Another end of financial year is fast approaching.

Now in early June is time to know or remind ourselves some of the tax planning issues and tips, as they when addressed or implemented can save tax or defer tax otherwise payable to the tax man.

Income tax is calculated based on taxable income. Taxable income is net of assessable income less allowable deductions or expenses. Accounting profit on other hand is net of income received or receivable less expenses paid or incurred. Accounting profit and taxable income are not necessary the same.

If you can defer some of the income to a later year, or accelerate planned expenditures so that it is claimed in this tax year, you will succeed in reducing your current year’s tax.

Deferring Income

Cash or Accruals
Determine whether you should use “cash” or “accruals” tax accounting. On cash basis, taxable income is net of amounts that are actually received less amounts actually paid at year end. The proceeds of pre 30 June sales not yet received are excluded from assessable income for the current year.

Unearned Income
Contract income received/ receivable this income year might be deferred until future year if the receipts can be regarded as only being derived as and when the services are rendered in future year.

Investment income
Interest, dividend, rent and other regular contractual payments are generally derived as income when received. If you can, arrange them to mature or be paid after 30 June.

Sale and work in progress
Business may consider delaying issuing an invoice for sale until 2019 year. Work in progress is typically assessable where an invoice is issued.

Realisation/ realisation of assets
Consider the postponement of the realisation of any assessable gains such as capital gain until after the year end.

Likewise, consider deferring the disposal of a depreciating assets that would result in assessable balancing charge.

Realisation of foreign exchange gain
Consider deferring the realisation of foreign exchange gains until after year-end.

Insurance proceeds
Consider the timing of lodging an insurance recovery claim for a loss amount, subsequent negotiations with the insurer and date the final insurance payment is received.

Trading Stock valuation
Consider the benefits of revaluing closing value of trading stock at year end using the lower of cost, market selling value or replacement value to lower taxable income.

Accelerating Deductions

Prepayment
Small business (SBE) that carries on business in the 2018 and has an aggregated turnover less than $10 million and individual can deduct prepayment with an eligible service period of no more than 12.

Realisation of assets
Consider realising assets that will produce capital or revenue losses which can be used to offset capital gains or revenue income in the income year.

Superannuation contributions
Ensure superannuation contributions are actually paid by year-end and meet any required conditions for deductibility.

Employee bonus
Ensure that staff bonuses are quantified and documented in a properly authorised resolution prior to year-end to enable a deduction to be incurred for employee bonus where such amounts are not paid or credited until the subsequent year.

Foreign exchange losses
Consider the realisation of foreign exchange losses before year-end so that a deduction can be claimed.

Capital allowances
Small business (SBE) can claim immediate deduction for depreciation assets costing less than $20,000 (exclude GST) if it is used or installed ready for used by 30 June2018. Depreciation asset costing more than $20,000 can be depreciated in general small business asset pool to be depreciated at 15% first year and 30% subsequent year.

Check whether any depreciating assets with an adjustable value greater than nil are obsolete and can be scrapped.

However, consider the restriction on the decline in value of 2nd hand plant and equipment depreciated by certain entities in respect of residential rental premises.

Black-hole expenditures
Determine whether business capital expenditure incurred that is not deductible, depreciable or included in the cost base of an asset may be deductible as “blackhole expenditure” under section 40-880 of ITAA 1997.

Eligible blackhole expenditure is deductible over 5 years in equal proportions.

Immediate deduction is available for expenditures incurred after 1 July 2015 in relation to a proposed business structure or operation (i.e. start-up costs). Eligible costs include among others, legal and accounting advice on how the business can be structured and implemented.

Bad Debts
Ensure that all necessary steps required to write off a debt are completed prior to year-end, and that the debt was previously returned as assessable income or was made in the ordinary course of a money lending business.

Gift, donation or contributions
Check whether deductions have been claimed for gifts or contributions made to endorsed “Deductible Gift Recipients”. (If so, make sure you did not receive any tangible benefit from making the donation and has receipts to evidence the making of such donations)

Capital Gain Tax

Small Business Capital Gain Concessions
You should consider the availability of other small business CGT concessions which have the effect of reducing or deferring a capital gain arising from the disposal of a business asset.

CGT Discount
This is not available when you sell an asset that you have held for less than 12 months. Consider deferring the disposal of these assets until the 12 month ownership period has passed.

Roll capital gain into Superannuation
Where conditions are met, you may avoid paying tax on capital gains if you pay some of the proceeds of sale of business assets to a complying superannuation fund.

Roll capital gain into another business asset
If you replace a business asset, you may defer paying tax on capital gain until the sale of the replacement asset.

Depending on your circumstances, rules/ condition to apply small business capital gain concessions / exemption can be quite complex to apply and it is recommended specialist advice be sought. Johnson can review your circumstances, discuss and assess if you or your business is eligible and if so, how the sale may be planned and implemented to legally maximise the underlying tax benefit upon sale.

The followings are other relevant tax planning areas that should also be considered before 30 June 2018 if they are applicable to your circumstances.

Contact Johnson if you wish to discuss and confirm if and how they may apply to you and your businesses.

INDIVIDUAL
• Salary sacrifice
• Low income tax offset
• Small business tax offset
• Superannuation contribution before 30 June 2018 – utilising your $25,000 concessional and $100,000 non-concessional contribution cap (or 3 year-bring forward cap of $300,000)
• First Home Super Saver Scheme
• $500 Low-income superannuation offset
• Government superannuation co-contribution for personal after tax contribution made up to $500
• Low-income spouse superannuation tax offset
• Motor vehicle depreciation cost limit
• Work related deductions substantiation rules
• Non-commercial losses

TRUST
• Trust Distribution – streaming dividend and capital gain
• Trustee unpaid present entitlements (UPE) owing to companies
• Closely held and family trusts – TFN withholding tax
• Family Trust Election
• Trust Losses

COMPANY
• 2018 company tax rate reduced to 27.5% for base rate entity
o Which is aggregated turnover less than $25 million and is carrying on a business
• Franking deficit account
• Application of 45/90 day rule of shareholders
• Franking dividend to extent of 27.5%
• Fringe Benefit
• Use of company losses
• Division 7A rules on payment or loan to shareholders or associates including UPE allocated to Subtrust account of the family trust/ non-fixed trust
• Research and development expenditures – 43.5% or 38.5% refundable tax offset
• Superannuation guarantee obligation – ordinary time earnings (applicable to Trust/individual employer)

If you want to know more about the above information and how relevant they are to you and/or your business, please contact Johnson on 0413 775 368 or email johnson@richwaybusinessadvice.com.