End of Year Tax Planning Tips
With the outcome of the federal election behind us and with a Government aiming to provide certainty and stability we can now move ahead with confidence and take appropriate steps to be prepared for the end of the financial year and beyond. Below are some of the key tax planning actions we undertake with our clients prior to 30 June.
Businesses – Tax Planning Matters
Invoicing
Most businesses operate and report their income based on invoices issued. Whilst maintaining a keen eye on cashflow the impact of issuing invoices into the next financial year means tax won’t be payable on that income until the next financial year.
Trading Stock
Trading stock can be valued at the lower of cost, market value or replacement value for tax purposes each year. Undertaking an effective stocktake can identify obsolete stock which can be written off or at the very least written down to clearance prices, reducing your taxable profit.
Acquiring New Assets less than $30,000
Businesses with turnover less than $50 million can claim an immediate tax deduction for each asset (new or second hand) purchased and first used from 2 April 2019 to 30 June 2020.
Contract income
Be mindful of any income that you invoice for services which you provide post 30 June. Depending upon the terms and conditions of your agreement whilst the income may be invoiced prior to 30 June if the services are provided after 30 June you may be able to defer the recognition of that income until the new financial year.
Superannuation Contributions for Staff
Superannuation contributions paid by employers are only tax deductible at the time of payment, whilst many employers won’t pay their June quarter superannuation until 28 July consider making the payment before 30 June.
Bad Debts – Write off
Review your debtors prior to 30 June and where there is no, or minimal chance of recovery write the debts off prior to 30 June so that you are not paying tax on those amounts you won’t receive.
Withholding Tax on Payments
Ensure that when you are making payments (particularly to individuals) that you have made the appropriate PAYG (Pay as you Go) withholding from the payment. Effective from 1st July 2019 a failure to withhold the correct amount from such payments will make the amount not able to be tax deductible.
Research & Development Tax Incentive
Companies that spend money on eligible Research & Development activities may be eligible for a refundable or non-refundable tax offset. Note that the expenditure must be paid prior to 30 June and that registration with AusIndustry must occur 10 months after end of financial year (usually 30 April).
Individuals – Tax Planning Matters
Investment Review – Capital Gains Tax
At this time of year, it is always important to review your investment portfolios and activities to see what capital gains and losses have occurred during the financial year. Re-organising your investment portfolio before June may result in you taking some capital losses to mitigate the impact of any capital gains.
Trust Distribution Minutes
Whether you run your business or have investments in a family discretionary trust it is essential that you ensure the trustee has documented how the income of the trust is to be distributed prior to 30 June. This will often involve an assessment as to the estimated income of the trust and the tax position of the individual beneficiaries of the trust to determine the most effective outcome for the family group. Failure to make the resolution before 30 June is likely to mean that the trustee is liable to be taxed on the trust’s income at the maximum tax rate 47%.
Company Loans & Dividends
It is important to remember that a company is a separate legal entity to its owners (shareholders). Where shareholders or related parties take funds from their company these funds need to be taken as either as dividends, wages or documented under a loan agreement (which will require repayment over a defined period usually 7 years).
Reviewing your company’s balance sheet to determine the quantum of any drawings made now means you can address and deal with these amounts prior to 30 June. Where the company has previously paid tax then payment of a fully franked dividend to the shareholders means that tax at the individual level is limited to the difference between the marginal tax rate of the shareholder and the company tax rate.
Superannuation
The superannuation laws were changed with effect from 1 July 2017 to allow all individuals to make concessional contributions up to a maximum annual limit of $25,000 (this includes any contributions made by employers). Now is the time to check what contributions you or your employer have made to superannuation for the current financial year and determine whether you can top up those contributions to the $25,000 limit prior to 30 June.
Interest – Prepayments
Whilst this is simply a deferral technique, prepayment of interest on funds used for investment and business purposes will generally be tax deductible in the year of payment.
Donations
If you are making donations, please ensure that they are made to an entity that has deductible gift recipient status (you can check this by doing an ABN lookup of the charity). Note that many of the overseas charities and GoFundMe campaigns do not have deductible gift recipient status so make sure you check before donating.
We will be in touch with most of you prior to 30 June to ensure that your are prepared for end of the financial year if you have any questions please do not hesitate to contact us.