Tax Planning – A ‘must have’ discussion with your accountant
We are quickly nearing the end of the financial year and it is around this time that we are working with our clients to identify tax planning issues.
Depending on the type of business involved this may involve a quick chat over the phone, or at the other end of the scale, a full review of year-to-date results, projections, tax estimates and working through a range of options that may help minimise your tax liabilities.
Here are some things to consider:
Is your business structured in a way to allow for future growth and does it have the flexibility required to assist in minimising your tax liability? Are you concerned that your personal assets may be exposed to the risks of your business?
Your accountant should be reviewing your business structure on an ongoing basis because your business and your personal circumstances are always changing. I would urge all business owners, particularly sole traders, to seek professional advice in relation to your business structure. I believe it is one of the most important discussions to be had in relation to your business and leading up to a new financial year is the perfect time to do it to get your tax planning in order.
The concessional contributions cap for the 2017/2018 financial year is $25,000. This is the maximum amount of super that can be contributed by you or on your behalf for which a tax deduction is claimed. There are permanent tax savings to be achieved when contributing to super. The ability to claim a tax deduction for personal super contributions has also been expanded this year to include employees, whereas in the past it was limited to self-employed workers or non-working investors.
Superannuation is a very tax effective investment vehicle and can be used to invest in a wide range of assets including commercial property to be used in your business. You should always discuss investment decisions such as these with a qualified financial advisor.
There are also opportunities to move personal funds into your super fund as non-concessional contributions in certain circumstances. These are contributions for which you do not claim a tax deduction and consequently your fund is not liable for contributions tax. There are limits to the amounts that can be contributed so please seek advice on this.
In relation to your employees’ super guarantee, just remember you do not get a tax deduction for your super payments until they are physically paid. If cash flow permits, pay your June quarter super prior to 30 June to get your tax deduction in this financial year.
Specific Company and Trust Issues
There area number of issues specific to companies and trusts which need to be dealt with prior to 30 June. For trusts, distributions need to be considered prior to 30 June which means reviewing the deed to ensure distributions to certain beneficiaries are allowed. Trust distributions then need to be decided upon and documented by 30 June to comply with the ATO’s requirements.
Companies have specific issues that need to be considered, especially Division 7A loans which is always an ATO audit risk with serious consequences for getting it wrong. Div 7A contains the rules regarding loans from a company to a shareholder/director.
Timing of Income & Expenses
Is there an ability to defer recognition of income? That may be deferring the issuing of an invoice, or considering options when receiving a lump sum up-front payment prior to 30 June.
Can you bring forward expenses that you expect to incur in the near future? If cash flow permits, small business entities can also prepay expenses in some circumstances to obtain the deduction in this financial year.
Instant Asset Write off
If you buy an asset and it costs less than $20,000, you can immediately deduct the business portion in your tax return provided you classify as a small business entity.
The immediate asset write-off threshold of $20,000 was set to cease on 30 June 2018, however it as announced in the recent budget that it will continue for another year.
Review your debtors to determine whether any should be written off as bad debts.
Review your depreciation/asset schedule and determine whether any assets have been scrapped or are obsolete.
Review your stock take and determine whether any obsolete stock should be written off.
Review your motor vehicle log book percentage and determine whether it is still accurate.
Capital Gains Tax
If you have sold or are considering selling a capital asset during this financial year it is a perfect time to consider your tax planning options. Significant tax savings can be gained and I would always suggest you seek professional advice when selling any major investment asset.
This is just a quick list of some of the things to consider leading hen doing your tax planning in the end of the financial year. If you’d like to discuss any of the points mentioned above please get in touch to book you free initial consultation. Call 02 4951 5239.