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It's hard to believe its June already. It seems like only yesterday that we were talking about tax planning for the last financial year.
As the dust settles on what was a surprising election result, it is important that you make sure you have your tax affairs in order before 30 June to optimise your tax position this year.
Here is what you need to know this year:
One of the most popular tax strategies in recent years has been the instant asset write off concession. If you are looking to buy some new equipment or a new car, here is what you need to know. Historically the concession only applied to small businesses [ <$10 million turnover ] that purchased assets costing less than $20,000 [excl GST]. This year both the turnover and asset thresholds have increased progressively during the year. We have outlined the eligibility requirements below:
|Time period||Turnover limit||Asset write-off limit [excl GST]|
|1 July 2018 to 28 January 2019||Up to $10m||$20,000|
|29 January 2019 to 1 April 2019||Up to $10m||$25,000|
|2 April 2019 to 30 June 2019||Up to $50m||$30,000|
This concession applies to most business assets such as plant, equipment and motor vehicles used in your business. However, the asset must be installed ready for use by 30 June 2019 in order to claim a tax deduction in the 2019 year.
Another common strategy is to top up your super balance by making tax-deductible contributions to reduce the tax liability of you or your business. The maximum tax-deductible contributions you can make for the 2019 financial year is $25,000. This cap includes compulsory employer contributions as well as voluntary contributions made through the business or from your personal name.
The super fund will incur a 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.
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 by 30 June 2019 to get a tax deduction in the 2019 financial year.
For most businesses taxpayers you pay tax on income when you issue an invoice to your customer. 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.
Conversely, you should be looking to bring forward expenditure to claim a tax deduction in the 2019 financial year. This is a great strategy for small businesses [turnover <$10 million] and passive investors who 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, reducing the benefit of this strategy.
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 2019 year you will need to show that you are definitively and legally committed to paying the bonus by 30 June 2019. 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.
If you have any debtors that are unlikely to be collected, consider whether these should be written off before 30 June 2019 to claim a tax deduction. A debt is considered bad when a genuine commercial decision has been made that it is no longer recoverable. So take the time to review your debtors list for any debts that can be written off.
Importantly, you can continue to chase the debt but it should be written off your debtors list in your accounting system.
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 is 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.
Where you carry on a business that has goods for resale it is important to review your stock on hand at 30 June 2019. 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.
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.
It is important to keep in mind that most of these tax planning strategies only provide a timing benefit by pushing out tax into future years. The real advantage of these strategies is the ability to invest these tax savings to grow your business or investment portfolio.
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.