With only 3 weeks until the end of the financial year, now is the time to get your tax planning in order.
Below is detailed information about tax planning, what it means and a summary of the process….call Michael on 0413809111 to discuss your specific circumstances.
Tax planning is the art of arranging your affairs in ways that postpone or minimise taxes.
Michael Hart and the team run through a 57 point checklist to ensure that all opportunities to save tax are identified.
A great tax plan will cover the following:
A forecast of your profit for the current financial year.
A strategy to legally minimise your tax.
With tax minimisation strategies explored, we will plan for the resultant tax liability.
A plan to cover the lodgement of returns and the timing of cash flow.
Alerts you to your taxation compliance obligations before they become due so that you are able to comply with all these obligations ensuring all matters are dealt with accurately and in a timely manner.
The following is a summary of the things that should be considered…
Is it still the most appropriate for you?
Do any trust deeds need to be reviewed?
ASSESS EXPECTED PROFITS FOR THE YEAR
Prepare forecast and review
CHECK THE FOLLOWING
Franking account balance
Profit distribution and dividend payments
PAYG instalments and variations
Resolutions to be documented
DEFERRING ASSESABLE INCOME
Cash or Accruals On the cash basis, taxable income is the net of amounts that are actually received less amounts actually paid at year end. The proceeds of pre 30th of June sales which have not yet been received, are excluded from income for the current year.
Unearned income – Make sure that you exclude any income that you may have received but not yet earned. Defer the income until the next year.
Defer Billing – Think about deferring your invoicing until after 30 June.
Interest and rent – Consider the basis on which interest or income is earned and the scope for deferral.
Postpone the realisation of an asset until after year end
Review Extraordinary items
Bad debts – Trade Debtors should be reviewed prior to 30 June to identify and write off any bad ones.
Scrap assets – Review your asset ledger and write off all assets that have been scrapped or which have outlived their useful economic lives.
Low value pool – Assets which have been written down to where their value is quite low can be pooled together and depreciated at a higher rate.
Low value assets – Assets costing $20000 or less can be written off immediately under certain conditions.
Obsolete stock and slow moving stock– Obsolete trading stock with no value can be written off and a tax deduction claimed this year. Slow moving stock can be written down to net realisable value.
Stock Valuation – Stock can be written down from cost to a lower replacement value if applicable.
Maintenance – The work car is due for a service or some new tyres, why not get it done pre-June rather than just after.
Bring forward expenditure for business
Eligibility for $20,000 assets to be written off
Realisation of assets that will produce a capital or revenue loss.
Superannuation – Employees’ superannuation contributions should be actually paid before 30 June to obtain a deduction
Personal Superannuation – You can claim a deduction for personal superannuation contributions
Check Payroll Tax Grant for employees
Check eligibility for Small Business Grant
CAPITAL GAINS TAX
Small Business Concessions – You should consider the availability of other small business CGT concessions which have the effect of reducing or deferring a capital gain arising from the disposal of a business asset.
CGT Discount – The CGT discount is not available when you sell an asset that you have held for less than 12 months. Consider deferring the disposal of these assets until the 12 months threshold has past.
The small business 15 year exemption
The small business 50% reduction
The small business retirement exemption
Tax Losses – Check to see if your company has any tax losses carry forward from prior years.
Check whether there is a deficit franking account balance
Check Fringe Benefits Tax
Division 7A – check loans, payments or debt forgiveness by company to shareholder
Personal Services Income
Review the trust deed
How income is to be distributed.
Plan distributions and make and document resolutions
Co-contribution – Let’s start with the easy money. Low-income earners should think about making a personal superannuation contribution so that they qualify for the government’s superannuation co-contribution payment.
Re-contributions – Currently, strategies exist that allow you to draw a pension from your fund and re-contribute amounts to the funds, reducing tax significantly, while maintaining your same net cash. These must be reviewed – Budget 2016
Contribution caps – Make sure that you don’t contribute more than the annual concessional contribution cap of $30,000 on $35,000 depending on your age. Consider proposed changes Budget 20016 for future contributions.
TAX RATES ARE
0 to $18,200 Nil
$18,201 to $37,000 19c for each $1 over $18,200
$37,001 to $80,000 $3,572 plus 32.5c for each $1 over $37,000
$80,001 to $180,000 $17,547 plus 37c for each $1 over $80,000
$180,001 and over $54,547 plus 47c for each $1 over $180,000
Medicare Levy As part of your ordinary tax planning, understand your Medicare Levy and consider any opportunities that may reduce this levy.
Private health insurance rebate please note that the private health insurance rebate is now adjusted for on the lodgement of your income tax return. This can either increase or decrease the total amount payable on lodgement of your individual return.
Keep track of Interest
All the interest earned on your saving is your income and therefore part of your assessable income. Keep track of your interest and provide tax file numbers to your bank so that you don’t have tax deducted until you file your return.
Rebates and offsets a large number of different rebates and offsets are available to reduce taxable income. You should consider the availability of these items for the current year. Tax offsets directly reduce your payable tax and can add up to a sizeable amount. So it pays to know all the offsets you are entitled too. Eligibility for offsets will generally depend on your income level, family circumstances and satisfying specific conditions for each rebate.
Most common examples of tax offsets include the dependent spouse rebate, low-income rebate, mature aged worker rebate, the senior Australian tax offset, the medical expenses offset, the private health insurance offset and the offset for superannuation contributions made on behalf of a low income spouse.
Work expenses and substantiation Documentation of expenses higher than $300 must be substantiated. Check Internet, Phone, Computer etc.
Work related car expenses Do you need a log book. Record your odometer readings for 30 June 2016.
Work related travel expenses Check deductibility and substantiation
Work related clothing, laundry and cleaning Consider whether you can claim a deduction for the cost of buying or cleaning: occupation specific or protective clothes; or unique, distinctive uniforms.
Other work related expenses Consider the deductibility of other work related expenses including home office expenses, occupancy expenses, work related development and support, tools and equipment and overtime meal allowance expenses. If you work in a specific industry, you should consider the ATO’s guide on work related expenses that applies to that industry.
Consider whether you can prepay certain expenses before 30 June 2016 to bring forward deductions to the current income year
Salary sacrifice Check limits and plan for next year.
Non-work related deductions the fees you pay a registered tax agent to prepare your return or to manage your tax affairs are allowable in the year the fee is paid.
Income Protection Insurance If you have income protection insurance, the ATO allows you to claim this as a work-related expense.
NOTE: If you adjust wages payments to yourself when you do your tax and DON’T have a self-managed super fund, with super stream becoming a requirement this year we will need to make those decisions prior to June 30th and pay the super.
Also if you have a super contribution plan in place it should be reviewed in light of the budget changes.
Call Michael on 0413809111 to discuss your specific circumstances.