Timing is everything
What can you do to reduce your tax and the tax paid by your business?
The answer is “quite a bit”. You just need to do some planning before 30 June. Here are our top tips:
Businesses
Accelerate deductions
- If your cashflow is good, take advantage of the $20,000 write-off and make the purchases you need before the end of the financial year – this applies to those with a turnover under $10 million.
- Pay Superannuation prior to 30 June so deduction can be claimed in this financial year. Must be received by the Super Fund by 30 June.
Money or debts owed to private companies
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 appear in the shareholder loan account. If this has occurred, it is important that these debts are either repaid by 30 June (you can declare dividends to pay any outstanding shareholder loan accounts) or a formal loan agreement (with specific conditions) is put in place.
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
- 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 below – 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
- Undertake a proper stocktake to correctly value your stock on hand at 30 June
- 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
- Realise any capital losses and reduce gains
- Raise inter-entity management fees by 30 June
Individuals
Deductions: It’s a good time for charitable giving.
Also, you may be able to make a personal deductible Super contribution. Contact us to see if you are eligible.
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 offers 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’s 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.
