Prepayments – if your turnover is under $2 million, consider any prepayments prior to 30 June 2016.

"Cash is King!" – update your financial records to 30 June 2016 so you can discuss with us the possible variation of your PAYG instalment due by 28 July 2016.

Federal Budget Not Passed

The following is a summary of some of the key issues contained in the Federal Budget 2016/17 that has been submitted to the House of Representatives, but has not yet been passed due to the current election campaign.

- Company tax rate for small/medium businesses to reduce by 1% to 27.5% from 1 July 2016.  Applicable to companies with turnovers less than $10 million.

- Superannuation changes include:

- increase in tax on superannuation contributions for taxpayers earning over $250,000 per annum

- the government is proposing a life time non-concessional superannuation contribution cap of $500,000

- the government proposes lowering the superannuation contribution cap to $25,000 per annum for all people, irrespective of age

- The small business instant asset write-off of expenditure up to $20,000 is proposed to be extended to businesses with turnovers of less than $10 million

- From 1 July 2016 unincorporated businesses turning over less than $5 million would be eligible for a 8% personal income tax "discount" (currently 5%).  The unincorporated tax discount will remain capped at $1,000.

Small Business Entities

(Entities where aggregated turnover of less than $2 million – "aggregated turnover" is calculated on a group basis and must be "business income".  Please ignore this section if not applicable to you - please refer to "Entities not defined as Small Businesses").

The small business entity rules apply to a sole trader, partnership, company or trust which has a group turnover of less than $2 million in the previous year, or likely to be less than $2 million in the current year.

Depreciation Rules

A small business taxpayer can immediately write-off the cost of new assets, including motor vehicles costing up to $20,000.  If the assets (including motor vehicles) cost more than $20,000, the asset can be placed into the Small Business Simplified Depreciation Pool, depreciated at 15% in the first income year and 30% each income year thereafter.

Prepayments

Small business entity taxpayers are entitled to a deduction where the relevant services will be wholly provided within 12 months of the date of expenditure, such as office supplies, stationery, rent, advertising etc.

General Deductions

Staff Holidays – where practical, encourage staff to take holidays prior to 30 June 2016.

Superannuation – for the year ending 30^th June 2016, superannuation contributions can be paid for any eligible person:

- aged under 50 years at 30 June 2016 -  $30,000

- aged 50 years and over at 30 June 2016 - $35,000

Self-Employed Persons – self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees as per the above (subject to the "work-test" from age 65).

Salary Sacrifice Arrangements – salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.

Superannuation Minimum Contributions – superannuation contributions must be paid for all eligible employees who are paid, at least, $450 gross per month.

Interest On Loan Funds – interest can be claimed on loans taken out for business purposes or to buy income producing properties and/or shares.

Repairs & Maintenance – ensure that the work has been completed prior to 30 June 2016.

Directors' Fees – ensure cheques are drawn prior to 30 June 2016 and that PAYG Withholding Tax is deducted.

Travel Deductions:

- Overseas – prepare a full itinerary and diary.

- Local – more than 6 nights you are required to maintain a diary.

Motor Vehicle Expenses – there are 2 methods available to calculate tax deductions for work-related motor vehicle expenses:

- cents per kilometre - 66 cents per kilometre

- logbook method - you can claim your actual business kilometres as a percentage of the total kilometres that the motor vehicle has travelled and to then utilise that percentage as the claimable percentage of the total motor vehicle expenses incurred.

Donations – any promised tax deductible donations should be made prior to 30 June 2016.

Borrowing Costs – borrowing costs can be claimed over the shorter of 5 years or the term of the loan.

Entertainment – entertainment is not deductible unless it is provided as a fringe benefit and Fringe Benefits Tax has been paid.

Research & Development for companies with turnovers under $20 million – a company will receive the benefit of a research and development refundable tax offset calculated at 45% of the eligible research and development expenditure.  The rebate can be paid to the company by the Australian Taxation Office within 30 days of lodgement of the company's tax return if the company elects to receive this payment in the company's income tax return.  It's important to note that for research and development claims in respect of the year ending 30 June 2016, the company must register with AusIndustry by 30 April 2017 or the date of lodgement of company's income tax return, whichever is the earlier.

Legal Costs – review any legal costs that have been incurred.  If the legal costs relate to regular business operations (eg debt collections), separate them from costs relating to capital items which are not claimable for income tax purposes.

Stock

Trading Stock Rules – small business entities do not have to account for changes in trading stock or prepare a stocktake for tax purposes, where the difference between the value of the opening stock and a reasonable estimate of the closing stock is $5,000 or less.

Stock On Hand – review stocktake list in early June 2016.  Determine whether to conduct "sales" prior to 30 June 2016.  Conduct stocktake as at 30 June 2016.  If you're conducting regular "rolling" stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30 June 2016.  Stocktaking may not be necessary if you're a small business entity.

Value Of Stock – stock can be valued at different individual methods for each item of stock:

- Cost

- Sale Value

- Lower of Market Value or Replacement Cost

Obsolete Stock – identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.

Assets

Fixed Assets – determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30 June 2016.

Employment Issues

Payment Summaries - payment summaries have to be prepared and sent to all employees by 14 July each year and annual summary due 14 August to the ATO.

Payroll Tax (if you are liable) - you have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconcile this with the remittances that you have forwarded on a monthly basis.

Income Issues

Personal Service Income – taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole trader or through a company, trust or partnership; these are known as the Personal Services Income (PSI) measures.  A taxpayer, who meets certain specified tests, will be treated as carrying on a personal services business and will be able to claim a wider range of deductions.  If you are operating a personal service business you need to be aware of the ATO's strict approach to income retention and income splitting.

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 2015/16.

Trust Distributions – the ATO has indicated that it will be enforcing the full meaning of the law, whereby trustee distribution/resolutions have to be made by the 30 June each year.

Utilising Tax Free Threshold

Entities Not Defined As Small Businesses

(Entities where aggregated turnover of over $2 million.  Please ignore this section if not applicable to you.)

Prepayments

The prepayment rule for "other small businesses" applies to business taxpayers with a group turnover of $2 million or more.

General Deductions

Staff Holidays – where practical, encourage staff to take holidays prior to 30 June 2016.

Superannuation – for the year ending 30 June 2016, superannuation contributions can be paid for any eligible person:

- aged under 50 years at 30 June 2016 -  $30,000

- aged 50 years and over at 30 June 2016 - $35,000

Self-Employed Persons – self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees (subject to the "work-test" from age 65)

Salary Sacrifice Arrangements – salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.

Superannuation Minimum Contributions – superannuation contributions must be paid for all eligible employees who are paid, at least, $450 gross per month.

Interest On Loan Funds – interest can be claimed on loans taken out for business purposes or to buy income producing properties and/or shares.

Repairs & Maintenance – ensure that the work has been completed prior to 30 June 2016.

Directors' Fees – ensure cheques are drawn prior to 30 June 2016 and that PAYG Withholding Tax is deducted.

Travel Deductions:

- Overseas – prepare a full itinerary and diary.

- Local – more than 6 nights you are required to maintain a diary.

Motor Vehicle Expenses – there are 2 methods available to calculate tax deductions for work-related motor vehicle expenses:

- cents per kilometre - 66 cents per kilometre

- logbook method - you can claim your actual business kilometres as a percentage of the total kilometres that the motor vehicle has travelled and to then utilise that percentage as the claimable percentage of the total motor vehicle expenses incurred.

Donations – any promised tax deductible donations should be made prior to 30 June 2016.

Borrowing Costs – borrowing costs can be claimed over the shorter of the 5 years or the term of the loan.

Entertainment – entertainment is not deductible unless it is provided as a fringe benefit and Fringe Benefits Tax has been paid.

Research & Development – companies that incur research and development can claim additional taxation benefits.  There are two components:

- companies with turnovers under $20 million

- companies with turnovers over $20 million

- Companies must register their research and development projects with AusIndustry by 30 April 2017 or the date of lodgement of the company's income tax return, whichever is the earlier.

Research & Development for companies with turnovers under $20 million – a company will receive the benefit of a research and development refundable tax offset calculated at 45% of the eligible research and development expenditure.  The rebate can be paid to the company by the Australian Taxation Office within 30 days of lodgement of the company's tax return if the company elects to receive this payment in the company's income tax return.  It's important to note that for research and development claims in respect of the year ending 30 June 2016, the company must register with AusIndustry by 30 April 2017 or the date of lodgement of company's income tax return, whichever is the earlier.

Companies with turnovers over $20 million – the company will receive a 40% non-refundable tax offset of the eligible research and development expenditure.  If you require further information of the treatment of research and development expenditure, please contact us.

Legal Costs – review any legal costs that have been incurred.  If the legal costs relate to regular business operations (eg debt collections), separate them from costs relating to capital items which are not claimable for income tax purposes.

Deductions On "Accruals" Basis

(subject to income tax return being lodged on an "accruals" basis)

Fringe Benefits Tax Payment (Accruals Basis) – if a Fringe Benefit Tax instalment is due on 21 July 2016, it can be accrued and claimed as a tax deduction in the year ending 30 June 2016.

Commissions Owing (Accruals Basis) – where employees or another business are owed commission by your business for services rendered up to 30th June 2016, the accrued amount can be claimed as a tax deduction at 30 June 2016.

Bad Debts (Accruals Basis) – actually write-off any bad debts prior to 30 June 2016 and prepare minutes authorising the write-off.

Interest (Accruals Basis) – any accrued interest outstanding on a business loan, that has not been paid at 30 June 2016, can be claimed as a tax deduction at 30 June 2016.

Salaries & Wages (Accruals Basis) – the accrued expense for the days that employees have worked, but not paid at 30 June 2016, can be claimed as a tax deduction at 30 June 2016.

Commercial Bills (Accruals Basis) – where the term of a Commercial Bill expires beyond the 30 June 2016, the discount applicable to the period up to 30 June 2016 can be claimed as a tax deduction.

Rent (Accruals Basis) – if rent is in arrears, the part that is owed up to 30 June 2016 can be claimed as a tax deduction.

Stock

Stock On Hand – review stocktake list in early June 2016.  Determine whether to conduct "sales" prior to 30 June 2016.  Conduct stocktake as at 30 June 2016.  If you're conducting regular "rolling" stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30 June 2016.

Value Of Stock – stock can be valued at different individual methods for each item of stock:

- Cost

- Sale Value

- Lower of Market Value or Replacement Cost

Obsolete Stock – identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.

Assets

Fixed Assets – determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30 June 2016.

Employment Issues

Payment Summaries - payment summaries have to be prepared and sent to all employees by 14 July each year and the annual summary due 14 August to the ATO.

Payroll Tax (if you are liable) - you have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconcile this with the remittances that you have forwarded on a monthly basis.

Income Issues

Bad Debts Recovered (on an accruals basis) – if a debtor, who had been written off as a bad debt and claimed as a tax deduction for the amount of the bad debt, subsequently pays any part of the amount owing, you have to bring the amount paid to account as assessable income in the year of recovery.

Personal Service Income – taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole trader or through a company, trust or partnership; these are known as the Personal Services Income (PSI) measures.  A taxpayer, who meets certain specified tests, will be treated as carrying on a personal services business and will be able to claim a wider range of deductions.  If you are operating a personal service business you need to be aware of the ATO's strict approach to income retention and income splitting.

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 2015/16.

Trust Distributions – the ATO has indicated that it will be enforcing the full meaning of the law, whereby trustee distribution/resolutions have to be made by the 30 June each year.

Property Investments

Deductions

Interest On Investment Loans – taxpayers who have borrowed money for a non-business investment (eg rental property) can check with their lenders to see if they can prepay interest prior to 30^th June 2016.

Building Allowance – the construction costs of income producing buildings may be written off at 2.5% or 4%, depending on the date of construction.  Please contact us if you require additional details.

General expenses can include real estate agents fees; building allowance (can be written off at 2.5% or 4% depending on date of construction); depreciation of fixtures, fittings, plant and equipment; share of depreciation of common property in a strata titled property; repairs and maintenance; pest control; interest on monies borrowed for investment in the property; bank charges on the property bank account; cleaning; electricity; rates; land tax; insurance and travel for inspection trips by the owner apportioned for partly private travel.

Income Issues

Income Splitting – income splitting can be highly tax effective, especially if investments have been placed in the name of a lower income earner.  This can be applicable where a spouse is not working and the income in the spouse's hands would therefore be taxed at a lower rate.

Individuals

Deductions

Superannuation Co-Contribution – the government will give lower income earners ($35,454 to $50,454) $0.50 for each $1 they contribute to superannuation from their after-tax salary up to a maximum of $500.

Expense Substantiation – ensure that you can justify all employment-related expense amounts incurred.

Working From Home Expenses – expenses can be claimed for working from home (as distinct from having a home office).

Personal Insurance Payments – premiums for Sickness and Accident Cover are tax deductible.  Payments can be made by the employer without incurring Fringe Benefits Tax.

Work-Related Expenses – items such as travel, uniforms, laundry of work clothes, subscriptions, union fees and self-education.

Income Issues

Interest Earned – declare interest earned on bank accounts, loans, etc.

Qualifying Employee Share Schemes – scheme formed before 1^st July 2009 – any discount on the shares is subject to taxation.  If the scheme qualifies under the Employee Share Scheme Rules, the employee can choose when they include the discount in their assessable income.  If the employee elects to include the discount benefit in their tax return for the year of receipt of the benefit, they are eligible for an exemption of the first $1,000 of the discount.

Scheme Formed After 1^st July 2009 – the discount on Employee Share Schemes are taxed either upfront or on a deferred basis.  For 'qualifying' schemes, if the employee is earning less than $180,000 taxable income plus reportable fringe benefits, reportable superannuation contributions and total investment losses, then the employee can claim a $1,000 exemption from the inclusion of the assessable discount.

Superannuation Funds

- Contributions to superannuation funds for taxpayers with Adjusted Taxable Income (ATI) less than $300,000 are taxed at 15% of the contribution.  For taxpayers with ATI over $300,000, 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.