As 30 June is rapidly approaching, it’s a great time to stock take and identify any last minute planning opportunities and prepare for the year ahead.
Small Business Entity (“SBE”)
If you qualify as a SBE the following tax concessions are available;
- Immediate Asset Write-off (assets less than $20,000 GST exclusive) until 30 June 2017
- Small Business Depreciation Pooling.
- Immediate Deduction for prepaid expenses.
- Company concessional tax rates (28.5% for 2015/16, 27.5% for 2016/17).
To be eligible to be classified as a Small Business Entity (SBE) for the year ending 30 June 2016, you must have an aggregated turnover of less than $2 million. If the government is re-elected this threshold will increase to $10 million from 1 July 2016.
Many of these concessions especially the instant asset write off is a great way for your business to reduce its looming tax burden and improve the future cash flow. If you are planning on purchasing assets for your business in the near term, to take advantage of the Small Business Instant Asset Write-Off you may wish to bring forward the acquisition to before 1 July 2016.
Alternatively, if you do not qualify as an SBE for 2016, consider deferral of asset purchases to the 2017 year where the proposed change to increase SBE threshhold increases to $10 million.
Businesses are required to conduct a stocktake of all trading stock as close as possible to the end of each income year.
You can choose to value trading stock via one of the following methods;
- market selling value; or
- replacement value.
Whilst the opening balance of trading stock has to reconcile to the closing stock balance of the previous year, there is an option in regards to the method that the taxpayer may choose for the current financial year.
A lower trading stock valuation may result in lower taxable income. A review of all trading stock will identify any obsolete stock (which can bet valued at nil) and help minimise your taxable income.
End of year is an ideal time to sit down with us or your bookkeeper to review your cashflow and your financial outlook for the upcoming year. It is also the ideal time to chase up any debtors or to write off debts that are unrecoverable. If there are debts that are unrecoverable, where you write them off before 30 June, you can claim a deduction. Also if any debtors are over 12 months, you may adjust your BAS to claim back the GST.
Prior to 30 June 2016 trusts need to draft an income distribution resolution by the end of the year or earlier if required by the trust deed. It is important to prepare the income distribution minutes before 30 June to avoid the trustee paying the highest marginal tax rate of 49%.
Whilst considering who the beneficiaries will be for the 2016 year, consideration needs to be provided to the Trust Deed which defines whom qualifies as an eligible beneficiary. Beneficiaries such as related companies, trusts and de facto spouses may not be covered by this definition.
Trustee’s may decide to distribute its profit to beneficiaries with low tax threshholds. However, whilst it may seem like a positive tax saving strategy, the unpaid distribution can be called upon at any time from the beneficiary.
Furthermore, the Trustee may consider distributing to company beneficiaries. Such distributions will be taxed at the corporate flat 30% tax rate.
Company Tax Rate reductions
From 1 July 2016, the current government is planning to lower the corporate tax rate for small businesses even further to 27.5%, and make this tax rate available to businesses with an aggregated turnover of less than $10 million.
Accordingly, consider bringing forward deductions and deferring assessable income;
- Is there any income you are due to derive that you may not have to recognise until next financial year?
- Are there any repairs and maintenance you should carry out prior to 30 June 2016?
- Review your depreciable assets register and write off or dispose of any assets no longer used. For example assets used in your business such as computer equipment, office furniture and kitchen appliances.
- Commit to outgoings before 30 June, like consumables.
- Super is only deductible when paid. Make sure you pay your employee superannuation before 30 June to obtain a deduction in 2016.
While the outcome of the election is still obviously unknown, given these developments, it is an opportune time to consider whether restructuring business operations from a trust into a company is appropriate.
Private Companies and Deemed Dividends
Make sure you review any loans made to shareholders during the past and/or current year.
Ensure all loans are documented appropriately and any required minimum annual repayments are made before 30 June.
Also watch out for any unpaid distributions owing to corporate beneficiaries as they similarly will need action and documentation before 30 June.
Individual taxpayers have access to a variety of different deductions which they may be able to claim against their assessable income.
The ATO will be keeping a close eye on individuals this year and showing extra scrutiny to people claiming high work-related expenses and rental property deductions particularly non-commercial holiday rental income.
Work related travel
There has been recent changes made to the methods available for deducting a work related car expense.
The cents per kilometre method and logbook method are the only methods available from 1 July 2015.
- Under the logbook method, full substantiation is required for all expenses; or
- Under the cents per kilometre method;
- the deduction is now to be claimed using a flat rate set at 66 cents per kilometre.
- this will apply to all motor vehicles regardless of engine
- you can claim business use of up to 5,000 kilometres.
Travel allowances received by your employee to cover expenses that are incurred when you travel are prima facie assessable income. You can deduct a travel allowance expense for travel within Australia without written evidence or travel records if the Commissioner considers the total of the losses or outgoings you claim for travel covered by the allowance to be reasonable. For overseas travel covered by a travel allowance you must still keep travel records if the travel involves you being away from your ordinary residence for 6 or more nights in a row.
You can claim a deduction for travel expenses, such as fares incurred when you attend work-related conferences, seminars and training courses if the main purpose of your travel is attending the conference. If your attendance at the event is only incidental to a private activity (e.g. a holiday) then only the expense related to the work-related activity are deductible.
As it can be seen, there are many factors which need to be considered before 30 June. If you wish to discuss any of the above in further detail, please contact our office on (08) 6311 6900.