As we approach Financial Year End, we would like to share some year end tax planning tips. Please contact Whytes to address any of these items. Further useful planning tips available on our Resources page.
1. Debit loan accounts in private companies.
Any loans advanced post 4/12/97 to shareholders, directors and their associates should be reviewed prior to 30 June 2011 and relevant action taken. Various options may exist depending on the circumstances like: paying dividends prior to 30 June 2011, repayment of loan prior to 30 June 2011 or ensuring a valid commercial loan agreement is in place. There has been recent amendments in this area and the ATO is actively reviewing and auditing this area.
2. Credit loan accounts to private companies (non trusts) are also on the attack from the ATO. In brief you need to ensure that you consent to them in writing and both parties agree to the terms. Ultimately, review & ensure they are repaid with or without interest.
3. Utilise legitimate strategies to defer taxable income and or accelerate deductions. Should you be on a cash basis for reporting, paying the eligible deductible amounts before 30 June 2011 results in the eligible deduction, not simply incurring the purchase for payment in July 2011.
4. Superannuation contributions must be paid by the employer and cleared through the bank account prior to 30 June 2010. Remember thresholds exist for deductibility.
5. Superannuation guarantees 9% levy must be paid by 28/7/11, however if you want a deduction in your 2010 income tax return, the contributions must be paid and cleared by 30 June 2011. This does not simply mean accruing the payable.
6. New plant & equipment proposed to be acquired can be structured with an upfront lease payment 40% of cost paid now balance in 12 months, GST credits are recovered over the lease period.
7. Consider setting up a Self Managed Superannuation Fund with some borrowing now being allowed by superannuation funds. There are additional costs in the set up and the bank charge approx 2 % above standard variable rate.
8. Check if you have over contributed to your superannuation If your over 50 the limit is $50,000 If under 50 years of age then its $25,000.The excess contributions are taxed at 46.5%.Consider if you can take advantage of the government co contribution scheme .Income from salary and wages must be less then 31,920 to take the free $1,000 and less then 61,920 to have a partial co contribution
9. Farmers consider using Management Farm deposits.
10. Generally avoid tax schemes unless product ruling issued from ATO and commercially viable.
11. Accrue employee bonuses, must be a fixed amount and not geared to a % of net profit.
12. If considering setting up your own DIY superfund, perhaps pay contribution into a managed fund with nil entry & withdrawal fees and roll out into you own DIY fund in July 2011 resulting in a saving of admin, audit & compliance costs for the 2010 year. With super choice in place, it might be time to reconsider DIY super. We suggest you look carefully at your insurance coverage in employer fund if you decide to change to a DIY.
13. Review your investment portfolio for Capital gains & losses. Look at offsetting any capital gains with capital losses. If you have a net capital gain during the year, then perhaps realise investments that result in a loss to reduce the capital gain. Be careful as the ATO are looking at this re “wash sales “ or “bed & breakfast”.
14. Prepay expenses watch prepayment rules.
15. Prepay interest on borrowings.
16. Writing off assets purchased - any individual asset costing less then $1,000 can be written off in the year acquired if deemed small by the ATO, otherwise, normal depreciation rates will apply.
17. Consider purchasing an investment portfolio with a geared loan and prepaying the loan advanced protected geared portfolio . Watch interest rates.
18. The golden rule in looking at tax effective products is that they must be an investment first and tax effective second. Some tax effective products provide upfront deductions now but have an obligation to pay expenses for a period of up to 10 years.
19. Ensure your GST reconciliations for the year and annual PAYG summaries are reconciled and ready for completion in July 2010. Ensure all tax invoices have been received & filed to support the lodgement of BAS .Annual work care and payroll tax reconciliations where applicable should be completed at this time.
20. Consider any management fees or internal interest adjustments within the group. This type should be completed by movements of real funds.
21. If you use a service trust arrangement, ensure all proper documents are in place and mark-ups are per the Philips Case.
22. Review the debtors of the business and determine all unrecoverable amounts. Where sufficient evidence supports the debt will not be recovered, write off the debt in ledger and record the write off in a minute.
23. Moving into July 2011 – if your vehicle log book is now 5 years old and you had previously recorded 12 consecutive weeks of odometer readings to determine the business percentage use method, a new log book is required to be completed for a period of at least 12 consecutive weeks in order to be able to use the log book method for vehicle expenses, fringe benefits calculations etc in the next five years. If your business use of your vehicle has increased or decreased by more than 10% since you last completed a log book, a new log book is also required to be completed.
