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End of Year Tax Planning

This article contains commentary on many of the items you may encounter as part of your end of financial year deliberations.

End of Year Tips

Prepayments – if your turnover is under $10 million, consider any prepayments prior to 30th June 2018.

“Cash is King!” – update your financial records to 30th June 2018 so you can discuss with us the possible variation of your PAYG instalment due by 28th July 2018.

Taxing Of Trading Income

There are two forms of taxing trading income, depending on whether the business is assessed on a:

• “cash” basis – businesses are assessed when payment is received, if the business’ income is under $10 million; or
• “accruals” basis – businesses are assessed when a legally recoverable debt arises, usually at the point of invoicing.

Superannuation Funds

• Contributions to superannuation funds for taxpayers with Adjusted Taxable Income (ATI) less than $250,000 are taxed at 15% of the contribution. For taxpayers with ATI over $250,000, contributions are taxed at 30%.
• Earnings made in a superannuation fund are taxed at 15% and paid by the superannuation fund.
• For people 60 years or over who have started drawing a pension, payments from the superannuation fund are, in the majority of cases, tax-free.
• Generally, monies invested in superannuation funds cannot be accessed until 55 years of age.

Primary Producers

(In addition to small business entities and entities not defined as small business.)

Deductions

• Non-Commercial Losses – for a business to be commercial, under the “non-commercial losses tests”, the business needs to meet certain prescribed tests. If the tests are not met, any losses arising from the activities have to be carried forward and offset in a later year against future income from the same type of source.  If you have non-commercial losses, please contact us for advice on the treatment of the losses in 2017/18.

Companies

• Franking Account – a company’s dividend payments and franking profile should be reviewed before year-end to ensure sufficient credits are available.
• Company Loans – the law requires that a loan to a shareholder is properly documented. If there is no security offered, the term of the loan should not exceed seven years.  If security is offered, the loan should not exceed twenty-five years.  The interest rate to be charged during 2017/18 is a minimum of 5.3%.  If loans have been made to shareholders that haven’t been supported by properly-documented loan agreements, then the ATO can treat these payments as being dividends that are assessable to the shareholder.

Capital Gains Tax

• Matching Capital Losses and Capital Gains – capital losses are not directly deductible. Capital losses have to be offset against any capital gains generated during that financial year.
• 50% Capital Gains Tax Discount – you should check your eligibility for the general 50% capital gains tax discount for individuals. If you are a small business operator and are able to meet the $6 million net value asset test or have turnover of less than $2 million (yes, this amount is still $2 million!), you might be entitled to further capital gains tax concessions.
• “Wash Sales” – the ATO has issued a ruling that relates to “wash sales”. This is a situation where shares, in companies listed on the Stock Exchange, are sold to crystallise the capital loss and then shortly thereafter the taxpayer, or an associate of the taxpayer, purchases shares in that same corporation on the Australian Stock Exchange.

Couriers and Cleaning Industries

• Couriers and Cleaning Industry – if you are in the courier or cleaning industries, you have to prepare a Reportable Payments Report to submit to the ATO, showing the payments you have made to each contractor for the year ending 30th June 2018. The return has to be lodged by 28th August 2018.

Reportable Payment Report

• Required to be lodged by businesses in:
  • Building and Construction Industries
  • Couriers and Cleaning Industries

This article does not include any of the items contained in the Australian government’s Budget for 2018/19 as the Budget has not yet been approved by Parliament.

Please do not hesitate to contact us if you would like to discuss any items with us.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.