It’s tax time as they say. That time of the year where many individuals and businesses take steps to legally minimize their tax.
There have not been too many significant changes from 2015 to 2016, of course this is not an exhaustive list of things to be done and of course is not specific tax advice if you have any questions regarding your specific circumstances, by all means contact your tax adviser at WMS.
Concessional Contribution Caps
For 2016, individuals who turn age 50 during the financial year are eligible for a higher concessional cap of $35,000. For all others, the cap is $30,000. This means that these are the limits on superannuation contributions that attract the 15% contributions tax. If you are considering topping up your super prior to 30 June, these limits need to be kept in mind.
And, as we say each year, only contributions that are received by a superannuation fund by 30 June 2016 are tax deductible in the 2016 year. We suggest that any contributions you plan to make and claim a tax deduction for are made well before 30 June 2016.
An important thing to remember is that if you are intending to claim a deduction for personal superannuation contributions, you must notify your super fund in writing.
As a side note, if your contributions and taxable income total more than $300,000 you may be liable for extra tax on your contributions.
Instant tax write-offs for capital expenditure of up to $20,000 are available for small businesses. If you are considering the purchase of new equipment, computers, motor vehicles, office furniture, then now might be the time to do so.
To qualify as a small business your business needs to have an annual turnover of less than $2m. There are some aggregation rules you need to be aware of which, in essence, seek to combine the turnover of related entities for the purpose of the $2m test.
If you saw our 2016 federal budget video, by one of our partners, Stephen Holmes you will have noted that the turnover threshold increases to $10m from 1 July 2016 however this will likely be subject to the outcome of the federal election on the 2nd of the July.
Capital Gains Tax (“CGT”)
Capital losses are able to be offset against capital gains to reduce your net capital gain. If you have made a capital gain already this year, consider the sale of any assets that may currently be running at a loss. For example, review your share portfolio and crystallize any capital losses before 30 June 2016. Timing of the sale is particularly relevant whether you are selling for a gain or a loss. The contract date is the relevant date applicable for CGT purposes and not the settlement date, so keep that in mind. And secondly, assets owned for more than 12 months may qualify for a 50% discount so make sure you are aware of your ownership period. Selling one day too soon can end up costing you a packet.
Write off bad debts
There will be times when a customer does not pay you for work that has been completed or for goods sold. Where your efforts to recover those debts have failed, consider writing off those bad debts prior to 30 June 2016. In the event that you have a bad debt, it should be formally written off in your financial records prior to the end of the year. It is also important to remember that the Australian Taxation Office (“ATO”) can request evidence that you have taken steps to recover the debt.
If you do a stock take on or around 30 June, make sure you identify any obsolete or old stock and take steps to write it off where appropriate. Individual items of trading stock can be valued at cost, market value, or replacement value for tax purposes. The tax value may differ to the accounting value but the overall position is that a lower tax value for closing stock results in a lower taxable income therefore saving you tax.
Trust distributions and resolutions
Most trust deeds for discretionary trusts require trustees to make their annual distribution resolution on or before 30 June. It is essential that trustees make these determinations prior to 30 June. The ATO’s stated position is that they expect there to be evidence of the trustees making determinations in accordance with their trust deeds by the date as stated in the trust deed. We recommend that written evidence of the 2016 resolution of income distribution be prepared by 30 June 2016.
Assuming that there is a Liberal Government in play come July after the election some of the proposed changes that were mentioned in our federal budget video that was released earlier in the year will more than likely become law, so there will be come some great opportunities in the 2017 year which we will be in touch with you regarding those.
A couple of other quick points in respect to bringing your tax position down. Deferral of income is always a strong one, any income that you can push forward to another financial year effectively buys you 12 months of time before that is bought to account, examples of that may include where you have received income in advance from customers, maybe deposits on transactions that are you are yet to complete or for income that you haven’t yet earned and you are still subject to perform certain services prior to being entitled to those amounts certainly look at those positions. Obviously a natural one is to bring forward any tax deductions where possible for example, subscriptions, insurances, potentially any bonuses that employees may be eligible for, all those sorts of things that you look at incurring that expense in the near future perhaps look at forward to bring that through to this month.