The Australian Taxation Office describes tax planning as ‘the right to arrange your financial affairs to keep your tax to a minimum’. Obviously these arrangements must be made ‘within the letter and the spirit of the law’.
There is an old notion aiming to put a positive spin on tax liabilities, that the more tax you pay means the more money you are making. This could be the case but it does not invoke a joyful feeling when you are processing your bank transfer to the tax office. However there are many legitimate avenues available to assist in reducing your tax liability. Most of which should be considered well before 30 June rolls around once again. Below we hope to provide an overview of some areas for consideration to ease your tax time pain.
- Defer income: Consider delaying or bringing forward invoicing, excluding unearned income, whether ‘cash basis’ accounting may be available to you, arranging interest such as term deposits to mature after year-end.
- Bad debts: Write off any noncollectable receivables before year-end.
- Prepayments: Consider expenses that could be paid early, bonuses that could be quantified and documented before year-end.
- Obsolete stock: Review inventory for any non-sellable items that should be scrapped, or slow-moving items that could be written down to correct value.
- Instant asset write-off: The higher threshold of $20,000 continues to be available until 30 June 2019 where turnover is less than $10 million. It is currently proposed to lift the threshold to $25,000 from late January 2019 through to 30 June 2020, however this is not yet law at date of writing.
- Obsolete fixed assets: Review plant, equipment, furniture and other fixed assets (per your depreciation schedule) for any items no longer operative to be scrapped.
- Capital gains tax: Consider realising capital losses to offset capital gains made during the year, whether a capital gains tax discount may be available to some entity types where the asset was held more than 12 months, whether eligible for small business capital gains tax concessions.
- Employee superannuation: Consider paying June quarter superannuation guarantee contributions early before year-end.
- Personal superannuation: With the removal of the 10% maximum earnings condition, many more taxpayers may be eligible for a deduction for personal super contributions. Be mindful of superannuation limits.
- Investment properties: An investment property may be negatively geared in the early years of ownership, when ownership expenses exceed rental income, giving rise to a reduction in taxable income.
- Salary packaging: Consider an effective salary sacrifice arrangement, for example additional superannuation or motor vehicle (with business-related usage).
- Individual deductions: Donations to registered charities and payments for income protection insurance premiums may be available to individuals irrespective of income or structure type.
- Medicare levy surcharge: Consider the costs and benefits of holding an appropriate level of private health insurance versus paying the Medicare levy surcharge for high individual income earners.
- Tax estimates: Many taxpayers know when they have had a good year and a larger tax bill is likely. Many clients find it helpful for us to complete a pre-year end review of figures to give them prior warning of just how high that tax bill may be, to highlight any tax planning strategies they have not yet put into place whilst they still have time to do so, and to allow quarterly Pay As You Go (PAYG) instalments to be adjusted if necessary. In the case of PAYG instalments, this review can also be helpful in a lower performing year, to allow your June instalment to be reduced to avoid tightening cash flow further.
- Year-end checklists: We often prepare a checklist of information we need from clients to prepare their annual tax return and financials, to assist in gathering a complete package first time. Why not request your checklist before year-end so you can start putting relevant documents aside as you are completing your June month-end reconciliations and reports.
If you would like to discuss any of these strategies and how they could impact you in further detail, please feel free to contact one of the friendly team at Adrians Accountants.