Your end of financial year tax planning checklist

By Andrew Hayes, Director, Westlawn Business Services

With the end of financial year upon us, now’s your final chance to ensure you’ve taken all possible steps to minimise your business tax liability for the 2012/2013 tax year.

Let’s look at some of the more common ways to lower your business taxes with our end of financial year tax planning checklist. If you have any questions, ask your Westlawn Business Services Acccountant.

Prepayments

Generally, taxpayers cannot deduct prepaid expenditure. However, excluded expenditure can be deducted outright where these exclusions are

  • less than $1,000
  • required to be paid by law (including by a court order)
  • are paid as salary and wages.

These will all be deductible upfront, so if you’re looking to increase deductions prior to 30 June, consider paying these amounts.

Employer super payments

Superannuation payments are deductible to an employer only when they have been paid to the employee’s super fund. Therefore, employers should ensure that they’ve actually paid employee super contributions where possible, and have not just accrued the expense.

Trading stock

The trading stock rules in Div 70 of the Income Tax Assessment Act 1997 (ITAA) allow businesses to choose whether they value closing trading stock at:

  • cost
  • market value; or
  • replacement value.

In this context, cost is calculated on an absorption basis, so both direct and indirect costs should be included.

Because of the flexibility in these rules, you may choose a closing value for stock that results in the greatest possible deduction. Additionally, review stock to determine whether any of it is obsolete.

Obsolete stock can be claimed as an immediate deduction. This may include any stock that is:

  • going out of use
  • is out of date, or
  • is outmoded.

Stock needs to be reviewed and assessed in detail on a line-by-line basis.

Blackhole provisions

You may be able to claim relief, typically over a 5-year period, under the blackhole provisions if your business incurred capital expenditures in a period that is not otherwise deductible. Blackholes occur when business expenses aren’t recognised under the income tax laws.

The blackhole provisions cover expenditures after 1 July 2001 or capital gains tax (CGT) events on or after that date and comprise:

  • Expanding the cost base and reduced cost base elements for CGT assets
  • Expanding the elements of cost for depreciating assets
  • A 5-year write-off for certain lease and licence termination payments
  • A 5-year write-off for a greater range of business related costs not recognised elsewhere in the tax law.

The 45-day rule for franking credits

To claim a franking credit attached to a dividend, you must have held the share for at least 45 continuous days, not including date of purchase and date of sale. Where this isn’t the case, the holding period rule may apply to deny the franking credits.

The measures are intended to prevent investors from buying shares immediately before dividends are declared and selling immediately afterwards, thereby obtaining the tax benefit of the franking credit.

Carefully monitor how long you’ve owned shares to ensure you don’t forfeit your franking credits.

The franking credit is used to offset tax on the dividends. If the tax offset is more than you owe, the excess is applied to tax on other assessable income. Any remaining offset amount is refunded.

Small business tax concessions

If you run a small business, consider the purchase of business assets under $6,500 and motor vehicles. Among concessions introduced in the 2012-13 tax year, small businesses are eligible for a $6,500 instant asset write off (increased from $1,000) and for an accelerated initial deduction for motor vehicles.

Of course, any tax planning must take into account the potential application of Part IVA of the ITAA and any other anti-avoidance provisions. Your Westlawn Business Services Accountant can help ensure you get the most out of your tax planning and stay within legal guidelines.

Accrued audit fees

Whether audit fees are deductible depends on the terms of the audit contract. Consider prepaying audit fees at the start of the audit under the audit engagement, in order to claim a deduction for the full expense in the current year. Even though the fees are due at the start of the audit, they may be paid progressively without compromising the deduction.

Loss carry back

The loss carry back rules (yet to be legislated, but proposed to apply from the 2012-13 income year) can allow a company that makes a loss in 2012-13 but paid tax in 2011-12 to carry back its loss and obtain a refund of the 2011-12 tax paid. This is achieved by making the company entitled to a “loss carry-back offset”. The amount of the offset is the lower of:

  • the amount the company chooses to carry back
  • the company’s franking account balance, or
  • $300,000 (ie the tax value of the $1 million cap on losses that can be carried back).

If you require assistance with your end of financial year tax planning, contact your Westlawn Business Services Accountant.

Copyright © 2013

Disclaimer

Westlawn 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. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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