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Are You Paying More Tax Than You Need To?

May 2017

What can you do to reduce your tax and the tax paid by your business? The answer is quite a bit but it takes planning pre 30 June. 

If you're looking at ways to reduce your personal and business tax, then you can do so with some considered planning before the end of the current financial year. We talked to our team to find out their top tips of maximising your position before 30 June:

Accelerate deductions

For businesses, if your cashflow is good, make the purchases you need before the end of the financial year to claim the deduction, particularly those with turnover under $10 million. The $20,000 immediate deduction reduces back to $1,000 on 30 June.

If you're feeling generous and have the ability to make donations to worthy causes, now's also a good time for charitable giving.

Delay income - One off opportunity for high-income earners

Taxpayers with assessable income above $180,000 face an additional 2% tax on every dollar above this level. The 2% 'debt tax' is scheduled to end on 30 June. 

The difference in timing between the reduction in the FBT rate that occurred on 1 April 2017 and the removal of the 2% tax on 1 July may offer a one-off opportunity to reduce your taxable income through salary packaging and other planning initiatives.  

If you are likely to have a one off spike in income, for example from the sale of a business or other significant assets, it might be worth seeing if you can delay the sale until 1 July 2017 to avoid paying an additional 2% tax.  Just be aware of how the arrangement is structured.

In many cases the sale is treated as having taken place for tax purposes when the parties enter into the contract, even if settlement occurs at a later point in time.

The big caveat on all this is that the Labour opposition is considering pushing for an increase to the top marginal rate of tax (to permanently replace the budget levy for top marginal rate earners) in addition to the medicare levy increase of 0.5% only applying from second top marginal rate.

Repay your debts to the business

It's common for business owners to take cash out of their business or for the business to fund some personal expenses throughout the year. These will appear in your shareholder loan account

If you have borrowed from your business, now is the time to ensure that you've either paid them back by 30 June (you can declare dividends to pay any outstanding loan amounts) or that you have a formal loan agreement in place (with specific conditions)

Without taking action, the ATO will treat any outstanding amount as a deemed dividend taxable in the hands of the shareholder at their marginal tax rate.

House-keeping for business

As always, there is some basic housekeeping that is essential for business owners at this time of year. Here are our top recommendations:

  • For companies, directors' fees and employee bonuses may be deductible for the 2016-17 financial year if the directors pass a properly authorised resolution to make the payment by year-end (payment should be made as soon as practicable).  Just be aware of the 2% debt tax for high income earners (see Delay income - One off opportunity for high-income earners)
  • For Trusts, it is essential that decisions to distribute pre 30 June income are documented in writing
  • Write-off bad debts (follow the correct procedures)
  • Review your asset register and scrap any obsolete plant
  • Bring forward repairs, consumables, trade gifts or donations
  • Pay June quarter employee super contributions now if cashflow allows (super is not deductible unless it is paid)
  • Realise any capital losses to reduce any capital gains
  • Raise inter-entity management fees by June 30

Got questions? Talk to your accountant

If you need assistance with your end of financial year preparations or want to advice on how to maximise tax-time, call us on 02 9957 4033 or drop us a line at enquiry@batescosgrave.com.au.


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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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