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End of Year Tax Planning In this issue:
End of Year Tips Taxing of Trading Income Small Business Entity Rules - General Business Entity - Deductions Business Entity - Deductions on Accruals Basis Business Entity - Stock Business Entity - Assets Business Entity - Employment Issues Superannuation Funds Business Entity - Income Issues Companies Capital Gains Tax Items Individuals - Personal Planning Business Review 2008/09 |
Rogerson Kenny Business Accountants Melbourne End of Year Tax Planning Newsletter Welcome to the End of Year Tax Planning Newsletter from Rogerson Kenny Business Accountants. This issue features an End of Year Tax Planning Checklist. As always, please do not hesitate to contact our office if you wish to discuss any of these articles further. End of Year Tips New Equipment Requirements Purchases of new capital Accelerate Superannuation Contributions Consider accelerating superannuation contributions before deduction limits are reduced by 50% commencing 1st July 2009. Deferring Income Consider deferring income, if you can, to take advantage of the lower tax rates that will apply in 2009/10 Prepayments If your turnover is under $2 million, consider any prepayments prior to 30th June 2009 to take advantage of lower tax rates applicable next year. Taxing of Trading Income There are two forms of taxing trading income depending on whether the business is assessed on a
End of Year Tax Planning for Business Entities 2009
Small Business Entity Rules - General Depreciation Rules Trading Stock Rules for Small Business Entities Entrepreneur's Tax Offset Small Business Tax Break (Investment Allowance) A General Business Tax Break is also available for businesses with turnovers in excess of $2 million, or 30% for expenditure on eligible assets ordered between 13th December 2008 and 30th June 2009, subject to the eligible asset being installed by 31st December 2010. The special tax deduction is available on capital items such as motor vehicles, computer hardware, machinery and equipment. To qualify for the 30% deduction, businesses with turnovers over $2 million will be able to claim the bonus deduction for assets costing $10,000 or more (exclusive of GST) Businesses considering the above tax break "Investment Allowance" - Important Note On the 16th June 2009 the Australian Tax Office (ATO) released a "Fact Sheet" outlining their view on Hire Purchase Arrangements and Luxury car Leases. Their view is reproduced below: Hire purchase arrangements and luxury car leases If you are not a small business entity (that is, you have a turnover of $2 million or more), you intend to acquire a depreciating asset under a hire purchase arrangement or enter into a luxury car lease and want to claim the 30% business tax break, you need to enter into the hire purchase agreement or lease agreement by 30 June 2009, not just make an order contract with the supplier by that date. If you are a small business entity, you will have until 31 December 2009 to enter into the hire purchase arrangement or lease agreement under which you will hold the asset to be eligible for the tax break. Please note certain types of Chattel Mortgages may still enable entitlement to the 30% rate. If you would like further information please do not hesitate to contact Brett Kenny. Prepaid Expenses Business Entity - Deductions
Prepayments - Small Business Entity Staff Bonuses Staff Holidays Superannuation Self-Employed Persons Salary Sacrifice Arrangements Un-deducted Contributions Un-deducted contributions can be made up to $150,000 per annum or a total of $450,000 over a 3-year period. Superannuation Minimum Contributions Superannuation contributions have to be paid to all eligible employees who are paid at least $450 gross per month. Superannuation Co-Contribution The Government will give lower income earners $1.50 for each $1 they contribute to superannuation from their after-tax salary up to a maximum of $1,500. The government has announced changes to co-contribution from 1st July 2009. 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 and Maintenance Ensure that the work has been completed prior to 30th June. Directors' Fees Ensure cheques are drawn prior to 30th June and that PAYG Withholding Tax is deducted. Travel Deductions - Overseas - prepare a full itinerary & diary - Local - more than 6 nights you are required to maintain a diary Taxation Advice Fees payable to an accountant or registered tax agent for taxation advice can be claimed. Depreciation Review capital expenditure and ensure you claim depreciation at the highest legally allowable amount. Donations Any promised tax deductible donations should be made prior to 30th June. Negative Gearing The net loss, which may include interest, borrowing costs, etc, may be deductible. Borrowing Costs Borrowing costs can be claimed over the shorter of five 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 and Development Special conditions exist for businesses that incur expenses on Research & Development. Contact us Property Owner's Deductions Property owners can claim a number of expenses against rental income, including but not limited to, agents' fees, repairs & maintenance, travel & accommodation for inspection of the investment property, interest on loans borrowed for the property acquisition, etc. Audit Fees Deductible if there is a contract that creates a presently existing liability before June 30th. Salary Packages Ensure that salary packages for 2009/10 are negotiated and documented prior to 30th June 2009. Working from Home Expenses Expenses can be claimed for working from home (as distinct from having a home office). However, you could be subject to Capital Gains Tax when you subsequently sell the property. Expenses for Shareholding Investments Expenses incurred in gaining income from shares are a tax deduction. Legal Costs Review any legal costs that have been incurred. If the legal costs relate to regular business operations, e.g., debt collections, separate them from costs relating to capital items which are not claimable for income tax purposes. Luxury Car Tax The Luxury Car Tax is 33% and applies to the GST inclusive value in excess of $57,180 (2008/09). Fringe Benefits Although the Fringe Benefits Tax year ends 31st march, employers will need to know what amounts are deductible for income tax purposes. Probably the most common fringe benefit is the provision of the staff Christmas party. The cost of providing such a party is only deductible to the extent that it is subject to Fringe Benefits Tax. Accordingly, any costs that constitute exempt benefits are not deductible. The costs associated with the Christmas party may fall into two categories of exempt benefits - exempt property benefits or exempt minor benefits. Food and drink costs for the party will be exempt property benefits if the party is provided on a working day at normal business premises and for current employees. If the cost of the party is less than $300 per employee and any associates that may attend, the cost may constitute a minor fringe benefit and therefore be exempt from Fringe benefits Tax, regardless of whether the party is held on business premises or elsewhere. As of 13th May 2008, laptop computers and other and other work related portable electronic devices provided to employees are only exempt from fringe benefits tax if used primarily for work purposes. This also limits the number of items to one per annum. From 1st April 2007 the value of using a pooled motor vehicle, is a non reportable benefit, that is, there is no longer a requirement to record the value of the benefit on employee PAYG summaries. For employees wishing to obtain the government's co contribution in respect of superannuation contributions or claim the Family Tax Benefit, this may be a significant concession. Business Entity - Deductions on Accruals Basis (Subject to 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 2009, it can be accrued and claimed as a tax deduction in the year ending 30th June 2009. Commissions Owing (Accruals Basis) Where employees or another business are owed commission by your business for services rendered up to 30th June 2009, the accrued amount can be claimed as a tax deduction at 30th June 2009. Interest (Accruals Basis) Any accrued interest outstanding on a business loan that has not been paid at 30th June 2009 can be claimed as a tax deduction at 30th June 2009. Salaries and Wages (Accruals Basis) The accrued expense for the days that employees have worked, but not paid at 30th June 2009 can be claimed as a tax deduction at 30th June 2009. Commercial Bills (Accruals Basis) Where the term of a Commercial Bill expires beyond 30th June 2009, the discount applicable to the period up to 30th June 2009 can be claimed as a deduction. Rent (Accruals Basis) If rent is in arrears, the part that is owed up to 30th June 2009 can be claimed as a deduction. Business Entity - Stock Stock on Hand Review stocktake list as at 31st May. Determine whether to conduct "sales" prior to 30th June 2009. Conduct stocktake as at 30th June 2009. If you are conducting regular "rolling" stocktakes through the year, it may not be necessary to conduct a stocktake as at 30th June 2009. 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: - Cost; - Sales Value; or - Lower of Market Value or Replacement Cost. Obsolete Stock Identify any obsolete stock and decide whether to clear or dump that stock. Business Entity - Assets Fixed Asset Determine if there are any benefits in scrapping any fixed assets to obtain the tax write off. Business Entity - Employment Issues Payment Summaries Payment summaries have to be prepared and forwarded to all employees by 14th July each year. PAYG Withholding Tax Annual report due 14th August. Where a taxpayer is part of a closely held group and only employs associated persons, the ATO allows the Annual PAYG Reconciliation to be lodged when the taxpayer's income tax return is lodged. However, this concession must be requested by us on behalf of clients prior to 31st July. Accordingly, if your circumstances have changed since 30th June 2007 or you are a new employer and you would like to be added to our application for extension, please advise us as soon as possible. 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. Workcover A WorkCover Declaration is due by 31st August certifying wages paid for year ending 30th June. Superannuation Funds
 Business Entity - Income Issues Deferring Assessable Income With the reduction of personal income tax rates for residents in 2009/10, there may be benefits (if possible) in delaying the receipt of taxable income into 2009/10 when the lower taxation rates will apply. 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. Interest Earned Declare interest earned on bank accounts, loans, etc. Government Grants If your business has received a grant from a government department, it is most likely paid to you on the basis that it is taxable income and therefore you need to disclose in your tax return the receipt of the government grant. If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all of the government grant funds have been expended on tax-deductible items prior to 30th June. Company Loans
The law requires that the loan to the shareholder is properly documented. If there is no security offered, the term of the loan should not exceed 7 years. If security is offered, the loan should not exceed 25 years. Interest rate to be charged during 2008/09 is a minimum of 9.45%.l If loans have been made to shareholders that have not been supported by properly documented loan agreements, then the taxation office can treat those payments as being dividends that are assessable to the shareholder. Personal Service Income Taxation laws including 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 Australian Taxation Office'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. 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 or have turnover or less than $2 million, you might be entitled to further capital gains tax concessions. "Wash Sales" The Australian Taxation Office has issued a ruling that it says 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 share 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. Income protection insurance cover can provide up to 75% of a person's salary if they are unable to work due to illness or injury. This type of insurance is considered essential for an individual who relies on employment income to meet their, or their family's, lifestyle needs. These premiums are tax deductible and can also be prepaid for the next 12 months to bring forward the deduction for this financial year. Home Office Expenses If you use an area in your home, you can claim the expenses of a home-office. Utilising Tax Free Threshold Every adult taxpayer has a tax-free threshold of $6,000. If a taxpayer is verging on losses, consideration should be given to the decision being made regarding 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 Items such as travel, uniforms, laundry of clothes, subscriptions, union fees and self-education are tax deductible. Dividends and Interest The Australian Taxation Office matches information provided in tax returns with information it receives from external sources, such as public companies, banks, etc. End of Year Tax Schemes The Australian Taxation Office produces product rulings on various investment products that are marketed particularly around 30th June each year. If you wish to avoid confrontation with the tax office, then it is best to consider investing in products that have obtained a product ruling. These product rulings are not a guarantee or government endorsement on the likely success or profitability of the investment. 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 benefits tax such as supply of a motor vehicle. Your employer is required to report the value of fringe benefits on your payment summary and that may have an effect on other government payments to you. Entitlement to Stimulus Payment Entitlement to the Federal Government's incentive of a maximum of $900 is available to taxpayers who have paid income tax in respect of the year ended 30th June 2008. The government has indicated that the incentive payment will only be paid to taxpayers who have lodged their tax return in respect of the year ended 30th June 2008, by 30th June 2009. 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 30th June 2009. Motor Vehicle Expenses There are 4 methods available to calculate tax deductions for work related motor vehicle expenses: -Cents per kilometre method; - Logbook method; - 12% of the original value method; or - 1/3 of actual expense method Expense Substantiation Ensure that you can justify all employment related expense amounts incurred. Donations Any promised tax deductible donations should be made prior to 30th June 2009. Negative Gearing The net loss, which may include interest, borrowing costs, etc, may be deductible. Building Allowance Construction costs of income producing buildings can be written off at 2.5% or 4% depending on date of construction. Property Owner's Deductions Property owners can claim a number of expenses against rental income, including but not limited to, agents' fees, repairs & maintenance, travel & accommodation for inspection of the investment property, interest on loans borrowed for the property acquisition, etc. Working from Home Expenses Expenses can be claimed for working from home (as distinct from having a home office). However, you could be subject to Capital Gains Tax when you subsequently sell the property. Expenses for Shareholding Investments Expenses incurred in gaining income from shares are a tax deduction. 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. Interest Earned Declare interest earned on bank accounts, loans, etc. Employee Share Schemes If you are a member of an employee share scheme you should ensure that any income that has been earned is included in your income tax return. Qualifying Employee Share Schemes The government has announced in the Federal Budget on 12th May 2009 that it intends to change the rules for share schemes effective from 12th May 2009, that employees who buy shares or options under Qualifying Employee Share Schemes will no longer be able to defer payment of tax on the discount that they had benefited from in the share buying transaction. Now is an ideal time to talk to us about a "Survival in Difficult Times" review for your business. Particularly relating to:
Please contact us as soon as possible to make an appointment for a business review on your business to be conducted. How can we help your business?
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| Rogerson Kenny Business Accountants - P.O. Box 323 Mt Waverley Victoria 3149 Ph: (03) 9802 2533 F: (03) 9802 0590 E: mail@rks.com.au |
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| This update is designed as a summary of taxation information and is not intended to be taken as advice. Rogerson Kenny accepts no liability for decisions made according to this information. Please contact Rogerson Kenny for an interview for more information and advice. |
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P. (03) 9802 2533 F. (03) 9802 0590E. mail@rogersonkenny.com.au Suite 13, 241 Blackburn Road Mt Waverley, VIC 3149 |
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PETER ROGERSON
Peter is a well respected leader and member of our team since he joined in 1973. Peter has over 35 years experience in public practice...  
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BRETT KENNY Brett joined our firm in 1984, and has been a valuable leader and member of our team for over twenty three years....
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