With the end of the 2014 income tax year fast approaching, it is now an opportune time to consider some tax planning strategies and compliance issues to ensure you and your business are in good tax health.
With the proposed introduction of the 2% temporary budget deficit levy on people earning $180,000 from 1 July 2014, care should be taken if following the usual strategy of bringing forward deductions and deferring income as this may be subject to the higher tax rate.
1. Bring forward tax deductible expenditure
- Repairs to an investment property;
- Business travel expenditure (even if the trip will take place in the 2015 financial year);
- Prepayment of income protection insurance;
- Prepayment of interest (no longer than 12 months) on investment loans;
- Subscriptions to professional journals and memberships to professional associations.
2. Manage your exposure to Capital Gains Tax
- Consider whether it is appropriate to crystallise capital losses;
- If you are selling an asset (such as property), note that Capital Gains Tax is assessed as at the date of contract, not settlement.
3. Max out your concessional superannuation contributions
- Beware of the $25,000 limit on concessional contributions for the 2014 financial year for those aged less than 60;
- The concessional contribution limit is set to increase to $30,000 for the 2015 financial year for those aged less than 50; and
- The bring forward non-concessional cap is set to change to $540,000 (previously $450,000) from 1 July 2014.
1. Push income into next financial year
- Delay raising invoices for accrued income (such as Work in Progress), subject to cash flow requirements;
- Account for income received in advance appropriately on the balance sheet;
- Defer cash receipts from interest, royalties, rent and dividends until after 30 June if possible.
By raising invoices or receiving the cash payments after 30 June it is possible to defer the point at which the income is taxed.
2. Bring forward tax deductible expenditure
- Bonuses and directors’ fees that are quantifiable and committed to by 30 June are deductible even if only paid after 30 June;
- Order short term consumables such as office supplies and stationery;
- Unpaid workers’ compensation insurance premium installments.
3. Small business asset write-offs (turnover less than $2m)
- The Government intends to repeal the immediate deduction available for assets costing less than $6,500. Assets less than $1,000 and ready for use from January 2014 will be eligible for an immediate deduction.
4. Manage your private company loans
- Ensure that the minimum principal and interest repayments are made on private company loans or that the interest repayments are made where a sub-trust arrangement exists; and
- Identify any new private company loans and discuss the best tax treatment with your advisor.
5. Consider whether any bad debts can be written off
- Bad debts must be physically written off by 30 June in order to qualify for a deduction in the 2014 financial year.
6. Consider whether any plant and equipment is obsolete
- Review your asset register to identify and scrap obsolete equipment that is no longer required and claim a deduction for any undepreciated amounts.
7. Value trading stock at the lower of cost, market value or replacement value
- A lower closing value of trading stock for tax purposes will generally result in less taxable income in the current financial year.
8. Pay employee superannuation contributions prior to 30 June
- Superannuation contributions must be physically paid prior to 30 June in order to receive a tax deduction in the 2014 financial year;
- Note the superannuation guarantee rate to change to 9.5% as of 1 July 2014; and
- Ensure that your business is ready for SuperStream from 1 July 2015 if you have more than 20 staff. If you are not aware of SuperStream, please contact your advisor.
9. Ensure your trust distribution resolutions are made prior to 30 June
- Consider how your family trust will distribute its income this financial year and ensure that the resolution is documented. Failure to do so may result in the trustee paying tax at 46.5%.
10. Fringe Benefits Tax rates increases
- The government has announced that the FBT rate will increase in line with changes to the top marginal tax rate (including Medicare Levy);
- The government also announced that the cash value of benefits received by employees of public benevolent institutions will be protected by increasing the annual FBT caps (currently $30,000); and
- Note both of these announcements are subject to the legislation being passed.
11. Research and Development (R&D) expenditure
- From 1 July 2014, the R&D offset available to companies will be reduced by 1.5% in anticipation of the reduction in the company tax rate to 28.5% from 1 July 2015.
Should you wish to know more, please contact your Pilot advisor on (07) 3023 1300.
Please note that this document serves as general information only, and should not be relied on as advice as it may not be applicable to your specific circumstances. Particular care should be taken when considering any of these strategies as it could lead to other non-tax related consequences. It is also necessary to consider how the general anti-avoidance provisions of Part IVA (not discussed here) may impact any year end arrangements.