• June 2017 Newsletter

I am sure you are as bewildered as I, with how quick this year has passed.  The day to day pressures and constant emails leaves little time to concentrate on anything else other than business issues.
 
The 30th June is little over a week away, therefore time demands we put aside some time to consider how we can plan to best deal with our income tax burden.
 
Tax planning involves one of 3 strategies:-
(a) Bring forward income tax deductions.
(b) Defer income or;
(c) Have a lower tax entity receive the income i.e. superannuation
 
Obviously, the above will only be achievable if cashflow permits and therefore management of this is important.
 

Small Business Entities

For income tax purposes, you would be aware that a last-minute deal between Senator Nick Xenophon and the Government, allowed a change to the definition of a small business.  Please remember the $2mill threshold remains in place for the small business capital gains tax concession.
 
The small business company thresholds have been changed as follows:-
 
 

Income Year

Turnover threshold

Company tax rate for entities under the threshold

Company tax rate for entities over the threshold

2015-16

$2m

28.5%

30.0%

2016-17

$10m

27.5%

30.0%

2017-18

$25m

27.5%

30.0%

2018-19 to 2023-24

$50m

27.5%

30.0%

2024-25

$50m

27.0%

30.0%

2025-26

$50m

26.0%

30.0%

2026-27

$50m

25.0%

30.0%

 
 
The increased turnover thresholds means those with an aggregate turnover of less than $10mill (small business enterprise 2016-2017 year) can access a raft of concessions.
 
A small business enterprise should consider the following in regard to their income tax position:-
 
(i) Preparing your BAS (i.e. assessing your GST liability) can be on a cash rather than an accrual basis.  This means GST would only be payable on received income with input tax claimed on the paid expenses.
That is, you can remove debtors (money owed to you) and creditors (money owed by you) from the GST calculations.
(ii) GST is also able to be paid quarterly.
(iii) Superannuation has always only been claimable when paid and therefore a payment on the 30th June is deductible in the 2017 year where as a payment on the 1st July is deductible in the 2018 financial year.
Business owners should consider their own retirement planning and therefore should contribute to the maximum concessional caps before the 30th June.
The caps for this year are as follows:-
Less than 49 years             $30k
49 to 75 years                    $35k
(iv) A small business is allowed to prepay contracts up to 12 months in advance and secure an income tax deduction for the payment. That is, if expenses for the 2018 financial year are paid before the 30th June 2017 then they will be tax deductible in the 2017 financial year.
A small business should consider bringing forward expenses for:-
(a) Interest
(b) Rent
(c) Insurance
(d) Travel costs
(e) Subscriptions and/or memberships
(f) Other period costs
(v) The less than $20k (i.e. less than $22k GST inclusive) immediate write off has been extended to purchases made before the 30th June 2018. The claim is also now available to those businesses with a turnover of less than $10m.

As you are aware this enables the taxpayer to claim a 100% tax deduction for the capex investment.

 

For Non - Small Business Entities (Income above $10m)

For these business it is business as usual, however they need to consider the following in regard to your income tax position:-

(i) In regard to trading stock a taxpayer is able to value each item of their trading stock under 3 methods:-

(a)   Cost

(b)   Market value

(c)   Net realisable value

Choosing a below cost method of valuation, where stock is obsolete or damaged, can allow the business to increase its tax deduction.

(ii) Bad debts – These need to be written off before the 30th June.

(iii) Prepayments – an immediate tax deduction is only allowed for expenses that are less than $1k, those required by law, or those under a contract of service (wages).

(iv) Depreciation is restricted to the useful life rate with assets written off if they are obsolete or have an opening written down value of less than $1k.

(v) Bring forward expenses under the accrual accounting system requires a tax invoice dated pre the 30th June. From this, the business needs to consider whether it should purchase:-

(a)   Consumables

(b)   Trade gifts

(c)   Donations

(d)   Repairs

(vi) Deferral of income – Prepaid income or deposits on goods is not taxable when received rather when the income is earned.

(vii) Employee bonus/director’s fees are deductible for 2017 if the employer is “definitely committed” to the payment.  The employee is however not taxable until the funds are received by them.


The ATO will require a director’s minute to confirm “commitment” and the funds need to be paid within a “reasonable time”.


As an Individual

An individual should consider the following in regard to their income tax position:-

 

(i) An individual is taxed on a cash basis and therefore they should look to pay for items before the 30th June if they want a tax deduction in the 2017 financial year. Theses would include:-

(a)   Donation

(b)   Insurance

(c)   Travel costs

(d)   Subscriptions and/or memberships

(e)   Other period costs

(ii) The budget repair levy finishes on the 30th June 2017 and therefore delaying a high income earner’s (income greater than $180k) wage bonus or bringing forward expenses will reduce the income tax applied by 2%.


Other Matters That Are Required To Be Completed Before The 30th of June:

(i) Trusts- Trustees (or directors of a trustee company) need to decide on the profit distributions they plan to make by the 30th June 2017. If valid resolutions are not in place by the 30th June then there is a risk that the taxable income of the trust will be assessed in the hands of the default beneficiary.

(ii) Superannuation- For those who have member superannuation balances close to or greater than $1.6m then they need to advise the trustee of the fund to commute/roll over some of their income stream into an accumulation interest within the fund. 

 

In closing, we wish you all the very best for the new financial year and thank you for your continued support.

 

Best wishes from the DA Team


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