Welcome everyone to our annual tax planning video. These years roll around very quick and much like a child at Christmas, we know you have been anticipating what Santa is going to bring this year for your tax planning opportunities. Unfortunately, you are that kid that has been expecting a brand-new bike, and instead you are going to get a cookbook about cooking sugar free, not very exciting sorry.
If you are retaining your status as a small business, there are some concessions available to you. Previously that small business threshold to qualify was a business with a turnover of up to $2m. Pleasingly that has now increased to $10m, as was proposed last year and reinforced again this year in the budget. What does that mean for you as a small business? You will get your annual asset write off for assets that you purchase up to the value of $20,000 so, if you are looking to upgrade your computers, your vehicle, manufacturing equipment etc. and you qualify as a small business, anything with a value of up to $20,000 qualifies for an immediate write off. If you haven’t already done so, it may be worth looking at purchasing them before 30 June 2017.
If you had a company structure for the 2016 year, if you are a small business your tax rate was 28.5%. For the 2017 year that rate has dropped to 27.5% for small businesses, again those for a turnover up to $10m will qualify there.
If you have a trust structure, so not a corporate trading structure, you may still take advantage of that 27.5% rate if your trust distributes to a corporate beneficiary. The qualifying criteria there is if the corporate beneficiary meets the small business test. If you are unsure about that you should speak with your adviser.
Superannuation is one that pops up every year, and rightly so. If you are an employer and you are paying superannuation guarantee obligations on behalf of your employees your obligation for the June 2017 quarter is that you must pay by 28 July 2017. However, in order to get a tax deduction this financial year superannuation is to be physically paid to those super funds, receipted effectively by the super funds on or before 30 June 2017.
For those who make individual contributions your limits for this financial year are $30,000 for those of you up to the age of 49 and $35,000 for those of you who are over the age of 49 as of June last year. What is the significance there? As of 1 July 2017 that threshold drops to $25,000 for everyone. If you are able to take advantage of maximising your contributions and that forms part of your overall investment strategy, you need to do that by 30 June this year.
Defer a tax liability
Often an understated tax planning tip is to defer a tax liability and often that is the best some taxpayers are going to get. How do you defer a liability? You can look at deferring your accessible income, so if there is income you can defer into the new financial year, you are pushing the tax liability for that income into the following financial year as well. On the reverse side, you can look at bringing forward deductions. If you have the ability to do that and you are a small business, you can actually make certain prepayments for some expenses which allow you to claim a full deduction this financial year.
Motor Vehicle Expenses
One area of tax compliance that we haven’t spoken of in previous years, but one that I have had reason to comment on a few times recently is in respect of motor vehicle expenses. Historically there were four methods of which you could claim your motor vehicle costs, now there are only two methods. One is the log book method, which is essentially used by determining what business % you use your vehicle for and claiming that % across your expenses for the year. Questions that have been asked recently are: What needs to be in your log book and how often do you need to do one? Put simply, your log book needs to be kept for a continuous period of 12 weeks. If you haven’t done that this year, that is ok, you can start now and have that 12-week period cross over 30 June and still use that % for this financial year. From there that log book will last you 5 years so there is no requirement to keep one each year unless your business use drops materially, then it would be expected that you keep a new log book.
If you own investment property and look to claim depreciation and other capital allowances associated with that you will need a compliant depreciation report prepared by a quantity surveyor. You don’t need to obtain that as of now, you can have that prepared for you at any stage up until the lodgement of your tax return for this 2017 year. There have been some changes around depreciation and we recommend you engage a quantity surveyor to prepare that report for you, and typically we find that the cost of doing that report, which is tax deductible, is far outweighed by the tax benefit you will get from that.
Now just a few compliance areas with respect to business and certain things you should look at doing prior to the end of financial year.
If you have a company and you have some shareholder loans which are often referred to as Division 7A Loans you need to be talking to your adviser to make sure that the compliance is in order and that minimum payments are being met so as not to present yourself with any adverse tax impacts come 30 June.
A couple of other typical things to do as well. Your stocktake, for those of you that buy and sell goods, should be done by 30 June. Also look at getting rid of any obsolete or old stock that is just not selling, write that off, claim the deduction for this financial year for that.
Similarly, with your bad debts, it is time to look at those non-payers, document that within your financial records, and actually write that debt off out of your accounting system in order to claim a deduction for that bad debt this financial year. That is a focus area of the Australian Taxation Office, particularly looking at whether or not that debt was physically written off in the year in which you are looking to claim it.
For those of you using trust structures for either business or investment, again it is an ongoing requirement each year the trustees exercise their discretions in respect of the allocation of the income of the trust and make sure those resolutions are prepared on or before 30 June each year. Don’t just assume that is the date to be used, you need to be mindful of what is in your trust deed so if you haven’t read your trust deed make sure you do that also, but get those resolutions on file as at 30 June.
Our last point for this year’s Tax Tips centres around Capital Gains Tax. This is one that pops up every year, it is relevant, and if you don’t understand the rules fully it can be costly. For capital gains tax purposes, the gain is realised on the date that you signed the contract for the sale of the asset. In particular and in respect of real estate, it is the actual date you signed the contract, not when settlement occurs. If you are looking at disposing of any assets that potentially are going to realise a Capital Gain, you may seek to push that through beyond 30 June so that the gain is crystallised in the following financial year. Similarly, that date becomes relevant for assets that you owned for around that 12-month mark. Any assets owned more than 12 months may qualify for the 50% discount, so again if you are looking at selling be mindful of when you purchased that asset so you can take advantage of the 12-month rule.
These are our 2017 tax planning tips. Not a lot different from the 2016 year as there have not been significant tax changes to take advantage of. As we have said before these are just some generic strategies, they are not for everybody and will not apply to everybody. If you do have any questions at all, ask your qualified adviser.
DISCLAIMER: This article is intended to provide a general summary only and should not be relied on as a substitute for professional advice.