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 on overseas income – It could be higher than you think..

Tax on overseas income – It could be higher than you think..

 

Do you earn income overseas? A recent case highlights why you might pay more tax than you thought on foreign income.

If you are an Australian resident and earn income from overseas, such as income from investments, sale of assets such as property, distributions from foreign trusts, etc., you will generally need to declare that income in your Australian tax return. If you have paid tax in a foreign country on that income, you might be able to claim a foreign tax offset to reduce your Australian tax liability.

Sounds simple enough but a recent case highlights where problems can occur and you might end up paying a lot more tax than you thought.

The taxpayer in this case was a resident of Australia but was taxed in the US on gains they made on interests in US real estate. Most of the gains they made were taxed at a concessional rate of 15% (rather than the normal rate of 35%) because the interests had been held for more than one year. Some of the gains were ultimately taxed at 35% in the US.

The capital gains were also taxed in Australia and qualified for the general CGT discount of 50%.

As the taxpayer was a resident of Australia and had paid tax on the US gains, the taxpayer claimed a foreign income tax offset for all of the US tax they paid. However, the ATO amended the tax assessment and only allowed a tax offset for slightly less than 50% of the tax they paid in the US.

The problem for the taxpayer was that while the US and Australia both have tax concessions for longer term capital gains, they operate quite differently. The US applies a lower rate to the whole gain while Australia applies a normal tax rate to half of the gain. Unfortunately for the taxpayer, the Federal Court held that the Commissioner’s approach was correct. If foreign tax has been paid on an amount that is not included in your assessable income then you cannot claim a foreign tax offset on it. In this case, the portion of the capital gain that was exempt from Australian tax because of the CGT discount, was not included in assessable income.

It is not uncommon for people who have made capital gains on foreign assets to assume that they get all of the tax back that they paid overseas. Unfortunately, that’s not necessarily the case and often only a partial credit is available, if at all.

Contact PrimeAdvisory for professional advice on transactions overseas that may affect your taxable income.

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Personal Tax Planning Guide FY18

Personal Tax Planning Guide FY18

Now’s the time to review what strategies you can use to minimise your tax before 30 June 2018.

Imagine what you could do with tax saved?

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

KEY SUPERANNUATION CHANGES

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 tax at the same time.

NEW CONCESSIONAL CONTRIBUTION CAP (CC) 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 2018.

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 passive sources make super contributions close to the end of the financial year and claim a tax deduction. However, 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

From 1 July 2017, higher income thresholds apply when determining eligibility for the spouse contributions tax offset.

From this date, 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 (previously $10,800 p.a.).

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 contributions has reduced from $300,000 to $250,000 p.a., effective 1 July 2017. Where you are required to pay this additional 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 2017/18, the maximum co-contribution is available if you contribute $1,000 and earn $36,813 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $36,814 and $51,812.

MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS

The concessional superannuation cap for 2018 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.

10 ways to reduce your 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 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 2018. You should make a record of your odometer reading as at 30 June 2018 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 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 2018. 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 2018.

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 your Client Advisor TODAY before the 30 June 2018 deadline for assistance to reduce your tax!

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