Pre June 30 Tax Minimisation Strategies
To minimise your tax liability there are several general strategies to consider:
- Delay deriving assessable income
- Bring forward deductible expenses or losses
- Pre-pay up to 13 months of next year’s expenses
- Shift income to a taxpayer with a lower marginal tax rate
- Negative Gearing on property or shares
- Make payments that receive special tax treatment e.g. certain superannuation contributions.
WARNING : The circumstances under which the above principles can be applied are limited by certain legislative conditions. For example, not all pre-payments are allowable tax deductions and some types of income can’t be shifted to another taxpayer.
Every year, there are some basic tax planning concepts that every taxpayer should consider including:
- Timing of Income - taxpayers should consider whether there is an opportunity to defer income to future years or bring forward deductions to the current year. This strategy needs to be considered in light of changes in tax rates for companies and individuals.
- Lump sum amounts: Where a lump sum is (or has been) received close to year-end, taxpayers should be examining whether any of those amounts can be spread over future periods.
- Cash basis income: Some income is properly taxable on a cash receipts basis rather than on an accruals basis (e.g. rental income or interest income in certain cases). You should examine whether income can be properly deferred in those cases.
- Prepayments: If the taxpayer is a small business entity (SBE), or an individual who derives passive type income (such as rental income and listed shares), you should consider whether a prepayment can be fully deductible (e.g. prepaid interest or insurance costs).
- Bad debts: Where there are doubtful debts recorded in the balance sheet, you should consider whether these items can be written off as bad debt before year-end in order to claim a tax deduction.
- Depreciation claims: A review of the depreciation schedule may give rise to a number of opportunities, including the ability to scrap and write off amounts, self-assessing effective lives, or allocating assets to a low value pool. Furthermore, the small business concession may give rise to outright deductions for $20,000 on single assets.
- Staff bonuses: You may be able to bring forward staff bonus provisions if the policies are approved before year-end and are made unconditional.
- Trading stock valuations: As each item of trading stock can be valued for tax purposes, reviewing whether to use cost, market selling or replacement value of the obsolete stock value can bring forward deductions, or alternatively can increase taxable income if you have sufficient deductions for the year ending 30 June 2016.
- Gifts and donations: A gift of cash or property to an appropriate Deductible Gift Recipient may be deductible if made prior to 30 June 2016, which could be used to offset against taxable income.
- Tax losses: You may be able to offset prior year tax losses against taxable income. However, this can be subject to a number of carry forward loss rules, including the continuity of ownership test, the same business test, and the income injection test.
The impact of the above strategies is to either reduce or eliminate the amount of tax payable or delay the need to the pay the tax for at least another 12 months.
In particular, these tax minimisation strategies may be beneficial if your taxable income for the year ended 30 June 2016 will be significantly higher than the year ended 30 June 2017. This could happen if:
- you have a ‘one-off’ capital gain or other irregular income amount in the 2015/16 year
- you will not be working or earning as much in the year ended 30th June 2017.
A reduced taxable income can also impact on eligibility for Government benefits including pensions that are means tested e.g. family allowance, child day care fee relief etc.
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.