June, 2014

Tax Planning for 30 June

Traditionally, 30 June each year brings forth a rash of tax planning initiatives through which the level of taxation for the current financial year may be reduced.   Consult your tax advisor about the following:

TIMING OF INCOME

Where possible, defer receipt of income until after year end.

TIMING OF EXPENSES

Where possible, incur expenses prior to year end.

BAD DEBTS

Review debtors and, where debts are unrecoverable, physically write off before year end to claim a tax deduction.

TRADING STOCK ON HAND

Scrap any obsolete or damaged stock by year end.

SUPERANNUATION

Ensure payments for employees or by self-employed persons are physically made (and received) on or before year end.

PRE-PAYMENTS

Immediate deductions are available for:

  • Pre-payment of salary;
  • Expenses <$1,000;
  • Individuals, for non business expenses incurred on or before 30 June for the next twelve months – e.g. interest on rental property.

SUPERANNUATION REBATES

Contributions made on behalf of a low or no income spouse of up to $3,000 can attract an 18% rebate – i.e. $540.

SUPERANNUATION CO-CONTRIBUTIONS

The Government will contribute up to a maximum $500 to add to eligible employees’ personal contributions to superannuation funds of up to $1,000, subject to an assessable income (reportable fringe benefits, reportable employer superannuation contributions and salary sacrifice superannuation contributions) limit of $33,516, phasing out at $48,516.

MOTOR VEHICLE EXPENSES

Where significant employment or business use of a personal motor vehicle is claimed, maintain a log book for twelve weeks to maximise the tax deduction and keep records of all expenses.  The log book must be renewed every five years.

Record the financial year end odometer reading.

Small businesses (turnover <$2m) can claim an initial deduction of $5,000 (GST exclusive) for motor vehicles used for business 100%, between 1 July and 31 December 2013, plus 15% of the balance of the cost.

PLANT AND EQUIPMENT

Review your asset schedule to scrap obsolete, worn out, lost or stolen items to maximise your depreciation claim.

Delay the disposal of any plant and equipment likely to be profitable in terms of written down value until 1 July.

Small businesses (turnover <$2m) can claim an immediate deduction for assets acquired, first used or installed ready for use between 1 July and 31 December 2013, costing under $6,500 (GST exclusive).

HOME OFFICE EXPENSES

If carrying on a business from your home, pro rata tax deductions for interest or rent, insurance etc are available but impact on the main residence exemption from capital gains tax.

DIRECTORS/EMPLOYEES’ ENTITLEMENTS

Ensure any 2014/2015 salary packaging arrangements are in place before the commencement of the new tax year.

Bonuses and fees for the 2013/2014 year need to be approved at meetings and in place prior to 30 June 2014.

PRIVATE COMPANY LOANS

Any loans to shareholders or associates during 2012/2013 need to be repaid on or before 30 June 2014 unless a formal loan agreement is in place.

SALE OF INVESTMENTS

Delay the sale until after year end where a gain is anticipated to defer tax for a year.

Crystallise any capital losses in the tax year to offset against any gains made in the same year.

Timing of disposal under a contract for capital gains tax purposes is generally the date of making the contract, not settlement.

CAPITAL GAINS TAX CONCESSION

Assets need to be held for at least twelve months to access the 50% discount for individuals and trusts and the 33⅓% discount for superannuation funds.

CEASING BUSINESS/SALE BUSINESS ASSETS

Consider redundancy payments for employees.

Plan “golden handshake” payments for after the tax year end.

Small business capital gains tax relief measures may be available for:

  • 15 year exemption
  • 50% reduction
  • Retirement exemption
  • Replacement asset rollover

PAYG PAYMENT SUMMARIES

Summaries and the summary statement for employees are required by the Australian Taxation Office by 14 August, otherwise substantial penalties apply.

SUPERANNUATION FUND EXPENSES

All expenses of a fund ought to be paid by the fund in order to claim a tax deduction.

DEPRECIABLE PLANT COSTING $300 OR LESS

Salary and wage earners and rental property owners will be entitled to an immediate deduction if plant for work related purposes costing $300 or less is purchased before 1 July 2014.  Some purchases you may consider include:

  • Beepers and pagers;
  • Books and trade journals;
  • Briefcases/luggage or suitcases;
  • Calculators, electronic organisers;
  • Software;
  • Stationery; and
  • Tools of trade.

CLOTHING EXPENSES

Purchase or pay for work related clothing expenses prior to the end of the income year, such as:

  • Compulsory, non-compulsory (and registered) occupational specific and protective clothing;
  • Other expenses associated with such work related clothing such as dry cleaning, laundry and repair expenses.

SELF-EDUCATION EXPENSES

Consider pre-paying the following self-education items before the end of the income year:

  • Course fees (but not HELP fees), student union fees and tutorial fees;
  • Interest on borrowings used to pay for any deductible self-education expenses.

Also bring forward purchases of stationery and text books (i.e. those which are not required to be depreciated).

OTHER WORK RELATED EXPENSES

Employees can pre-pay any of the following expenses prior to 1 July 2014:

  • Union fees;
  • Subscriptions to trade, professional or business associations;
  • Magazine and newspaper subscriptions;
  • Seminars and conferences;
  • Income protection insurance (excluding death and total/permanent disability).

Note:  When pre-paying any of the above expenses before 1 July 2014, ensure that any services are provided within 12 months of the payment and before 1 July 2015.  Otherwise, the deductions must be claimed over the period of the pre-payment.  Any expense under $1,000 is exempt from pre-payment rules.

Website Development

It is becoming increasingly important for businesses in the retail and commercial world to build a strong competitive and interactive online presence, usually through establishment of a website, its maintenance and upgrades as required.  As websites become more complex, hence costly, the tax deductibility becomes significant.

The tax treatment afforded website development costs depend on the nature of the expense – i.e. hardware, software and content.

Hardware definition – plant and equipment used to support a website (e.g. server to host website).

Tax treatment:  Depreciable over the asset’s effective life.

Software definition – computer program designed to perform particular tasks.  Indicators of the presence of software in a website are:

1.  Website includes interactive features – e.g. member login.

2.  Testing and debugging for errors required.

3.  Website specifically designed to meet set criteria.

4.  Supportive document required to assist with the various phases in the lifecycle of the website.

Tax treatment:  Depreciable on a straight line basis over four years, or elect as an option to allocate to a ‘software pool’ to be depreciated at a rate of 40% in year two or three, and at 20% in the final year.  Software not depreciated in the first year.

Content definition – description given to information on a website – e.g. graphics, video files and catalogue of goods.

Tax treatment:  Immediately deductible if the content relates to an existing business, or deductible over five years as a “black-hole” expenditure if the content relates to establishing a new business.

 It should be noted the foregoing refers to the treatment of development costs – e.g. a new website or an upgrade of an existing website and ordinary ongoing maintenance of an existing website, including content update, is of course deductible immediately.

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Tax Topics

We regularly publish brief notes of advice/comments on tax topics plus related matters in “dot point” format for you to skim through and consider. Hopefully these will be of interest to you:

  • Company tax rate reduction from 30% to 28.5%, effective 1 July 2015, was announced in the budget.
  • The highest marginal tax rate is being increased by 2.0% for what is described as a “temporary (3 year) budget repair levy” and with the increased Medicare levy those earning over $180,000 will pay 49%!
  • The Medicare levy is being increased to 2.0% from 1 July 2014 to fund the National Disability Insurance Scheme.
  • The medical expense rebate is being phased out by 2015 – only available in 2014/2015 to those taxpayers who claimed in 2012/2013.
  • Superannuation guarantee charge increase from 9.25% to 9.5%, effective 1 July 2014, was also announced in the budget.
  • Employers who engage contractors where the contract is wholly or principally for the contractor’s labour are still required to make superannuation guarantee payments on behalf of the contractor, even though he or she may quote an Australian Business Number (ABN).
  • Overnight work related travel within Australia – a travel diary is only required for extended travel (more than five continuous nights) where the travel is not undertaken exclusively for employment purposes – i.e. there is a private use element to the travel.
  • Overnight work related travel overseas – a travel diary is required where travel is for more than five continuous nights.

     (In both cases written evidence of airfare and accommodation costs are nevertheless required.)

  • Borrowers with tax deductible interest may pre-pay up to twelve months’ interest and claim a deduction for the pre-payment (available to small business entities and non-business individuals).
  • The ‘two year’ CGT rule in respect of dwellings bequeathed is measured from the date of death to the date the beneficiary ceases to legally own the dwelling – i.e. the date of settlement not the date the sale contract is signed! This contrasts with the CGT position on acquisition or disposal of investments where the contract date is the relevant date for CGT purposes and not the date of settlement!
  • The ‘two year’ rule, if exceeded, is no longer applicable; it is not pro-rated!

Superannuation Contributions 2013/2014

SUPERANNUATION CONTRIBUTIONS 2013/2014

As the end of the financial year approaches, our thoughts turn to taxation and ways to minimise the impost.  Superannuation contributions are a simple but effective way to reduce taxation and at the same time accumulate for retirement.

CONCESSIONAL / DEDUCTIBLE CONTRIBUTIONS BY EMPLOYERS FOR EMPLOYEES

Maximum contributions for each employee up to 75 years of age, including “salary sacrifice” (needs to be proactive) and superannuation guarantee payments without incurring excess concessional contributions tax:   $25,000 *

Condition:

Over 65 years must satisfy the work test, over 70 years the work test applies and only contributions received before the 28th day after the end of the month in which member turns 75 are deductible.  The age limit of 70 years for superannuation guarantee payments was removed from 1 July 2013, hence employers are required to contribute for mature eligible employees 70 years and over.

CONCESSIONAL/DEDUCTIBLE PERSONAL CONTRIBUTIONS BY INDIVIDUAL TAXPAYERS INCLUDING INVESTORS

Maximum contribution by each individual up to 75 years of age without incurring excess concessional contributions tax:   $25,000 *

Conditions:

  • Less than 10% of assessable income including reportable employer superannuation contributions and reportable fringe benefit amounts are attributable to employment.
  • The individual must notify the fund of an intention to claim a deduction (form NAT 71121) and the fund must acknowledge the notice.
  • Contributions cannot create or increase a loss (deduction cannot exceed taxable income).
  • Over 65 years must satisfy work test.
  • Only contributions received before the 28th day after the end of the month in which member turns 75 are deductible.

*TRANSITIONAL CONCESSIONAL/DEDUCTIBLE EMPLOYER & PERSONAL CONTRIBUTIONS

The concessional limit for 2013/2014 is $35,000, available for persons 59 years or over on 30/06/2013, and available in 2014/2015 for persons 49 years or over on 30/06/2014.

HIGH INCOME EARNER CONTRIBUTIONS

From 1 July 2012, the contributions tax increased from 15% to 30% for those with adjusted taxable incomes (broad definition) exceeding $300,000!

NON-CONCESSIONAL/NON-DEDUCTIBLE CONTRIBUTIONS BY INDIVIDUAL TAXPAYERS

Maximum contribution by each individual up to 75 years of age without incurring excess non-concessional contributions tax:   $150,000

From 1 July 2014, the non-concessional limit will increase to $180,000.

Note:    An individual taxpayer who is under 65 years of age in an income year can bring forward two years’ entitlements and make one contribution of $450,000 without exceeding the cap ─ i.e. no further contributions over the three years.

Note:    The annual maximum amount will be indexed and remain at six times the concessional amount.

EXCESS CONCESSIONAL/DEDUCTIBLE AND NON-CONCESSIONAL/NON-DEDUCTIBLE CONTRIBUTIONS

An excess contributions tax of 31.5% and 46.5% was previously payable in respect of concessional and non-concessional contributions which exceeded the maximum amount allowed.  However, from 1 July 2013 excess concessional contributions were taxed at the member’s marginal tax rate and an interest charge applied.  The excess may be withdrawn from the fund.

The recent budget announced that the punitive taxes which previously did apply to excess non-concessional contributions will no longer apply, effective 1 July 2013 assuming legislation is passed.

GOVERNMENT CO-CONTRIBUTIONS

The co-contribution made by the Government of up to $500 is available to employees and the self- employed less than 71 years of age at the end of the income year who make non-concessional/undeducted personal superannuation contributions of up to $1,000 and whose total income (assessable, reportable employer superannuation contributions and reportable fringe benefit amounts) is less than $48,516; the lower threshold of $33,516 allows for the full co-contribution 50c/$1.

Conditions:

  • 10% or more of the person’s total income is attributable to employment or carrying on of a business.
  • Salary sacrifice superannuation contributions were included in assessable income from 1 July 2009.

GOVERNMENT CONTRIBUTIONS FOR LOW INCOME EARNERS

From 1 July 2012, concessional contributions made by or on behalf of individuals with adjusted taxable incomes of up to $37,000 was matched by the Government up to an annual maximum amount payable of $500.  The Government abolished the Low Income Super Contribution retrospectively from 1 July 2013.

CONTRIBUTIONS FOR SPOUSE  – TAX OFFSET

A taxpayer making a personal non-concessional/non-deductible contribution for his/her non-working or low income spouse is eligible for a tax offset of up to $540 where a contribution of up to $3,000 is made for a spouse whose assessable income, reportable fringe benefit and reportable superannuation contribution amounts do not exceed $10,800.  The offset is phased out at $13,800.

Condition:

No work test is applied if the spouse is under age 65, but between 65 and 70 years the spouse must satisfy the work test.  No offset over 70 years of age.

FUND ACCEPTANCE OF CONTRIBUTIONS – AGE AND WORK TEST

A regulated superannuation fund may accept contributions as follows:

  • If the member is under age 65
  • all contributions made.
  • If the member is 65 or more but under 70 years
  • mandated employer contributions
  • employer or member contributions provided the work test is satisfied.
  • If the member is 70 or more but under 75 years
  • mandated employer contributions
  • employer or member contributions up to the 28th of the month in which the member turns 75 and the member satisfies the work test.
  • If the member is 75 years or more
  • mandated employer contributions.

A person satisfies the work test if gainfully employed at least 40 hours in a period of not more than 30 consecutive days in that financial year.

SUPERANNUATION GUARANTEE CONTRIBUTION RATE

From 1 July 2013, the contribution rate increased from 9% to 9.25% and from 1 July 2014 increases to 9.5%. Planned further annual increases up to 12.0% are to be deferred for the time being.

REPORTABLE EMPLOYER SUPER CONTRIBUTIONS (RESC)

From 1 July 2009, payments of salary sacrifice superannuation and other additional* superannuation over and above the compulsory superannuation guarantee charge of 9.25%, paid by employers for employees, were to be recorded on employees’ year end PAYG summaries.

*where employee influences, or has the capacity to influence, the rate or amount of employer contributions.