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2017 Year End Tax Planning (Don’t Look Back)

June 9, 2017
by Duncan Melbin

2017 Year End Tax Planning (Don't Look Back)

2017 Year End Tax Planning, remember in many cases you can’t look back!

 

2017 Tax Year End – Last Minute Planning

June is here and so as usual we are touching base with all our Clients to ensure 30 June doesn’t pass by without the necessary preparations.

Firstly, for all of you with a Discretionary Trust … as you know your annual Trust Income Distribution must be implemented before midnight on 30 June.  And remember, once 30 June has passed it is too late to make a change!

This week we are scheduling meetings with those Clients who regularly take advantage of the chance to meet up and fully prepare for year end, so if you too would like to ensure you have minimised your tax and prepared for 2018, please do get in touch ASAP!

For any of you who decide you don’t require tax planning this year, but who do have a Discretionary Trust, you will receive a follow up email from us shortly regarding preparation of your Trust Income Distribution Minutes (so please keep an eye out for that)!

Key matters to consider this year…

Year End Tax Planning for Business Owners –

The Company Tax Rate continues to fall (for some)

This year, for Companies that qualify as Small Businesses, the tax rate is 27.5% (down from 28.5% last year and down from 30% prior to that).  And the number of Companies that qualify as Small Businesses has substantially increased. Last year turnover had to be under $2 million.  This year the threshold has increased to $10 million.

Next year, the threshold increases all the way to $25 million! So even more companies will qualify for the lower rate of 27.5%.

If your Company’s business turnover is expected to be close to the $25 million threshold next year, there could be an argument for bringing forward some revenue into this year, to ensure qualification for the lower rate next year.

Non-Companies also continue to get a Tax Saving

The still relatively new Tax Discount for Non-Company Small Businesses continues this year and next both at 8% (with a cap of $1,000).  Your turnover needs to be under $5 million to qualify, so if you are close, consider deferring income to ensure qualification.

Company Tax Changes Could However Catch You Out

With the reduction in the company tax rate changes have also been made to the way dividends are franked.  In short, there are less tax credits attached to your dividends then there used to be if you qualify for the lower tax rates. So keep this in mind if you have been budgeting on receiving credits at the old rate.

$20,000 Instant Asset Write-Off

In this year’s Federal Budget it was announced that the instant deduction for eligible assets costing less than $20,000 would be extended to 30 June 2018, but as things stand this isn’t yet law.  So there is a chance 30 June this year could be the last opportunity to take advantage of this very valuable opportunity.

Having said that, PLEASE, don’t just buy assets you don’t really need in order to obtain the tax saving!  For every dollar spent at best you will save 49 cents in tax, so you are still out of pocket and accordingly the item you acquire best be needed.

This particularly applies to motor vehicles.  Don’t just buy one you don’t need to save tax, you will still lose!

Having said that, if you know you will need to purchase assets in coming months anyway, including motor vehicles, that will cost less than $20,000 then there is a strong argument to bringing the purchase forward (there are exceptions to what assets qualify, so if in doubt please get in touch).

And remember …

If your business is registered for GST, the $20,000 test applies to the GST exclusive price. So generally that will mean the purchase can cost as much as $21,999 including GST (so long as the GST is a full 1/11th, just remember to check, especially in the case of motor vehicles).

Super Contributions – Watch those Contribution Caps

You all know we feel super is the most tax effective place to accumulate long term passive wealth, and this remains the case despite all the negative press over the past year related to law changes. So if you pass the 10% Employment Income Test, or you operate via a business structure, give serious consideration to topping up your contributions for this year before 30 June.

Just ensure …

Your fund MUST receive (so not just you must have paid) the contribution before 30 June (this is a strict deadline, though if you don’t have a Self-Managed Super Fund be weary of your corporate funds business rules and earlier cut off dates).

And …

You do not want to go over your Contribution Caps.  $30,000 for individuals under 49, $35,000 for those 49 and over!

Employee Superannuation Contributions

Remember superannuation contributions made on behalf of your employees are only tax deductible when paid (UNLESS they are paid late, which means they are not tax deductible at all so don’t be late)! Your June quarter contributions are due 28 July, so why not bring them forward 28 days and get them paid before 30 June, providing that extra tax deduction this year?

Loans from your Company

Have you borrowed money from your Company (ie. that hasn’t been paid to you as a Salary, Wage or Dividend)?  Then you need to make sure you have a Division 7A Loan Agreement in place!  Similarly, if you had a loan from your Company last year it will need to be (at least partly) repaid this year which will almost certainly add to your tax bill, so let’s plan for this now.

Dividends from your Company

If Dividends are to be paid from your Company this year (ie. perhaps in relation to your Division 7A Loan above) you need to ensure your Company has enough Franking Credits before 30 June so that your Dividends can be Fully Franked.  This may entail prepaying your June Pay As You Go Instalment.

Personal Services Income

If you derive Personal Services Income and you have not yet meet the 80/20 test, is there a way to do so before 30 June?

Utilise Your Tax Losses

If you have entities in your group that have current or prior year losses, you need a strategy in order to get income into them to soak up those losses and reduce tax to be paid elsewhere.  Don’t get caught with a tax bill when you have unused losses going to waste.

Planning on Salary Sacrificing Next Year?

You must have a formal salary sacrifice agreement in place with your business BEFORE the sacrifice can take place, so get it done ready for 1 July.  Note: this includes for those who intend to make extra super contributions for themselves from their business.

Trust (Income) Distribution Minutes

Mentioned above, but a reminder, you have to decide how your Trust income will be distributed BEFORE 30 June, and you can’t change your mind later.  So make sure you know how much the Trust has earned and how much it’s Beneficiaries have earned, so you can get your income splitting strategy right now.

Is It Time to Consider Restructuring Your Business

Some substantial tax benefits can potentially be accessed via a restructure.  In particular significantly reducing the capital gains tax you will pay in the future in the event of the sale of your business and/or related assets.  If you are serious about wanting to pay the absolute minimum amount of tax possible, talk to us about investigating the benefits of a reorganisation of your affairs.

Avoid a Hit to your Credit Rating

Less a tax planning matter, more a warning regarding maintaining your Business’ good credit rating.  As of 1 July, the ATO will commence reporting poor tax compliance to credit reporting agencies.  Owing tax has always been stressful, now it could seriously impact your business’ ability to receive loans and other funding in the future as it will now impact your credit rating.

Year End Tax Planning for All –

For both business owners and employees alike, the basics still apply –

  1. This year will see the last of the Budget Deficit Repair Levy being the extra 2% tax those earning more than $180,000 pay.  So next year those individuals will have a tax cut of 2% creating even more incentive to get this year’s income down at the expense of an increase to next year’s income.  So as usual …
    • Look to defer income till next year,
    • Look to bring forward expenses.  If you lodge on a Cash Basis (rather than Accruals) or are an employee, you must have physically paid the bill before 30 June for it to be deductible (that includes Accounting Fees by the way).  Further, if you are an employee or currently a Small Business (under this year’s $10 million turnover threshold) you can claim prepaid expenses so long as the prepayment is for a period of not more than 12 months of services.
  2. Planning on buying new plant & equipment related to business or work soon?  Consider making the purchases before 30 June (even if you don’t qualify for the $20,000 Instant Asset Write-Off above),
  3. Planning on doing some repairs & maintenance soon?  Again consider bringing it forward to before 30 June (even if you just pay for it in advance),
  4. If you have a Motor Vehicle make sure you have a log book capturing all your business/work related travel,
  5. Own an investment property?  Make sure you have a Property Depreciation Report.  Also …
    • Consider prepaying interest on your related investment loan,
    • Looking to sell, while the strategy could come with risks, if you will be selling at a profit consider holding off on accepting any offers until after 30 June.
  6. On that note, consider delaying the sale of any assets that would have a capital gain until after year end, while considering bringing forward the sale of assets that will have a capital loss.  Particularly if you already have a capital gain, selling under-performing assets at a loss could help offset the tax payable on your gains (though be careful of wash sales).
  7. Considering making an investment in a Start-Up Company?  Without rushing your decision, it could be well worthwhile doing so before 30 June. Investments in Early Stage Investment Companies (ESIC) can provide a 20% tax offset (capped at $200,000).  Non-sophisticated investors may also benefit but they may only invest a maximum of $50,000. (Note: Capital Gains may also be disregarded if the shares are disposed after 12 months but before 10 years though this won’t help with this year’s tax.)  Various criteria apply to ensure the company is an ESIC so do get in touch if you are thinking of going down this wealth building path.
  8. Do you have Private Health Insurance?  If you are over the threshold but don’t have the cover in place before 30 June, next year you could be hit with the Medicare Levy Surcharge the cost of which is often similar to the cost of the cover itself.  Also, make sure you review your entitlement to the Private Health Insurance Rebate, if you continue to pay your premiums on the basis of qualifying, but then when you lodge your tax it turns out you don’t, you will get a nasty surprise bill requiring you to repay it!
  9. Consider your Pay As You Go Instalments.  Your last one for 2017 will be due in July.  If you can estimate your tax position for this year now, perhaps you can vary your July Instalment down to ensure you haven’t over paid.
Duncan Melbin

Duncan Melbin

I am a Chartered Accountant, Chartered Tax Advisor and the Director of CapitalQ. For me, the average doesn't seem to satisfy. I am always striving to achieve new heights both personally and in business (albeit in my own modest way). I love working with our Clients who share a similar attitude and who strive to make their lives extraordinary in their own ways.

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