Tax planning tips for EOFY

With the 30 June end of year approaching soon, thoughts turn to preparing for tax compliance. While this can be done during the year, with only one month left until the deadline, it is valuable to consider the following:

1. What your likely tax position will be
2. What can be done to improve that position
3. What can be done to manage the projected tax cash outflow

The consequences for not planning adequately include paying more tax than is needed and paying it sooner than is needed, thereby depriving your business of cash it could use.
Poor planning can have significant tax consequence as an example, excess contributions to superannuation can cost up to 93% tax.

We recommend meeting with your advisor as soon as possible to review these matters as it is vital to giving you time to make useful changes.To make informed decisions, you will need to considered and ensured the following:

FINANCIAL AFFAIRS
Ensure your financial affairs are reconciled, accurate and reliable. Without this you cannot make any informed tax planning decisions.

Reconcile and review balance sheet. This is essential to properly ascertain future cash flow management issues.  This includes reconciling the following:

• Receivables – so you know if you can write off any bad debts
• Inventory – so you know if you can write off, write down or revalue the stock
• Investments - to assess whether these can be sold to offset gains or losses
• Outstanding tax liabilities
• Payables 
• Loans
• Bank accounts
• Reconcile and review profit and loss, ensuring all capital items greater than the appropriate amount are capitalised (depending on the size of the business) and also identify one-off abnormal revenue or expenditure. For example gains/losses on sale of an asset, bad debts or revenue from insurance claims, as the tax treatment may differ and may require specific records to be kept
• Prepare a statement of net financial position across a family trust group (taking into consideration the market value of assets, debts and other financial liabilities)
• Have realistic profit/loss and cash flow forecasts for the next 12 months. This will allow your advisor to identify opportunities to defer current liabilities if you are likely to be in a loss position in the next year
• Clearly defined short (1 year) and long term (10 years) goals so you can factor in changes in personal circumstances which may impact your financial position and potential earnings, for example retirement, or if it is likely that new assets will be purchased in the short or medium term
• Deal with tax issues before 30 June including directors and shareholders loans, deciding on trust distributions to beneficiaries, declaring dividends and ascertaining capital gains or other one-off transactions.
• Review the tax effect across the whole group of entities for tax minimisation possibilities.
• Investments – Review who the best owner ought to be considering tax and asset protection.
• Companies – if a tax loss occurs in the 2012/13 year, there may be a refund of tax paid from the 2011/12 tax year (various rules apply).

MAXIMISE DEDUCTIONS

• Debtors - Check to see if any debts can be written off as bad debts
• Stock – determine the best valuation for the year and write off or write down the value of any obsolete or old stock
• Repairs – review and complete any repairs to workplace and/or equipment
• Realise any unrealised losses (capital or revenue losses) which can be used to offset capital or revenue income
• Consider making charitable donations (avoid making if you will be claiming a loss for the year)
• Staff - Ensure staff bonuses are qualified and documented to enable the deduction to be claimed for bonuses accrued. Also pay accrued leave loading, even if leave was not taken
• Pay tax agent fees
• Research and development expenditure – ensure projects are registered, project plans are completed and all eligible costs are included in claims for deductions.
• Superannuation – this can only be claimed in the year it is paid. Ensure all employee super contributions are paid by their due dates in order to claim the deductions. If the super for quarter four (due 28 July) is paid before 30 June, you may also get a deduction for this.
• Foreign exchange losses – Ensure these are realised so the deduction can be claimed.
• Directors fees - Conduct a shareholders’ meeting before 30 June to approve directors’ fees in order to claim a deduction for them.
• Depreciable Assets - Review the effective life of business assets to determine if any furniture, fittings or plant and equipment items are obsolete, scrapped or sold and that they are also accurately valued.
• Consider running any staff training before 30 June.
• Expense Assets - If you are a small business with an aggregated turnover less than $2 million consider purchasing small business assets less than $6,500 to get an immediate deduction.
• FBT-exempt work items - Consider purchasing for any employees before 30 June, such as laptops, mobile phones and other tools of the trade (FBT rules apply).
• Prepayments - Small business with an aggregated turnover less than $2 million may be eligible for a deduction on prepaying expenses (expenses may include items such as rent on business premises) as long as the prepayment is not for a period exceeding 12 months.
• Wages to family - Consider whether sufficient wages have been paid to family members for their work.

MINIMISE & DEFER INCOME

• Consider deferring sales to after 30 June
• Consider postponing the realisation of any assessable gains such as capital or foreign exchange until after 30 June
• Consider deferring the disposal/sale of an asset that would result in a capital gain until after 30 June, providing there are no capital losses in the year which could be used to offset a capital gain
• Consider CGT and /or depreciation rollover relief where possible.
• Recognise any unearned revenue at 30 June
• Consider whether term investments ought to be set to mature after 1 July rather than pre 30 June

CORPORATE TAX BENEFITS

• Consider the new Tax Loss Carry Back provisions if the company is in taxable loss position

GENERAL PERSONAL TAX MATTERS

• Where possible ensure you minimise your personal tax positions to enable entitlements to Family Tax Benefits and other government rebates
• Ensure you keep abreast of personal Medical expenses to access and maximises medical expenses tax rebates
• Ensure Life and other Insurance Premiums are structured correctly maximise tax deductions
• Review work related deductions that may be industry specific and that can be claimed as a tax deduction
• Make sure your motor vehicle log books or work related travel diary are up to date to substantiate any work related expense deductions
• Consider making potential tax deductible donations
• Consider timing for sale of investments owned personally and potential reduction of capital gains tax implications

SUPERANNUATION

• Concessional Contribution (deducted) super before 30 June up to the Age Based Caps (ensure you haven’t exceeded the superannuation concessional contribution limits, which can vary each year)
• Check to see whether making a non-concessional contribution into your superannuation before 30 June would entitle you to the Federal Government’s co-contribution for personal after-tax contributions.

TRUSTS

• Consider timing for sale of investments held by a trusts
• Ensure all trust income will be distributed in the most effective manner, taking into consideration the tax status of the beneficiaries and that distribution minutes are signed on or  before 30 June 2012

Reviewing all these matters with your advisor sufficiently before 30 June will allow options for minimising and managing your tax needs. Choosing to do this now can provide the tax cashflow projection and potentially provide significant money to assist the development of your business – a substantial result.

Please do not hesitate to contact us if you need assistance with your tax planning. You can reach us via email at ourteam@azuregroup.com.au or call us on (02) 9238 1188. We also encourage you to join our online community for continued tax planning and EOFY tips. You can find us on Facebook, Twitter and LinkedIn.