What can you do to reduce your tax and the tax paid by your business?
The answer is quite a bit, but it takes planning pre-30 June and timing is everything. Here are our four top tips:
1. Accelerate deductions
For businesses, if your cash flow is good, make the purchases you need before the end of the financial year to claim the deduction, particularly those with turnover under $10 million. The $20,000 immediate deduction reduces back to $1,000 on 30 June (see our blog).
For individuals, it’s a good time for charitable giving.
2. Delay income – One off opportunity for high-income earners
Taxpayers with assessable income above $180,000 face an additional 2% tax on every dollar above this level. The 2% ‘debt tax’ is scheduled to end on 30 June. The difference in timing between the reduction in the FBT rate that occurred on 1 April 2017 and the removal of the 2% tax on 1 July offers a one-off opportunity to reduce your taxable income through salary packaging and other planning initiatives.
If you are likely to have a one-off spike in income, for example from the sale of a business or other significant assets, it’s worth seeing if you can delay the sale until 1 July 2017 to avoid paying an additional 2% tax. Just be aware of how the arrangement is structured. In many cases the sale is treated as having taken place for tax purposes when the parties enter into the contract, even if settlement occurs at a later point in time.
3. Money or debts owed to private companies
It’s common for business owners to take cash out of their business or for the business to fund some personal expenses through the year – these appear in the shareholder loan account. If this has occurred, it is important that these debts are either repaid by 30 June (you can declare dividends to pay any outstanding shareholder loan accounts) or a formal loan agreement (with specific conditions) is put in place. Without taking action, the ATO will treat any outstanding amount as a deemed dividend taxable in the hands of the shareholder at their marginal tax rate.
4. Housekeeping for business
- For companies, directors’ fees and employee bonuses may be deductible for the 2016-17 financial year if the directors pass a properly authorised resolution to make the payment by year-end (payment should be made as soon as practicable). Just be aware of the 2% debt tax for high-income earners (see Delay income – One off opportunity for high-income earners)
- For Trusts, it is essential that decisions to distribute pre 30 June income are documented in writing.
- Write off bad debts
- Review your asset register and scrap any obsolete plant
- Bring forward repairs, consumables, trade gifts or donations
- Pay June quarter employee super contributions now if cash flow allows
- Realise any capital losses and reduce gains
- Raise inter-entity management fees by June 30