End of year tax planning
The end of the 2016-17 financial year is coming up fast - and so is your last chance to go over your tax strategies to make sure you’re paying out as little tax as possible.
Here are some quick tips to help you reduce your tax liabilities and potentially save thousands of dollars this tax time.
Remember to get in early - the quicker you act, the more you can do and the better your chances of keeping your money in your own pocket.
Defer the receipt of assessable income
Whether you’re in business, a sole trader that invoices clients, or an employee that earns bonuses and commissions, you should be delaying the receipt of income where possible. This can be done by invoicing your clients or customers after 30 June 2017 or by asking your employer to delay the payment of bonuses or commissions till after 30 June 2017.
Also, if you dispose of a depreciating asset and you receive more money than the written-down depreciated value, this will be considered assessable income. Consider delaying the disposal of the asset to after 30 June 2017.
Offset capital gains with capital losses
If you’ve crystallised a capital gain during the financial year, you can offset it with any capital losses incurred this financial year, or with any unused capital losses you’ve carried over from previous financial years.
Bonus tip: if you’re holding an investment that has reduced in value, consider selling this investment to offset your capital gain.
Important information about capital losses
If you’ve incurred a capital loss in the past, the loss would have been carried forward indefinitely until such time that it’s used to offset capital gains.
Also, if your capital loss is greater than your capital gain, any left-over losses will also be carried forward.
Prepayment of business expenses, interest repayments and other deductible expenses
If you or your business has surplus cash flow or cash in bank, consider pre-paying up to 12 months-worth of business or investment expenses to increase your tax-deductible expenses to offset your assessable income.
Expenses that can be pre-paid include:
- Interest expenses on investment or business property
- Water and council rates
- Strata levies
- Business rent
- Insurance premiums, including income protection for individual taxpayers
- Accounting fees
- Subscriptions and memberships
Note that only businesses with a turnover of less than $2 million (which is being proposed to be increased to $10 million) can claim expenses prepaid up to 12 months in advance.
Also, if you have a small business, consider paying all creditors (all outstanding invoices) before 30 June 2017.
Consider making non-concessional contributions to super
With the Super Reforms taking effect on 1 July 2017, the non-concessional contribution limits will be slashed from $180,000 to $100,000 per year or, if you’re using the three-year bring forward provision, from $540,000 to $300,000.
If you have surplus cash that you would like to invest in the concessionally taxed super environment, it’s definitely worth considering taking advantage of this year’s higher contribution limits which will end on 30 June 2017.
This will allow you to get up to an additional $240,000 into your super, and enjoy a maximum tax rate of 15% on investment earnings instead of your marginal tax rate of up to 47% (including Medicare Levy).
Personal deductible super contributions for the self-employed
If you’re self-employed or earn less than 10% of your income from employment, you may be eligible to claim a tax deduction on your personal super contributions.
If you’re 49 years of age or above, you can make up to $35,000 in personal tax-deductible super contributions. This will result in you paying contributions tax at 15%, as opposed to your marginal tax rate. This can save you thousands of dollars in taxes each year.
If you’re 48 years or under, you can make up to $30,000 in personal tax-deductible super contributions.
Trap: Be careful if you are partially employed or were employed throughout the financial year and your employer made super contributions on your behalf. Note that any employer super contributions will be counted towards your contributions limit as mentioned above.
Any amounts paid into your super in excess of the concessional contribution limit will be subject to an excess super contributions tax. This tax is equal to your marginal tax rate less 15%.
Planning for high balance super funds
If you have an individual member balance of over $1.6 million and are drawing a super pension, you need to transfer any amount in excess of $1.6 million back into the accumulation phase.
This is because from 1 July 2017 the government has placed a pension transfer limit of $1.6 million on how much money can obtain tax-free income and capital gains status.
If you don’t transfer the excess amounts prior to 30 June 2017, they will be taxed at 15% and additional penalties including general interest charges will be levied.
For more information on the Super Reforms, click here to read our Super Reforms e-book today.
Maximising business deductions
Accelerated business write off
Small businesses with an annual aggregated turnover of less than $10 million get an immediate write off for individual assets purchased for less than $20,000 excluding GST.
If your business requires assets, you may want to consider timing the expenditure to maximise your tax deductions with the instant write off prior to 30 June 2017.
Write off bad debts
Review all your outstanding debts before 30 June 2017. Identify any debtors that are unable to pay their bills. And if you’ve done everything in your power to get paid and this has been unsuccessful, consider writing off what they owe you as a bad debt.
Disposal of old assets
Review your asset register for any assets that you won’t be using ever again. Once you’ve identified these assets, consider disposing of them this prior to 30 June 2017 to claim a tax deduction.
Pay employer super guarantee
Bring forward the payment of your super guarantee obligations for the last quarter of the financial year. In order for you to claim a deduction for your employer super contributions, the this must be paid and received by the super fund prior to 30 June 2017.
Planning around change to company tax rates
If your company has a turnover of less than $10 million for the 2016/17 financial year, you will only pay tax at 27.5% of your assessable income (other companies 30%). The 27.5% tax rate will be extended to companies with a turnover of $25 million in the 2017/18 financial year. If you company is close to this threshold, consider income deferral strategies to reduce tax payable.
Planning year-end trust distributions
If you have a family or business discretionary trust, estimate your net or taxable income prior to 30 June 2017. Consider all your potential beneficiaries and with the help of your accountant, work out which beneficiaries a trust distribution will be made to.
If you have exhausted your trust beneficiaries distributions and there is money left over, consider setting up a bucket company to limit the tax rate to 30% as opposed to the highest marginal tax rate of 47%, including the Medicare Levy.
Also remember to make a trust resolution on which beneficiaries will receive distributions and what portion or dollar amount of trust income will they receive for the financial year, prior to 30 June 2017.
If the trust resolution is not made prior to or on 30 June 2017, the income of the trust will be taxed at the highest marginal tax rate.
Interested in learning more about end-of-year tax planning?
If you want to talk to a proactive, experienced accountant who will help you secure the lowest taxes and highest savings this financial year, and develop tax strategies moving forward for even better results in upcoming years, call Tax Effective Accountants at 1300 399 829.
Alternatively, request a callback or schedule a no-obligation tax planning consultation today using the forms below.