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With 30 June fast approaching it is important to consider what you need to be doing to optimise your tax position this year.
Here is what you need to know this year:
1. Immediate deduction for assets costing less than $20k
To qualify for the concession you must be a small business [turnover <$10 million] and purchase an asset costing less than $20,000 [excl GST]. This concession applies to most business assets such as plant, equipment and motor vehicles used in the business. In the recent federal budget it was announced that this concession would be extended for a further year. However, to get the tax deduction in the 2017/18 year you must have the asset installed ready for use by 30 June 2018.
2. Defer income
Consider delaying some invoicing until July so that income will not be assessable until the next financial year. This is a simple strategy that delays the payment of tax on this income by up to a year. This is particularly relevant for companies seeking to keep their turnover under the $25 million threshold to access the 27.5% company tax rate.
It is important to consider the cash flow impact on your business from deferring income.
3. Bring forward expenditure
Conversely, you should be looking to bring forward any expenditure to claim a tax deduction in the 2017/18 financial year. This is always a good strategy where you have costs that might otherwise get pushed out to July. This could be marketing materials, consumables or repairs and maintenance.
For small businesses [turnover <$10 million] and passive investors, you can prepay expenditure [e.g. insurance, interest, etc] of up to 12 months and claim an outright tax deduction. For larger businesses, a prepaid expense will need to be allocated over the period the expense covers.
4. Deductible superannuation contributions
If you have some spare cash why not look to top up your super balance. The maximum tax deductible contributions you can make for the 2018 financial year is $25,000. This cap incudes compulsory employer contributions as well as voluntary contributions made through the business or from your personal name. Just be aware that specific rules apply where you are 65 or over, so seek advice before making contributions.
The super fund will incur 15% tax on the contribution. So, for an individual in the top marginal tax rate [47%] the potential tax benefit is up to 32%. This benefit will be reduced for those individuals with adjusted taxable income over $250,000 who are paying the additional 15% surcharge on super contributions.
5. Superannuation for Employees
Following on from this, you are only able to claim a tax deduction for superannuation contributions when the payment is made. For employers this means you need to pay your compulsory 9.5% employee super before 30 June 2018 to get a tax deduction in the 2017/18 financial year.
6. Bonuses for Employees
If your staff have done a great job in driving your business forward this year, why not lock in any discretionary bonuses by 30 June. To get a tax deduction in the 2017/18 year you will need to show that you are definitively and legally committed to paying the bonus by 30 June 2018. The actual payment does not need to be made until the following year, meaning the employee will not be taxed on it until next year.
7. Bad debts
If you have any debtors that are unlikely to be collected, consider whether these should be written off before 30 June 2018 to claim a tax deduction. A debt is considered bad when a genuine commercial decision has been made that it is no longer recoverable. It is not enough to claim a deduction if the debt is only considered doubtful. You can continue to chase the debt but it should be written off your debtors list in your accounting system.
8. Get your trust distributions right
For those of you that have businesses or investments held in trust structures it is important to consider the most tax effective way to distribute any income. This must generally be documented by way of resolution prior to 30 June each year.
If you have a business making decent profits, consider distributing some of the business profits to a company to access the corporate tax rate. This will either be 27.5% or 30% depending on your circumstances. If you are already in the top tax bracket of 47% in your own name, this can be a useful tax deferral. Just remember that this has to come out of the company at some point in the future as a dividend or cash to avoid the amount being deemed a dividend.
9. Stock on hand
Where you carry on a business that has goods for resale it is important to review your stock on hand at 30 June 2018. For each individual item of stock you can choose to value it at cost, market value or written-off altogether where the stock has no value. The best way to reduce the amount of income from trading stock is to consider which value provides the lowest amount for each individual item of stock.
10. Manage capital gains tax liabilities
If you have sold or are looking to sell an investment asset this year it is important to consider how you can manage any capital gains tax liability. One simple trick is to review your investment portfolio for underperforming assets. Consider selling some of these assets before 30 June and triggering a capital loss that can be offset against gains made. Use this cash to invest in assets that are going to make you money.
If you have any questions about what you need to be doing this end of financial year, simply touch base with any of our tax specialists here at businessDEPOT.