Tax Effective Action Planning Before Year End |
Trading Stock
Individual items of trading stock can be valued at cost, market value or replacement value for tax purposes. The lower the value, the lower your tax bill, so review your stock carefully at 30 June, with a view to writing off or writing down stock that has market or replacement value, that is less than its cost.
Prepayments
If you operate a small business (basically turnover less than $2m), you can often claim prepayments of expenses like rent or lease payments.
Superannuation
Superannuation is only deductible when it has been physically paid, so ensure that superannuation contributions have been paid to the superannuation fund by 30 June to get a deduction this year.
The maximum deductible superannuation contribution amount for 2011 are $50,000 if 50 years old or above and $25,000 if under 50.
Depreciation
Review your depreciation schedule and scrap any old items before 30 June.
Accelerating Asset Purchases and Expenditure
It’s worth considering accelerating expenditure on things like repairs maintenance and consumables. If a small business you can use the immediate write off of $1,000 on an asset and use pooling acceleration to depreciate asset at 18.75% even if acquired on the last day of the year.
Deferral of Income
If cash flow allows, consider deferral of income until July. This defers tax on that income by a year. If you’re taxed on an accruals basis, you can defer the tax by holding back invoices. This may be useful in a bad economy and pushing income into a bad year.
Bad Debts
Review your debtors and if any are unlikely to be recovered, physically write them off in your records as bad before the year end. Commercial efforts must be undertaken to recover the debt prior to any write off.
Company Loans to Shareholders/Directors
• Ensure Division 7A documentation are in place.
• Ensure loans during the year are repaid by the lodgement date of the company’s tax return.
• Look to pay dividends on the 1st July after year end will potentially reduce interest requirement under Division 7A but not minimum repayment.
Blackhole Expenses
A business may be able to claim a deduction for capital expenditure if the expenditure relates to the carrying on of a current, former, or a proposed business and if expenditure is otherwise non-deductible and is not part of an asset cost base.
Unpaid Income Entitlements (UPE) - Trust
Under the new UPE provisions, ensure that any trust distributions are physically paid to corporate beneficiaries. If not, sub-trust and or 7 or 10 year loan agreements must be put in place with benchmark interest to be paid thereon and principal at the end of the term.
Trust Deeds
The Government has advised that streaming in trusts has now been sanctioned. You therefore can stream income i.e. Capital gains and dividends. Please ensure your deed allows you to do this and allows separation of classes of income.
Trust distributions must also use a proportionate approach as to distributions to beneficiaries.
Bonuses for Employees
Bonuses are deductible when they are incurred. If the business is committed to paying them at 30 June and this is binding, the bonuses will be deductible in 2011 even if paid after 30 June 2011. You should ensure that planned bonuses are qualified, documented and minuted before 30 June to ensure a 2011 tax deduction.
Personal Services Income
Ensure your income can pass the results test or the 80% clients test. Bringing forward income from other sources may help in this regard.
Disclaimer - The material contained in this newsletter does not constitute advice. DPL is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.
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