It's time to plan for EOFY 2019
Many Australians are adopting a 'wait and see' approach to end of year tax planning, however several matters actually impact the 2018-19 tax year and now is the right time to be speaking to your accountant.
With an election looming and not a lot of certainty around what tax reform may mean for Australians and Australian businesses, many are potentially not looking at end of financial year until the election is over.
However, with Budget measures already in play, now is the time to get your EOFY plan in place.
Business Income and Expenses
Each business is relatively, but generally business tax falls into three groups:
- On income when it is invoiced (most businesses)
- On income when it is received (some small businesses)
- Income derived from construction contracts is generally taxed when progress payments are invoiced or received
Subject to cash flow requirements, consider deferring income until after 30 June, especially if you expect lower income for 2019/20 compared to 2018/19. If your company has any bad debts or outstanding super payments, then timing is important:
- Bad debts must be written off your accounts before 30 June
- Employer and self-employed super contributions must be paid to and received by the super fund before 30 June. Any contributions must also be within the contributions cap of $25,000 for individuals of any age.
- Ensure that any deductions for assets first used or installed before 30 June are claimed
- Prepay any expenses for up to 12 months in advance if your business has a turnover of less than $10 million – be mindful of how this will impact cash flow. For larger businesses, this is generally limited to $1000.
- Ensure that any wages paid to a spouse or a family member are reasonable for the work they have done for your business.
Small Business Instant Asset Write-off
The small business instant asset write off has been extended until 30 June 2019 and allows SMEs to write off new assets costing less than $20,000 in the current financial year.
If your business is looking to purchase assets or replace capital equipment, then speak to your accounting team because timing those expenses is important for tax savings.
Other considerations for your business include:
- Disposing of obsolete assets before 30 June
- Consider delaying the sale of those assets that may realise a profit on the sale, but bring it forward if there's likely to be a loss
- Value your trading stock ahead of June 30 and talk to your accountant about best practices based on whether you expect a loss or a profit in the current financial tax year.
Personal Income, Deductions and Tax Offsets
Subject to cash flow requirements, set term deposits to mature after 1 July, rather than before 30 June.
Consider realising capital losses if you have already realised capital gains on other assets during 2018/19. Conversely, consider realising capital gains if you have unrecouped capital losses, or you expect substantially higher income in 2019/20 compared to 2018/19.
If you expect lower income in 2019/20 due to retirement or any other reason, consider deferring income until after 1 July, when you will be in a lower tax bracket. If you are a primary producer and you expect a permanent reduction in income, consider withdrawing from the income averaging system.
Arrange for deductible donations to be grouped in the higher income year, if you expect substantially higher or lower income in 2019/20 compared to 2018/19. Make all donations in the name of the higher income earner.
2018/19 is the last year that individuals can access the Net Medical Expenses Tax Offset for medical expenses relating to disability aids, attendant care or aged care.
Other Tax Planning Considerations
Contact us for advice if you have moved to or from Australia for an extended period. You may need to review your residency status for tax purposes. There are important tax consequences if you change residency.
Trustees of trusts should ensure that all necessary documentation is completed before 30 June, especially where you intend to stream capital gains or franked distributions to specific beneficiaries or have beneficiaries who aren't the default beneficiaries.
Family discretionary trusts may need to make a family trust election if the trust has unrecouped losses, or has beneficiaries whose total franking credits for the year may exceed $5,000.
Be skeptical of year-end tax shelter schemes. You should not enter a scheme without advice regarding both its tax consequences and commercial viability.
Single Touch Payroll
Subject to certain exemptions, the Single Touch Payroll reporting framework applies from 1 July 2018 for substantial employer (entity with 20 or more employees or a member of a wholly-owned group with 20 or more employees).
Income Tax Changes – Small Businesses
For the 2018/19 year eligibility for the reduced corporate tax rate of 27.5% has been changed to apply to base rate entity companies with an aggregated turnover of $50m.
The small business income tax offset remains the same, which is 8% discount of the income tax payable on the business income received from a small business entity (other than a company) with aggregated turnover of less than $5m, up to a maximum of $1,000 a year.
An immediate deduction is still available for an asset costing less than $20,000 acquired and first used or installed ready for use on or before 30 June 2019.
The balance of the general small business pool is also immediately deducted if the balance is less than $20,000 at 30 June.
Income Tax Changes – Individuals
The threshold for the 32.5% tax bracket has been increased from $87,000 to $90,000 for the 2018/19 year.
Low and Middle Income Tax Offset
Australian resident individuals whose income does not exceed $125,333 are entitled to the new low and middle income tax offset.
Child Care Subsidy
From 2 July 2018, a new Child Care Subsidy is available for families where both parents work.
GST on New Residential Premises
From 1 July 2018, purchasers of new residential premises or new subdivisions of potential residential land must withhold an amount equivalent to the GST from the contract price.
Personal Superannuation Contributions
Individuals with a total superannuation balance of less than $500,000 will be able to make catch-up superannuation contributions using their unused concessional contributions cap. The unused concessional contributions cap can be accessed on a rolling basis for five years.
First Home Super Saver Scheme
From 1 July 2018 individuals may apply to release any voluntary contributions made into their super fund to assist with purchasing their first home.
Individuals who are 65 years old or older and meet the eligibility requirements can choose to make a downsizer contribution of up to $300,000 from the proceeds of selling their main residence into their superannuation
Legislation to prevent employers from using employee salary sacrificed amounts to reduce their minimum superannuation guarantee is currently before Parliament.
Super Guarantee Non-Compliance
Subject to the passage of legislation, from 24 May 2018 to 23 May 2019, there will be a one-off 12-month amnesty period to encourage employers to self-correct past super guarantee non-compliance without penalty.
Capital Gains Tax
Small Business CGT Concessions
Be aware of the proposed additional basic condition for the small business CGT concessions if the CGT event involves certain rights or interests in relation of the income or capital of a partnership.
Fringe Benefits Tax
The FBT rate for the year ending 31 March 2019 is 47%.
It's time to act
With the end of financial year a mere 7 weeks away, it's time to act if you have EOFY planning that needs your accountant's input.
Please contact us on 02 9957 4033 to book your appointment with our team or to discuss any concerns you have for your business or personal tax.
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.