Year End Tax Planning Opportunities
- 10 June 2016
The 2015/16 year is almost at an end, presenting a perfect time to consider any tax planning opportunities that may be relevant to your business, including the following.
Capital Allowances ($20,000 Write Off)
The ATO is allowing an instant tax deduction for Small Business Entities for depreciable assets costing up to $20,000 purchased after 7:30pm (AEST) 12 May 2015. Depreciating assets in this context includes fixed assets such as those used in your business (computers, furniture, motor vehicles etc.) but does not extend to assets held for investment (capital gains tax assets), or to most significant costs associated with land or buildings (capital works). Currently to be considered a Small Business Entity for the purpose of this concession, you must be a sole trader, partnership, company or trust that operates a business and has less than $2 million dollars in aggregated turnover. Note that subject to law changes, it was proposed in the 2016/17 budget that this threshold be raised to $10 million with affect from 1 July 2016. This concession will be available until 30 June 2017.
Concessional superannuation contributions continue to be a widely accessible deduction for businesses.
Concessional contributions usually refer to those contributions a business makes on behalf of employees and directors. They include the mandatory superannuation guarantee charge and can also include additional salary sacrifice amounts paid on behalf of an employee up to their respective contributions cap (see below). Individuals who are fully or substantially self-employed can also access a deduction for amounts contributed to their nominated superannuation fund, provided certain tests are satisfied.
The 2015/16 year allows a concessional contribution of up to $30,000 for individuals under 49, and $35,000 for individuals aged 49 or older. Note that people over the age of 65, up until the age of 74 need to satisfy a work test in order to make voluntary contributions to their superannuation. Persons 75 years or over cannot make voluntary contributions.
The tax law contains rules which limit a company’s ability to lend, pay or otherwise provide monies for director or shareholder (and associate) use. These are referred to as the Division 7A rules.
The main purpose of these rules is to prevent an individual effectively taking tax-free money from the company. The consequences of Division 7A can be significant. It is therefore important to review any transactions which may fall within the sights of these rules, ideally prior to the end of the financial year. Examples of transactions which may pose a risk of triggering these rules would include using the company bank account to pay for personal expenditure, using company assets for private purposes (e.g. company owned motor vehicles) or lump sum personal loans made by the company to a director or shareholder. There a variety of ways to manage the risk of Division 7A rules applying, which you should discuss with your tax professional.
Capital Gains Tax (CGT)
If you have sold any CGT assets for profit, consider whether these profits can be offset by selling any loss-making CGT assets in the same year. When we refer to CGT assets, we broadly mean those assets held for investment purposes, such as real estate, shareholdings and managed fund investments. Note that the sale of some assets will not necessarily trigger CGT. For example, the sale of a property that has been your main residence since its purchase will generally be exempt. You may also be able to use prior year capital losses (i.e. any carried forward accumulated losses made on the sale of capital assets) to offset your current year capital gain.
Some businesses may be carrying overstated debtor (trade receivable) balances where those customers are bankrupt, in receivership or otherwise unable to pay. These amounts may be able to be written off as bad debts. The ATO does not strictly say what is considered a bad debt, rather it is regarded as a matter of judgement having regard to all the relevant facts. Please note in order to write off a bad debt, a debt must have existed in the first place. The implication here is you would have needed to previously recognise this amount as assessable income for tax purposes in your accounts. For each bad debt you choose to write off, you must record details of the amount and the efforts you have made to recover it.
If you wish to discuss tax planning in more detail please contact your local Walker Wayland advisor.