End of the year financial tax planning
With the end of the financial year fast approaching, there are many things that you as a business owner, company director or trustee have to consider, and it is important to be aware of these aspects and get them in order before 30 June, 2019.
Single Touch Payroll (STP) expansion
The Government has implemented a new way of reporting salary and superannuation information to the ATO. This information should be sent to the ATO each time you run your payroll and pay your employees. The information can be sent directly from your accounting software, or through a third party.
There will also be a number of options available for employers who do not use payroll software. Options will depend on your number of employees:
- Small employers with 19 or less employees will need to start reporting through STP from 1 July 2019.
- An employer with 4 or less employees will have additional options to report quarterly for the first 2 years, rather than each time payroll is run. Small employers can start reporting any time from 1 July to 30 September 2019.
If you are an employer with 19 or less employees, you should contact your payroll solution provider to see if it is STP compliant and ask them to assist with implementing STP in your payroll software. If you have manual payroll you have to purchase STP compliant software. It is your obligation as an employer to make sure the payroll information is reported through STP.
Business assets immediate write-off
The Government has further changed the instant asset write-off threshold. This measure allows small businesses with an aggregated annual turnover from $10 million to less than $50 million to immediately deduct each business asset that costs less than $30,000.
Businesses with a turnover of up to $10 million can also claim a deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:
- $20,000, before 29 January 2019
- $25,000, from 29 January 2019 until before 7.30pm (AEDT) on 2 April 2019
- $30,000, from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020
As already stated, the instant asset write-off is now available to businesses with a turnover of less than $50 million. These businesses can claim a deduction of up to $30,000 for the business portion of each asset (new or second hand), purchased and first used or installed ready for use from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020.
Ensure shareholder loans comply with Division 7A
Shareholder loans should be kept in credit rather than in debit, otherwise Division 7A tax may apply.
A payment or benefit that is potentially subject to Division 7A isn’t treated as a dividend if it’s repaid or converted into a Division 7A complying loan by the company’s lodgement day for the income year in which the payment or benefit occurs.
A payment or other benefit provided by a private company to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A even if the participants treat it as some other form of transaction such as a loan, advance, gift or writing off a debt.
Division 7A applies to certain payments made by trustees to a shareholder or an associate of a shareholder of a private company where the company is presently entitled to an amount from the net income of the trust estate and the whole of that amount has not been paid by a specified date.
If you have a discretionary family trust, a trustee resolution must be made before 30 of June if:
- The trustees wish to make beneficiaries of a trust presently entitled to trust income for an income year
- The trustee wish to make beneficiaries specifically entitled to franked dividends and capital gains included in that income.
- The trustees wish to make beneficiaries specifically entitled to capital gains forming part of the trust capital.
You need to ensure resolutions meet certain requirements. If a resolution is not effective, other beneficiaries or you as trustee may instead be assessed on the relevant share of the trust’s net (taxable) income. Where a trustee is assessed, that may be at the top rate of tax.
Superannuation (super) contributions must be physically received by a super fund before 30 June in order to be claimed as a deduction in the current tax year.
When working out super contributions for the financial year remember that contributions don’t count when the payment is sent, they only count once the payment is received by a super fund. That’s why it is important to make sure a super fund has received the super contribution before the end of the financial year.
Prepayments of expenses which are due within the next 12 months
Companies with an annual turnover less than $10 million can claim an immediate deduction for prepaid expenses where the payment covers a period of 12 months or less that ends in the next financial year.
A prepaid expense is expenditure you incur under an agreement for something to be done (in whole or in part) in a later income year. Prepaid expenditure incurred by a small business entity is immediately deductible under the 12-month rule if the eligible service period for the expenditure is 12 months or less; the period ends no later than the last day of the income year following the year in which the expenditure was incurred.
This rule, known as the 12-month rule, applies to both deductible business expenditure and deductible non-business expenditure incurred by a small business entity that chooses to use this concession.
If a prepayment does not meet the 12-month rule, you cannot claim an immediate deduction.
Review Depreciation Schedule
You should review the company’s or the trust’s depreciation schedule and write off all eligible assets.
The decline in value of a depreciating asset is generally based on its effective life; that is, how long it can be used to produce income, taking into account the following:
- whether it’s subject to wear and tear at a reasonable rate
- whether it’s maintained in reasonably good order and condition
- the period within which it is likely to be scrapped, sold for no more than scrap value or abandoned.
The effective life is used to work out the asset’s decline in value (or depreciation) for which an income tax deduction can be claimed. You can choose to recalculate the effective life of an asset if circumstances change and the effective life you’ve been using is no longer accurate.
You can calculate the depreciation of certain low-cost and low-value assets by allocating them to a low-value pool and depreciating them at a set annual rate. A low-cost asset is one that costs less than $1,000 after deducting any GST credits you’re entitled to claim.
A low-value asset is an asset that has depreciated over one or more years and now has a written-down value of less than $1,000, but only if you’ve previously worked out deductions for it using the diminishing value method.
You start a low-value pool when you first choose to allocate a low-cost or low-value asset to it.
Once you choose to create a low-value pool and allocate a low-cost asset to it, you must pool all other low-cost assets you start to hold in that income year and in later income years. However, for your low-value assets (that is, assets written down to a value of less than $1,000), you can decide whether to allocate them to the pool on an asset-by-asset basis.
Write off Bad debts
If you are carrying bad debts, you should review them before the end of the financial year. If you decide they are irrecoverable, write off any bad debts before June 30 so you can claim them as a deduction.
You are allowed a deduction for bad debts if you have previously included the amount in your assessable income or it is for money you lent in the ordinary course of a money-lending business carried on by you.
The bad debt has to be written off in the year of income before a bad debt deduction is allowable. Don’t forget to keep some form of written record such as a Minute of Meeting to evidence your decision to write off the debt from the accounts.
Check your Repairs and Maintenance expenses
You can claim a deduction for repairs and maintenance to machinery, tools or premises you use to produce business income, as long as the expenses are not capital expenses.
You can claim the cost of allowable repairs and maintenance, including: painting, maintaining plumbing, repairing electrical appliances, mending leaks, replacing broken parts of fences or broken glass in windows and repairing machinery.
To repair something means to fix defects, including renewing parts. It does not include total reconstruction.
You do not have to own the property or item that is repaired in order to claim a deduction.
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