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Tax Planning

Tax planning is a legitimate and commercial way to ensure that you are not tipping the Tax Man and can be achieved though a variety of strategies – to name a few…

General Considerations

Accounting on a “Cash” or “Accruals” basis – choose the best method to suit your business and if on accrual defer your invoicing until after 30 June. This defers tax payable on the income until the following financial year

Interest – For most taxpayers interest is only assessable when actually received. If setting up a term deposit aim for the policy to mature after 30 June rather than just before.

Also take into consideration

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Businesses Deductions

  • Bad debts – review trade debtors prior to 30 June to identify and write off any bad ones.
  • Scrap assets – Review your asset ledger and write off all assets that have been scrapped or which have outlived their useful economic lives.
  • Low Value Pool – Assets which have been written down to where their value is quite low can be pooled together and depreciated at a higher rate.
  • Low value assets – Assets costing $300 or less (and in some cases much higher costing assets) can be written off completely in the year purchased
  • Obsolete Stock – write off any obsolete stock you have on hand
  • Slow moving Stock – Slow moving stock can be written down to net realisable value.
  • Maintenance – The work car is due for a service or some new tyres,the office needs painting why not get it done pre-June rather than just after accelerating the effect of the tax deduction to the current financial year
  • Superannuation – Employees’ superannuation contributions should be paid and reach the fund before 30 June to obtain a deduction in the current year – pay June quarter super a few days before the end of June
  • Personal Superannuation – You can claim a deduction for personal superannuation contributions if your salaries and wages income is less that 10% of your total income.
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Capital Gains Tax

  • Small Business 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 – The CGT discount 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 months threshold has past.
  • Roll gain into Superannuation – In some circumstances you can avoid paying tax on capital gains if you use some or all of the funds to make a personal superannuation contribution.
  • Roll gain into another asset – CGT law allows you to roll over a capital gain into a replacement asset, effectively deferring the tax on the gain.
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Companies

  • Tax Losses – A loss can sometimes be avoidable however as long as the company passes either the Continuity of Ownership or the Same Business tests the loss can be applied against taxable income in future years.
  • Loans treated as dividends – Companies are allowed to make loans or payments to their shareholders or associates (or even forgive debts). There are onerous tax consequences however unless the loans are put on a legitimate footing with proper loan agreements with interest being charged, principal repayments made and, in some case, genuine security taken. Alternatively, the loan can be repaid by the earlier of the due date for lodgement of the company’s return for the year or the actual lodgement date. It’s important to get some good tax advice or suffer the tax consequences.
  • Tax Consolidation – If you’ve got a few companies that make up your group, you may want to consider consolidating them for tax purposes before the end of the year. The resultant single tax entity allows you to offset profits and losses from the different entities.
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Trusts

  • Distribute all income – You need to make sure that you effectively distribute all income each year otherwise undistributed income may be taxed at 46.5%.
  • What constitutes trust income – A recent High Court case has challenged the historic advantages of using a trust to reduce the rate of tax that you pay. Nothing has been outlawed; the rules for some have just changed a little. It all swings on the wording of your trust deed as the deed dictates how trust income is defined and whether capital gains are treated as normal income or not.
  • How income is assessed – When some accounting expenses are not tax deductible, the net income of the trust for tax purposes exceeds its accounting income- a complicated concept for most! It pays to leave a little leeway in your accounting distributions and ensure tax deductions claimed can not be challenged by an ATO audit
  • Unpaid present entitlements – If a trust has an unpaid present entitlement to a corporate beneficiary, complex tax issues arise. If you can, you should pay the entitlements back before you lodge the trust’s income tax return.
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Superannuation

  • Co-Contribution – Low-income earners should think about making a personal superannuation contribution so that they qualify for the government’s superannuation co-contribution payment.
  • Re-contributions – Currently, strategies exist that allow you to draw a pension from your fund and re-contribute amounts to the funds, reducing tax significantly, while maintaining your same net cash. Don’t leave it to the last minute to set this up though.
  • Contribution caps – ideally contributions should equal the annual concessional contributions tax however essential to ensure amounts contributed are more than the annual concessional contribution cap or excess contributions tax of 46.5% can apply. These caps are based on your age and the year involved and should be checked regularly

Accounting Revolution has systems in place to assist all clients in reducing tax payable where legally possible. Please contact us to find out how we can help you increase profits and save tax!

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