Minimise Your Personal Tax – Tax Planning Guide

Minimise Your Personal Tax – Tax Planning Guide

Now’s the time to review what strategies you can use to minimise your personal tax before 30 June 2019.

Imagine what you could do with the personal tax saved!

  • Reduce your home loan
  • Top up your super
  • Have a holiday
  • Deposit for an investment property
  • Upgrade your car

The most important thing to remember is that there is no point in spending money to get a personal tax deduction, unless it’s going to result in something useful for you.

SUPERANNUATION CONTRIBUTIONS

While you might not be flush with cash now and able to put large amounts into superannuation, it’s important that you are aware of what is possible to maximise your super balance and possibly reduce your personal tax at the same time.

DEDUCTIBLE SUPER CAP OF $25,000 FOR EVERYONE

The tax deductible super contribution limit (or “cap”) is $25,000 for all individuals under age 75. Individuals need to pass a work test if over age 65.

Consider making the maximum tax deductible super contribution this year before 30 June 2019.

The advantage of this strategy is that superannuation contributions are taxed at between 15% to 30% compared to typical personal income tax rates of between 34.5% and 47%.

Ordinarily, self-employed individuals and those who earn their income primarily from dividends, interest and rent sources make super contributions close to the end of the financial year and claim a tax deduction.

Key Change: This is the first financial year that individuals who are employees may also use this strategy.

Individuals who may want to take advantage of this opportunity include those who:

  • work for an employer who doesn’t permit salary sacrifice
  • work for an employer who allows salary sacrifice, but it’s disadvantageous due to a reduction in entitlements, and
  • are salary sacrificing but want to make a top-up contribution to utilise their full CC cap.

SPOUSE SUPER CONTRIBUTIONS

You may be eligible for a tax offset of up to $540 on super contributions of up to $3,000 that you make on behalf of your spouse if your spouse’s income is $37,000 p.a. or less.

The offset gradually reduces for income above $37,000 p.a. and completely phases out at $40,000 p.a. and above (previously $13,800 p.a.).

ADDITIONAL TAX ON SUPER CONTRIBUTIONS BY HIGH INCOME EARNERS

The income threshold at which the additional 15% (‘Division 293’) tax is payable on super is $250,000 p.a. Where you are required to pay this additional personal tax, making super contributions within the cap is still a tax effective strategy.

With super contributions taxed at a maximum of 30% and investment earnings in super taxed at a maximum of 15%, both these tax points are more favourable when compared to the highest marginal tax rate of 47% (including the Medicare levy).

GOVERNMENT CO-CONTRIBUTION TO YOUR SUPER

If you are on a lower income and earn at least 10% of your income from employment or carrying on a business and make a “non-concessional contribution” to super, you may be eligible for a Government co-contribution of up to $500.

In 2018/19, the maximum co-contribution is available if you contribute $1,000 and earn $37,697 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $37,697 and $52,697.

10 ways to reduce your personal tax

OWNERSHIP OF INVESTMENTS

A longer-term tax planning strategy can be reviewing the ownership of your investments. Any change of ownership needs to be carefully planned due to capital gains tax and stamp duty implications. Please seek advice from your Accountant prior to making any changes.

Investments may be owned by a family trust, which has the key advantage of providing flexibility in distributing income on an annual basis and an ability for up to $416 per year to be distributed to children or grandchildren tax-free.

PROPERTY DEPRECIATION REPORT

If you have an investment property, a Property Depreciation Report (prepared by a Quantity Surveyor) will allow you to claim depreciation and capital works deductions on capital items within the property and on the property itself.

The cost of this report is generally recouped several times over by the personal tax savings in the first year of property ownership.

MOTOR VEHICLE LOG BOOK

Ensure that you have kept an accurate and complete motor vehicle log book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2019. You should make a record of your odometer reading as at 30 June 2019 and keep all receipts/invoices for your motor vehicle expenses. Once prepared, a log book can generally be used for a 5-year period.

An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

SACRIFICE YOUR SALARY TO SUPER

If your marginal tax rate is 19% or more, salary sacrifice can be a great way to boost your superannuation and pay less tax. By putting pre-tax salary into super rather than having it taxed as normal income at your marginal rate you may save personal tax. This can be especially beneficial for employees nearing their retirement age.

PREPAY EXPENSES AND INTEREST

Expenses relating to investment activities can be prepaid before 30 June 2019. You can prepay up to 12 months of interest before 30 June on a loan for a property or share investment and claim a tax deduction this financial year. Also, other expenses in relation to your investments can be prepaid before 30 June, including rental property repairs, memberships, subscriptions, and journals.

INSURANCE PREMIUMS

Possibly your greatest financial asset is your ability to earn an income. Income protection insurance generally replaces up to 75% of your salary if you are unable to work due to sickness or an accident. The insurance premium is normally tax deductible, plus you get the benefit of protecting your family’s lifestyle if you cannot work due to sickness or an accident. It’s a small price to pay for peace of mind. Like rental property interest, income protection premiums can also be pre-paid for 12 months to increase your deductions.

WORK RELATED EXPENSES

Don’t forget to keep any receipts for work-related expenses such as uniforms, training courses and learning materials, as these may be tax-deductible.

REALISE CAPITAL LOSSES

Tax is normally payable on any capital gains. You should consider selling any non-performing investments you hold before 30 June to crystallise a capital loss and reduce or even eliminate any potential capital gains tax liability. Unused capital losses can be carried forward to offset future capital gains.

DEFER INVESTMENT INCOME & CAPITAL GAINS

If practical, arrange for the receipt of investment income (e.g. interest on term deposits) and the contract date for the sale of capital gains assets, to occur AFTER 30 June 2019.

The contract date (not the settlement date) is generally the key date for working out when a sale or purchase occurred.

IS AN SMSF SUITABLE FOR YOU?

Now is a good time to seek specific advice in relation to this question, as it may be appropriate to establish an SMSF in conjunction with other tax planning opportunities, to maximise the benefit of the SMSF in your circumstances.

Talk to us TODAY before the 30 June 2019 deadline for assistance to reduce your tax!

This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.  Last updated 8 May 2019

 

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Minimise Your Business Tax – Tax Planning Guide

Minimise Your Business Tax – Tax Planning Guide

Imagine what you could do with any business tax saved!

  • Reduce your home loan
  • Top up your super
  • Have a holiday
  • Deposit for an investment property
  • Upgrade your car

Here’s a guide to the strategies you can use to minimise your business tax.

IS YOUR BUSINESS A “SMALL BUSINESS” ENTITY?

Small businesses can access a range of business tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected / affiliated with you) of less than $10 million and be operating a business for all or part of the 2019 year.

REDUCTION IN COMPANY TAX RATES FOR SMALL BUSINESSES

The company tax rate for businesses with less than $10 million turnover is 27.5%.

If you use a trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 27.5% for the 2019 year. Note that this company must have business operations to qualify for the reduced company tax rate.

INSTANT DEDUCTION FOR ASSET PURCHASES

If your business has a turnover under $10 million, business assets purchased up to the following threshold amounts (exc. GST) will be immediately deductible:

  • $20,000, from 1 July 2018 to 28 January 2019
  • $25,000, from 29 January 2019 to 7:30pm 2 April 2019
  • $30,000, from 7:30pm 2 April 2019 to 30 June 2019

Depreciating assets valued at more than the above threshold amounts will be depreciated in one pool at a rate of 15% in the first year, and 30% in future years.

If your pool balance at the end of the year is less than $30,000 before applying any other depreciation deduction, the entire pool balance can be written off.

If your business has turnover from $10 million to $50 million, business assets purchased up to the following threshold amounts (exc. GST) will be immediately deductible:

  • $30,000, from 7:30pm 2 April 2019 to 30 June 2019

You should buy these assets and use them or have them ready for use before 30 June 2019.

MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS

The concessional superannuation cap for 2019 is $25,000 for all individuals. Do not go over this limit or you will pay more tax!

Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge.

For the contribution to be counted towards the employee’s 2019 contribution cap, it must be received by the fund by 30 June 2019.

TOOLS OF TRADE / FBT EXEMPT ITEMS

The purchase of “Tools of Trade” and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a business tax benefit.

Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.

If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased.

You should buy these items before 30 June 2019.

PAY EMPLOYEE SUPERANNUATION NOW

To claim a tax deduction in the 2019 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2019.

You should avoid making last minute superannuation payments as processing delays may cause them to be received after year-end. If for any reasons you end up having to make last minute payments and you would like to claim them as deductions for the current year, contact us immediately and before you make any payments for possible resolutions.

DEFER INCOME

If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2019.  This strategy pushes business tax payable to future years.

BRING FORWARD EXPENSES

Purchase consumable items BEFORE 30 June 2019. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now and get the deduction this year.

REPAIRS & MAINTENANCE

Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2019.

DEFER INVESTMENT INCOME & CAPITAL GAINS

If possible, arrange for the receipt of investment income (e.g. interest on term deposits) and the contract date for the sale of capital gains assets, to occur AFTER 30 June 2019.

The contract date is generally the key date for working out when a sale occurred, not the settlement date!

MOTOR VEHICLE LOG BOOK

Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2019. You should make a record of your odometer reading as at 30 June 2019 and keep all receipts/invoices for motor vehicle expenses.

An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

INVESTMENT PROPERTY DEPRECIATION

If you own a rental property and haven’t already done so, arrange for the preparation of a “Property Depreciation Report” to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.

PRIVATE COMPANY (“DIV 7A”) LOANS

Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2019. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.

YEAR-END STOCKTAKE /WORK IN PROGRESS

If applicable, you need to prepare a detailed stock take and/or work in progress listing as at 30 June 2019. Review your listing and write-off any obsolete or worthless stock items.

Talk to us about your different options for valuing Stock, and how they affect your business tax payable.

 WRITE-OFF BAD DEBTS

Review your trade debtors listing and write-off all bad debts BEFORE 30 June 2019. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2019.

SMALL BUSINESS CONCESSIONS – PREPAYMENTS

“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2019 and obtain a full business tax deduction in the 2019 financial year.

TRUSTEE RESOLUTIONS

Ensure that the “Trustee Resolutions” are prepared and signed BEFORE 30 June 2019 for all Discretionary (“Family”) Trusts. Please see us for more information about these resolutions.

Talk to us TODAY before the 30 June 2019 deadline for assistance to reduce your tax!

 

This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances. Last Updated 7 May 2019

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Tax – What The 2019 Federal Election Means For You!

Tax – What The 2019 Federal Election Means For You!

There is only a short time before the Federal Election on 18 May 2019, and there’s a lot of wild speculation and “fake news” in the media.

We’re not trying to recommend who you should vote for, but instead we believe that it is vital that our clients understand how they will be affected by the result of the Election.

Here are some of the key ways you may be impacted:

  • The amount of personal income tax and Medicare levy you will pay
  • The amount of capital gain that will be subject to personal tax
  • Opportunity to continue to convert excess franking credits into cash tax refunds
  • Altering the tax treatment of trust distributions
  • Ability to offset prospectively investment losses against other income (i.e. negative gearing)
  • Ability to claim a full deduction for the cost of managing your tax affairs; and
  • Remove deductibility on personal superannuation contributions and lower the annual concessional contribution cap

A note of caution here, as there is little detail associated with some of the proposed changes. While we have listed below the main policy announcements, the detailed legislation might differ substantially, so we encourage you to be mindful of this!

This is what we know so far (at time of writing):

LABOR’S TAX POLICIES

  1. A tax on those receiving distributions through Family or Discretionary Trusts at 30%. These are small business structures, and this will affect many business owners.
  2. Doing away with the cash refunds for excess franking credits through a SMSF.
  3. Increasing the personal tax rate in the top tax bracket by an additional 2%.
  4. Maintaining a company tax rate at the full 30 per cent (%) for companies with turnover exceeding $50 million.
  5. Higher personal tax rates at the top end and lower personal tax rates at the lower end (i.e. less than $125,000).
  6. Limit negative gearing on investment properties to newly built residential dwellings from a yet to be determined date after the election. Property investments made before this date will not be affected as they will be grandfathered. The ability to negatively gear other asset classes will also be restricted. If the total of the interest and deductions related to investments exceed the investment income, the excess will not be able to be used for offset against other non-investment income such as salary and wages. This excess will need to be carried forward for offset against future investment income or capital gains. It will apply on a prospective global basis to every taxpayer. In other words, it will apply to property and shares alike (and any other relevant asset classes) and it will apply by looking at a taxpayer and assessing their overall investment income as measured against their overall investment interest expenses;
  7. Providing landlords who build new residential dwellings an annual subsidy for 15 years of $8,500 a year if the home is let out at 20 per cent below market rates;
  8. Much higher capital gains tax when you sell an investment property or other taxable asset due to the halving of the Capital Gains Tax (CGT) discount to 25 per cent for individuals. All investments made prior to 1 January 2020 will be fully grandfathered, so the new rules won’t apply to them.
  9. A new deduction (the Australian Investment Guarantee) that will enable a 20 per cent deduction in respect of the purchase of any eligible asset worth more than $20,000.
  10. Capping of deductions for managing tax affairs to a maximum of $3,000. This cap will impact individuals, trusts and partnerships. A carve-out is to apply for individual small businesses with positive business income and annual turnover up to $2 million.
  11. Whistle-blower rewards for tax evasion; and higher penalties for tax exploitation promoters.
  12.  Superannuation:
    • Oppose catch up contributions on concessional contributions and tax deductibility on personal superannuation contributions;
    • Lower annual non-concessional contribution cap to $75,000 and reduce high-income super contribution threshold to $200,000 so that more Div293 Tax will be paid by higher income earners;
    • Increasing the superannuation guarantee to 12 per cent when fiscal circumstances allow;
    • Phase out the $450 minimum monthly threshold to receive super guarantee contributions, as part of a broader women’s super-security package; and
    • Higher penalties for employers not paying SG.

 

THE COALITION’S TAX POLICIES

  1. Companies with a grouped turnover of less than $50 million have a reduced company tax rate of less than 30 per cent. Tax cuts already enacted as follows:
    • 5 per cent 2019-20 income year
    • 26 per cent for the 2020-21 income year
    • 25 per cent for the 2021-22 income year and for subsequent income years

The government will no longer proceed with implementing its plan to have a 25 per cent tax rate apply to all companies;

  1. The government has legislated changes to personal income tax thresholds, as announced in the 2018-19 federal budget. Personal tax changes legislated are to be rolled out in three tranches over the next seven years as detailed in the table above;
  2. No change to current arrangements regarding negative gearing of investment property;
  3. No change to the CGT discount, which currently sits at 50 per cent for individuals;
  4. No change to the current arrangements regarding trust distributions from discretionary trusts. Currently distributions are subject to tax in the hands of beneficiaries at marginal income tax rates, which could result in a lower effective tax rate for those distributions;
  5. No change to the current arrangements regarding imputation, in particular the full refund of excess imputation credits. This means that excess imputation credits can be converted into cash refunds;
  6. Superannuation – While not directly a tax policy, the government is proposing a three-year audit cycle for SMSFs that have a history of good record-keeping and compliance;
  7. The $30,000 immediate asset write-off is available to 30 June 2019. There is no certainty beyond this date; and
  8. Establish a Small Business Concierge Service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide support and advice about the Administrative Appeals Tribunal process. It will also create a dedicated Small Business Taxation Division within the AAT which will include a supporting case manager, a standard application fee of $500 and fast-tracked decisions to be made within 28 days of a hearing.

CONCLUSION

It’s hard to imagine not being impacted in any way.

There are many other election issues that will influence a voter’s preferences and, at the end of the day, it is about making informed choices.

Please contact us anytime if you would like our advice (before and after the Election) about these proposed tax policies and how they may affect you. We’re here to help you!

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How we helped manage a lump sum after the sale of a business

How we helped manage a lump sum after the sale of a business

Background:

Our client is 60+, a semi-retired professional living in Mosman, Sydney who is married and has adult children. Following the sale of a significant business asset our client had substantial investments in Super.  Having initially invested with a managed fund, he was looking for help from an advisor who could assist him in finding a better way to manage his lump sum.

Services:

PrimeAdvisory Assisted with:

  • Ensuring all concessional and non-concessional caps were utilised to maximise the dollar amount in super.
  • Strategic decisions around correct structures, including super, trust and personal names to ensure the best long term tax outcomes
  • Assistance with retirement plans and modelling

What the client says

“I started working with PrimeAdvisory as I was looking for someone to look after my super investment.  I was with a managed fund and I was unhappy that the fees were very high.  A colleague of mine suggested I speak to PrimeAdvisory to take over the management of my Super.

Because I was referred I was less sceptical than if I hadn’t known them.  I would have found it difficult to put my life savings into the hands of a stranger.  I felt more comfortable because he was trusted by someone else I knew and his personality was also a key factor.

When I met their advisor, he came across as a sincere person and when I walked into the PrimeAdvisory office it was obvious that they were very professional. In the office they display their values clearly, and they live those values, they’ve proven to me that they do that. For example, they say they will always get back to people with in the same day, and they do, even if it’s at 6pm at night.

I feel confident that investments are handled well and that they have a good understanding of the market conditions and my individual needs and situation.

I would recommend them to anyone looking for strategic financial advice and wealth management.”

 

 

 

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ATO Doubles Rental Deduction Audits

ATO Doubles Rental Deduction Audits

In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions and the Australian Taxation Office (ATO) thinks that is too much – one in ten is estimated to contain errors.

4,500 audits of rental property deductions will be undertaken this year with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing. Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim.  In one case exposed by the ATO, a taxpayer had to pay back $12,000 in claims for deductions against a holiday home that was not genuinely available for rent and was blocked out during the holiday season. In another, a taxpayer paid back $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.

Please contact us you have any concerns about an ATO audit or wish to discuss your deductions.

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