Tax Planning is the answer
June 30 will be here before you know it but don’t get caught up in the hype or leave this to the last minute. If you make no decision, or a rushed decision, this can lead to the wrong outcome.
Here are a few strategies that may be useful…
Business Income and Expenses
Depending on cash flow requirements, consider deferring income until after 30th June, especially if you expect lower income for 2013/14 compared to 2012/13. Most businesses are taxed on income when it is invoiced. Some small businesses may be taxed only when income is received. Income from construction contracts is generally taxed when progress payments are invoiced or received.
Ensure that you have complied with the requirements to claim deductions in 2012/13:
- Bad debts must be written off in your accounts before 30 June.
- Employer and/or self-employed superannuation contributions must be paid to, and received by the super fund before 30 June and must be within the contributions cap (generally $25,000 per individual).
- Tax Advantages of Super Contributions. Pay 15% tax rather than your marginal rate of tax.
- Government Co- Contribution. Are you eligible for a $500.00 bonus from the government.
- Depreciation can be claimed for assets first used, or installed ready for use, before 30 June.
- Small businesses (turnover less than $2 million) can claim expenses prepaid up to 12 months in advance – for larger businesses, this is generally limited to expenses below $1,000.
If you are a small business planning a major purchase or replacement of capital equipment, you should contact us for advice or call 03 9898 5933. Careful timing of those transactions can result in substantial tax savings. Best practice is generally to value stock at the lower cost or market value. This may change if you expect a tax loss for 2012/13, or substantially higher income in 2013/14 compared to 2012/13.
Personal Income, Deductions and Tax Offset
Here are some tips and suggestions:
- Depending on cash flow requirements, set term deposits to mature after 1 July, rather than before 30 June.
- Consider claiming capital losses if you have already claimed capital gains on other assets during 2012/13 and vice versa.
- If you expect lower income in 2013/14 due to retirement or any other reason, consider deferring income until after 1 July, when you will be in a lower tax bracket.
- Where possible, arrange for substantial out-of-pocket medical expenses to be grouped in the same financial year, and for all expenses to be invoiced in the name of the higher income earner. This may enable you to meet the annual threshold for the Net Medical Expenses Tax Offset which for 2012/2013 is $2120.00.
- Arrange for deductible donations to be grouped in the higher income year, if you expect substantially higher or lower income in 2013/14 compared to 2012/13. Make all donations in the name of the higher income earner.
- If you plan to purchase income-producing assets, consider purchasing assets that will generate positive cash flow in the name of the lower income earner and vice versa.
Other Tax Planning Considerations
If you are a trustee of trusts, you should ensure that all necessary documentation is completed before 30 June, where you intend to stream capital gains or franked distributions to specific beneficiaries. Call us on 03 9848 5933 or click here if you need clarification on this point or any other types of trusts like family discretionary trusts.
Income Tax Changes- Small Business Depreciation and Low Cost Assets
There are significant changes to the timing of deductions for plant & equipment. Items costing less than $6,500 excluding GST are now immediately deductible (up from $1,000). Motor vehicles costing $6,500 or more qualify for an upfront deduction. Please click here or call us to clarify the amounts and what is claimable on 03 9848 5933.
You May Be Able To Obtain a Refund
Companies that have paid tax in the past, and then have incurred a loss in the 2012/13 income year, may be able to obtain a refund of some of the tax previously paid. To clarify if this applies to you please call 03 9848 5933 or click on our contact us link here
Roy A McDonald together with Lindale Insurances provide easy to understand and unbiased financial advice and accounting services.
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