2016/17 Tax Planning Opportunities
As 30 June 2017 is fast approaching, we would like to advise you of some key tax planning opportunities that your business may be in a position to take advantage of before the end of the financial year.
Tax planning opportunities for small business
Asset low value pools
Businesses with aggregated turnover under $10m now have access to accelerated depreciation via the small business low value pool regime.
Also, this pool allows you to an immediate write off for assets under $20,000 purchased between 1 July 2016 and 30 June 2017.
Make sure the resolution distributing income to beneficiaries is made before 30 June 2017.
If you have had a large capital gain during the year, you may want to consider reviewing your other investments for a sale where a capital loss will arise. Capital losses can be used to offset capital gains.
Deferral of income
Subject to cash flow considerations and anti-avoidance rules, if your income is high this year consider deferral to the following year, for example:
• delay selling a capital asset
• adjust deposited funds so that interest income is not paid, or
• delay invoices to after year end.
High-income earners will also have to factor in the effect of the 2% "budget deficit levy" applying in 2016/17. This year is the final year in which the temporary budget repair levy will apply.
If your business has high cash income, deferral could be risky by putting you outside the ATO small business benchmarks.
Ensure that arrangements between your business and your service trust follow the steps outlined by the ATO in regards to commercial benefits. This includes making sure the service trust's expenses have a necessary connection to the business activity, and the service fee markup is correctly calculated.
If your company had a debit loan at 30 June 2017, you need to either:
• repay the loan, or
• have a signed agreement in place
before the 2017 tax return filing date, in order for that loan to not be treated as a deemed dividend.
Prepayment of expenses
Subject to cash flow considerations, consider prepaying expenses by year's end in order to increase deductions. This applies particularly if the income in the following year is expected to be lower than in the current year.
Review your stock at year-end to determine whether it can be written off as obsolete. Also, no adjustment for closing stock is necessary when a reasonable estimate of closing stock is within $5,000 of opening stock.
Consider writing off any bad debts to claim a tax deduction at year-end. You will need to sign a properly authorised resolution. Also, GST adjustments may be required on the original invoice.
A signed resolution before 30 June is required to claim a current year deduction for directors' fees.
Paying your employees' super before 30 June will make the expense tax deductible. Consider making the payment as part of your final payroll of the year.
For family businesses, take care not to exceed annual caps for concessional and non-concessional superannuation contributions.
Tax planning opportunities for individuals
Travel deduction for residential rental property
2016/17 will be the last year an individual can claim a deduction for travel to their residential rental property.
This rule is still subject to being passed as legislation. However, to avoid any disappointment a landlord may look to move forward an inspection to before 30 June 2017 to be assured a deduction will be allowed. All regular rules still apply until 30 June 2017 in regards to substantiation.
Where appropriate, consider realising capital losses by year's end so that they may be offset against realised capital gains of that year
Donations or gifts of $2 or more to a deductible gift recipient (DGR) are tax deductible. A deduction is also allowed for gifts of publicly-listed shares that have been held for at least 12 months and which are valued at $5,000 or less.
Spouse superannuation contribution rebate
A $540 tax offset is available for after-tax contributions (up to $3,000) to a complying superannuation fund on behalf of a spouse (married or de facto) where the spouse's annual taxable income is less than $13,800. Note: From 1 July 2017 this annual taxable income threshold will increase to $40,000.