tax planning opportunities, contact your Westlawn Business Services Accountant:
- Call us on 02 6642 0444, or
- Email us at firstname.lastname@example.org
Copyright © 2016
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.