The 2013 Financial Year Is Coming To An End
This special newsletter contains commentary on many of the items you may encounter, as part of your end of financial year deliberations.
End Of Year Tips
Tax planning is largely about seeking to average income levels over a series of years to ensure income in one year is not taxed at a higher rate when other years income could be earned and taxed at a much lower rate. It is therefore important to estimate your taxable income for 2013 and 2014 and consider whether it is worthwhile seeking to move expenses or income from 2013 to 2014 or vice versa. This is often possible via varying strategies. If you need our assistance or have any questions we would appreciate the opportunity to help.
Prepayments - if your turnover is under $2M, consider any prepayments prior to 30th June 2013.
"Cash is King!" - update your financial records to 30th June 2013, so you can discuss with us the possible variation of your PAYG instalment due by 28th July 2013.
The 2013 Federal government's budget introduced some items to which you may need to give consideration prior to 30th June 2013. These include:
- The government intends to phase out the medical expenses tax offset by June 2019. If a taxpayer does not claim the medical rebate in any one year, the taxpayer will not be eligible to claim the medical rebate in a subsequent year. This could mean that it could be beneficial to ensure your medical expenses, for 30th June 2013, exceed $2,120. Are you due for dental, optical or other work soon that could be done pre 30th June 2013 to put your expenditure above the threshold?
- The government has announced that it will remove the discount which currently applies to upfront and voluntary payments of Higher Education Loan Program (HELP). The removal of the discount will apply from 1st January 2014.
Building and Construction
• Building and Construction Industry
– if you're in the building and constructions industry, you have to be able to prepare a Reportable Payments Report to submit to the ATO, showing the payments you've made to each contractor for the year ended 30th June 2013. The return has to be lodged by 22nd July 2013.
Changes from 1st July 2013
• Notification of superannuation payments
– from the 1st July 2013, the government requires you to advise employees, on their payslips, when you have paid their superannuation contributions to their superannuation fund.
• Superannuation Guarantee Charge Increase
– from the 1st July 2013, the Superannuation Guarantee Charge rate increases from 9% to 9.25%.
End Of Year Tax Planning Checklist 2013
Small Business Entity Rules
The small business entity rules apply to a sole trader, partnership, company or trust which has a group turnover of less than $2M in the previous year, or likely to be less than $2M in the current year. If you are a small business the following may help.
• Depreciation Rules - if the asset costs less than $6,500 it may be written off in full in the year in which it was acquired. Other assets go into a single pool to be written off at 30% (for any new assets acquired 15% in the first year).
• Depreciation – Motor Vehicle – you can choose to use the capital allowance provision to calculate the deduction for a motor vehicle costing $6,500 or more if you have started to use or installed ready for use for business purposes. The deduction in the first year is $5,000 + 15% of the residual.
• Prepaid Expenses - a small business entity taxpayer can claim an immediate deduction for certain prepaid business expenses that satisfy the 12-month rule.
• Interest On Investment Loans - taxpayers who have borrowed money for a non-business investment (e.g. rental property) can check with their lenders to see if they can prepay interest prior to 30th June 2013.
• Staff Bonuses - ensure a cheque has been written prior to 30th June 2013 and PAYG withholding tax deducted. Otherwise contact our office to discuss how accrued bonuses can be claimed.
• Superannuation – for the year ending 30th June 2013, superannuation contributions can be paid for any person up to $25,000. In order to claim a deduction in the 2013 financial all superannuation contributions are required to be paid by 30th June 2013. Caution is needed to ensure this cap is not exceeded, hence watch insurance premiums for policies held inside super.
• Self-Employed Persons - self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees.
• Salary Sacrifice Arrangements - salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.
• Superannuation Co-contribution - the government will give lower income earners $0.50 for each $1 they contribute to superannuation from their after-tax salary up to a maximum of $500.
• Repairs & Maintenance - ensure that the work has been completed prior to 30th June 2013.
• Directors' Fees - ensure cheques are drawn prior to 30th June 2013 and that PAYG Withholding Tax is deducted.
• Travel Deductions - prepare a full itinerary and diary if travel is for travel of six nights or more and maintain records to support all expenses.
• Donations - any promised tax deductible donations should be made prior to 30th June 2013.
• Building Allowance - the construction costs of income producing buildings may be written off at 2½% or 4%, depending on date of construction.
• Research & Development - companies that incur research and development can claim additional taxation benefits.
Companies must register their research and development projects with AusIndustry by 30th April 2014 or the date of lodgement of the company's income tax return, whichever is the earlier.
• Stock On Hand
- review stocktake list as at 31st May 2013. Determine whether to conduct "sales" prior to 30th June 2013. Conduct stocktake as at 30th June 2013. If you are conducting regular "rolling" stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30th June 2013. Stocktaking may not be necessary if you are a small business entity.
• Value Of Stock
- stock can be valued at different individual methods for each item of stock:
- Market Selling Value; or
- Replacement Cost.
• Obsolete Stock
- identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.
• Fixed Assets
- determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30th June 2013.
• Payment Summaries
- payment summaries have to be prepared and sent to all employees by 14th July each year.
• PAYG Withholding Tax
- annual summary due 14th August to Australian Taxation Office.
• 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.
Capital Gains Tax Items
• 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 or a later 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 $6M net value asset or have turnover of less than $2M, you might be entitled to further capital gains tax concessions.
• "Wash Sales"
- the ATO has issued a ruling that relates to "wash sales" raising concerns with such 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 corporation on the Australian Stock Exchange.
• Personal Insurance Payments
- premiums for Sickness and Accident Cover are tax deductible. Payments can be made by the employer without incurring Fringe Benefits Tax.
• Home Office Expenses
- if you use an area in your home for work purposes, you can claim a deduction of 34 cents per hour.
• Utilising Tax Free Threshold
- every adult taxpayer has a tax-free threshold of $18,200. If a taxpayer is verging on losses, consideration should be given to the valuation of stock, bringing forward or delay of sales etc., to utilise the tax-free threshold otherwise it will be lost forever.
• Work-Related Expenses
- consider items such as travel, uniforms, laundry of clothes, subscriptions, union fees and self-education.
• Salary Packaging
- salary packaging can also assist in the minimisation of income tax, particularly in the areas of voluntary superannuation contributions and acquisition of assets that are not subject to fringe benefit tax, such as supply of a motor vehicle. Your employer is required to report the value of fringe benefits on your payment summary. That may have an effect on other government payments you receive.
• Superannuation Contributions
- special concessions are available to low income or non-working spouses relative to superannuation contributions.
• Medical Expenses
- if your medical expenses exceed $2,120, you can claim a tax rebate calculated at 20% of the excess of $2,120 where your income is less than $84,000 (family income $168,000) or 10% of $5,000 otherwsie.
• Work-Related Motor Vehicle Expenses
- under 5,000 kilometres calculated at the rate advised by the Australian Taxation Office for the type of vehicle used.
• Trust Distributions
– The Australian Taxation Office has indicated that it will be enforcing the full meaning of the law which is that trust distributions have to be made by the 30th June each year. The ATO has indicated it will be doing spot checks to ensure distribution minutes have been prepared and signed prior to 30th June 2013, setting out the distribution of the income of the trust.
If you have any questions relatives to this, please contact us at your earliest opportunity so a decision can be made on the trust distribution so a meeting of the trustees can be held and a minute prepared confirming the decision of the trustees relative to the trust distributions.
End Of Financial Year Review
If you have any queries on any other items not discussed in this newsletter, or you have general matters that you'd like to discuss with us relative to your taxation affairs for the year ending 30th June 2013, please contact us in the next couple of weeks so that a convenient time for a meeting can be arranged.