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2016 Tax Planning
4 Important Strategies Before the 30th June Tax Deadline.
With the 30th June fast approaching, its time to get your tax affairs in order. We have provided tax planning articles in 2014 and 2015 and it is important to contact us to clarify the relevancy to your business.
Below are a list of actions you can take as a business or as an individual tax payer to be tax effective and discover peace of mind.
Deferral and prepayments
Deferral of taxable income and making prepayments
You should take care to identify which of your sales will fall in June and which will fall in July or later. There are two reasons why.
- If your turn over exceeds 2 million for this year, you are not able to depreciate assets worth $20,000.00. More information is below.
- This will also ensure you pay less company tax as the tax rate for businesses with turnover of less than $2 million is reduced from 28.5% to 27.5% from 1 July.
It is important to contact us if you are a cash basis taxpayer for tax purposes and a sole trader, the income will be derived in the year in which the cash is received. If you are an accruals basis taxpayer the income will be derived in the year in which you issue an invoice. If you are unsure which one you are it is important to speak to us.
Also in the May 2016 budget, the 27.5% company tax rate will also be extended to businesses with turnover of less than $10M from 1 July 2016, which means the $20,000 depreciation opportunity is also available.
Prepayments Can help
If you weren’t aware, you are entitled to claim tax deductions on prepayments made which exceed $1000. Examples might include interest on loans or rent payments. To be able to claim this deduction, your turn over has to be less than $2 million and be trading for a minimum period of 13 months. Prepayments under $1,000 are deductible regardless of the service period.
If your turnover is less than $2 million you are able to claim an immediate tax deduction for assets costing less than $20,000. They have to be installed and ready to use by the 30th June 2016. If you are looking for further tax deductions, then buying assets may be worth considering.
If you have a turnover greater than $2 million you are only entitled to a tax deduction for assets costing less than $100. In the budget released in May 2016, the $20,000 immediate tax deduction will be extended to $10 million from 1 July 2016. This is assuming the current government remains in power and this law passes.
There may be some consideration if your turnover exceeds $2 million in holding off higher value assets in the 2017 financial year.
Superannuation Options and Capital Gains.
Superannuation- It’s only deductible if paid on time.
Superannuation is only deductible to the business when it is paid and also it must be paid on time. It is advisable to ensure that the superannuation liability relating to the June 2016 quarter is paid before year end as this will ensure a full deduction.
If there are other outstanding payments from previous months these need to be paid and in your team member’s bank account by the 30th of June. You should also ensure that the Superannuation Guarantee Charge forms are lodged for overdue payments. If you need help with this, please do not hesitate to call 03 9848 5933 .
Maximising Your Super contributions
Should the government remain in power and their new laws regarding super come into play, then the cap on non concessional super contributions will be $25,000 for everyone regardless of age. This is most likely the last year business owners can maximise their contributions using the higher caps.
The concessional contributions cap from 1 July 2015 is $30,000 for all individuals, unless you were 49 years of age or older which means your cap is $35,000. When maximizing the concessional contributions you need to remember that the limit includes your compulsory 9.5% and that all payments must be received by the super fund prior to 30 June.
Capital Gains Tax
If you are trading as an individual or through a trust you should check whether the 50% General Discount is applicable for any proposed asset disposal. This requires that you have held the asset for at least twelve months. This means that you need to consider the timing of the disposal. In addition you may be entitled to further small business concessions and discounts.
If you are considering the sale of an asset, it would give you peace of mind to contact us and make sure you understand the consequences of the transactions and the concessions that may be available.
Stock and Debts- Could help reduce your tax liability
Have you done a stock take?
Make sure you conduct a stock take before the end of the financial year. Any obsolete stock that is identified should be written off. This will reduce your tax liability.
Stock take concession – less than $2M turnover only
If your turnover is less than $2M you do not have to perform a stock take if you assess that the value of your inventory will not vary by more than $5000 in the tax year. One reason to come and see one of our experienced accountants is to make sure you choose the best method to value your stock. The options are cost, sales value or market value. We can help you decide what method is best for you.
Write off bad debts
If you have bad debts, you should consider writing them off before 30 June to ensure a tax deduction is claimed in the current year. If you have paid your GST on an accruals basis (contact us if you wish to clarify what this means) , any bad debt adjustment is likely to result in a refund of GST. When writing off bad debts, make sure you follow the rules to ensure that the debt is bad and that the necessary steps have been followed to collect the debt.
Charity and Other Deductions
Donations to charity
If you plan to make donations to your favourite charity, ensure you do so before 30 June. Remember, if you own a business and it has made a loss, then your donations will not be tax deductible in the year paid.
You can choose to spread the tax deduction over a period of up to five income years if it was a gift of money of more than $2, a property valued at more than $5,000 or a property under the Cultural Gifts Program.
If you or any of your associates have received a benefit, had a debt forgiven or borrowed money from your company or trust then Division 7A rules may apply to you. Contact us if you need to clarify the details of the Division 7A rules.
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Roy A. McDonald together with Lindale Insurances provide easy to understand and unbiased financial advice and accounting services. To maximise your cash flow – simply call us on 03 9848 5933
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