Other Tax Effective Strategies
In May the Government announced a reduction in the company tax rate (for companies with turnover of less that $2 million) from 30% to 28.5% from 1 July 2015. In addition, the tax on un-incorporated businesses will be reduced by 5% (to a maximum amount of $1,000). As such, it may be advantageous to either defer deriving income until after July 1, 2015 or bring expenses forward to the current year.
1. Delay Deriving Assessable Income
Where appropriate, and if it will not adversely affect your cash flow, consideration should be given to deferring the recognition of income until after 30 June 2015. Please note, not banking amounts received before June 30 until after June 30 is not acceptable. The income is considered to have been earned when the payment has been received or the goods or services are provided (depending on whether you are on a cash or accruals basis)
2. Bring Forward Deductible Expenses or Losses
- Prepayment of Expenses - In some circumstances, small businesses (with turnover of less than $2 million) should consider prepaying expenses prior to 30 June 2015. A tax deduction can be brought forward into this financial year for expenses like insurance premiums, subscriptions and memberships, travel, advertising and interest. A deduction for prepaid expenses will generally be allowed where the payment is made before 30 June 2015 for services to be rendered within a 12 month period.
There are special rules that relate to individuals and investors (who are not carrying on business) in relation to prepaying interest on loans to fund shares or rental property investments. If you are considering prepaying any expenses, please contact our office to discuss the strategy before making the prepayment.
- Superannuation Guarantee Contributions - The deadline for employers to pay their superannuation guarantee contributions for the 2014/15 financial year is 28 July 2015. However, if you want a tax deduction in the 2014/15 year the superannuation fund must receive the funds by 30 June 2015. The Tax Office deems a contribution made by electronic transfer is not paid until the amount is actually credited to a super fund’s bank account. As such, don’t leave the payment to the last minute.
Failure to make the required Superannuation Guarantee Contributions (SGC) by the deadline of 28 July 2015 will mean you incur a non-deductible levy equal to the unpaid contributions together with a penalty. The SGC rate for 2014/15 and 2015/16 years is 9.5% of salaries. Note that there is no upper age limit for making super guarantee contributions for an employee. Removal of the limit is to encourage mature workers to stay in the workforce. This means you may need to make super guarantee payments for eligible employees aged 70 years or over.
Businesses should also consider:
- Stock Valuation Options - Review your Stock on Hand before June 30 to ensure that it is valued at the Lower of Cost or Net Realisable Value. Any stock that is carried at a value higher than you could realise on sale (after all costs associated with the sale) should be written down to that Net Realisable Value in your stock records.
- Write-Off Bad Debts – you should write off bad debts from your debtors system before June 30. A Bad Debt is an amount that is owed to you that you consider is uncollectable or it is not economically feasible to pursue collection. Unless these debts are physically recorded as a Bad Debt in your system before 30th June 2015, a deduction will not be allowable in the current financial year.
- Repairs and Maintenance Costs – Where possible, consider bringing them forward to before June 30
- Obsolete Plant and Equipment should be scrapped or decommissioned prior to June 30, 2015 to enable the book value to be claimed as a tax deduction.
- Capital Gains or Losses - If you have assets which you intend to sell (and make a capital gain) and you have unrealised Capital Losses then consideration should be given to disposing of the assets before 30 June 2015. This will let you offset the losses against the Taxable Capital Gain for the year.
- Bring forward Asset Purchases to before June 30 to take advantage of the new immediate write off for small business assets (costing less than $20,000) and to allow the immediate deduction of the balance of the asset pool if the balance is less than $20,000 over this period. More specific details of this concession are contained elsewhere in this newsletter.
Other 2015 Year End Tax Planning Opportunities
Disclaimer: This newsletter contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.