The 2011 Financial Year Is Coming To An End
This special newsletter contains commentary on many of the items that you may encounter as part of your end of financial year deliberations. Tax Planning is the arrangement of taxpayer's affairs so as to comply with the tax law at the lowest possible cost, and involves objectively assessing and actively managing tax risk.
Please remember the techniques listed below are given as general advice and may not apply to your situation or may not be beneficial to you. For the best tax planning outcome, contact our office and organise for a meeting or questionnaire to be emailed to you so advice and action can be specifically tailored to your situation.
End Of Year Tips
"Cash Is King"! - Update your financial records to 30th June 2011, so you can discuss with us, the possible variation of your PAYG Instalment due by 28th July 2011.
Personal Income Tax Rates for 2011/12 are the same as 2010/11 however in 2011/12 there is a flood levy:
Income between $50,000 and $100,000 0.5%
Income over $100,000 1.0%
Common tax planning techniques are deferring the derivation of assessable income and applying techniques to bring forward deductions, however with the flood levy in 2011-12, it might be worthwhile receiving some income prior to 30 June 2011.
Items to consider and do before 30 June 2011
- Prepayments – Small Business Entity: Small business entity taxpayers are entitled to a deduction where the relevant services will be wholly provided within 12 months of the date of expenditure, such as office supplies, stationery, rent, advertising etc.
- Staff Bonuses: Ensure a cheque has been written prior to 30th June and PAYG withholding tax deducted.
- Repairs And Maintenance: Ensure that the work has been completed prior to 30th June.
- Donations: Any promised tax deductible donations should be made prior to 30th June.
- Research And Development: Special conditions exist for companies that incur expenses on Research and Development. Contact us for information.
- Property Owners' Deductions: Property owners can claim a number of expenses against rental income, including, but not limited to, agents’ fees, repairs & maintenance, travel & accommodation for inspection of the investment property, interest on loans borrowed for the property acquisition, etc.
Consider paying these before 30 June 2011 in order to claim the deductions.
- Salary Packages: Ensure that salary packages for 2011/12 are negotiated and documented prior to 30th June 2011. Salary packaging can also assist in the minimisation of income tax, particularly in the areas of voluntary superannuation contributions and acquisition of assets that are not subject to fringe benefit tax such as supply of a motor vehicle. Your employer is required to report the value of fringe benefits on your payment summary. That may have an affect on other government payments you receive.
- Bad Debts: Actually write-off any bad debts prior to 30th June and prepare minutes authorising the write-off.
Stock
- Stock On Hand: Conduct stocktake as at 30th June 2011. If you are conducting regular “rolling” stocktakes through the year, it may not be necessary to conduct a stocktake as at 30th June 2011. Stocktaking may not be necessary if you are a small business entity.
- Value Of Stock: Stock can be valued at different individual methods for each item of stock: • Cost; • Sales Value; or • Lower of Market Value or Replacement Cost.
- Obsolete Stock: Identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.
Assets
- Fixed Assets: Determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30 June 2011.
Employment Issues
- Payment Summaries: Payment summaries have to be prepared and forwarded to all employees by 14th July each year.
- PAYG Withholding Tax: Annual report due 14th August to Australian Taxation Office.
- Payroll Tax (if you are liable): You have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconcile this with the remittances that you have forwarded on a monthly basis.
- Work Cover: A Work Cover Declaration is due by 31st August certifying wages paid for year ending 30th June.
Income Issues
- Bad Debts Recovered (on an accruals basis): If a debtor, who had been written off as a bad debt and claimed as a tax deduction for the amount of the bad debt, subsequently pays any part of the amount owing, you have to bring the amount paid to account as assessable income in the year of recovery.
- Deferring Livestock And Produce Sales: Farmers can defer livestock and produce sales until after 30th June. However, if you are a farmer you need to assess whether you will suffer price reductions because of the decision to defer sales.
- Income Splitting: Income splitting can be highly tax effective, especially if investments have been placed in the name of a lower income earner. This can be applicable where a spouse is not working and the income in the spouse's hands would therefore be taxed at a lower rate.
- Matching Capital Losses And Capital Gains: Capital losses are not directly deductible. Capital losses have to be offset against any capital gains generated during that financial year.
- “Wash Sales” : The ATO has issued a ruling that relates to “wash sales”. This is a situation where shares, in companies listed on the Stock Exchange, are sold to crystallise the capital loss and then shortly thereafter the taxpayer, or an associate of the taxpayer, purchases shares in that corporation on the Australian Stock Exchange.
- Consider deferring the disposal of shortly-held assets to access the CGT discount, where available.
- Individual taxpayers can consider contributing some or all of capital gain to their superannuation fund because a deduction may be available for personal superannuation contributions.
- Consider whether a rollover relief is available to defer any capital gains.
- Consider the availability of the small business CGT concessions which can disregard, reduce or defer a capital gain arising from the disposal of an asset which has been used by an entity in the course of carrying on its business.
Personal Planning
- End of Year Tax Schemes: The ATO produces product rulings on various investment products that are marketed particularly around 30th June each year. To avoid confrontation with the ATO, it is best to consider investing in products that have obtained a product ruling. These product rulings are not a guarantee or government endorsement on the likely success or profitability of the investment.
- Employer's superannuation guarantee should be paid before 30 June to claim the deduction.
- Contributions of up to $25,000 can be made for a person under 50, and up to $50,000 for a person 50 & over.
Concessional Contributions
- These are tax-deductible contributions and generally include your employer's 9% (or sometimes higher) super guarantee contributions, salary sacrificed amounts, and other employer contributions
- Contributions over the limit attract a 31.5% penalty tax in addition to the 15% tax rate that applies to all concessional contributions
- By going over the limit you miss out on most of the tax benefits of making those contributions in the first place
- The most common mistake that investors make is not being aware of exactly what type of contributions count towards the cap or forgetting about the caps completely
- A ‘set and forget' mentality – where you set up salary sacrifice arrangements and leave them in place for years – can also be dangerous
- For the 2010 and 2011 financial years, the caps are half what they used to be
Non-Concessional Contributions
- These are not tax-deductible and generally come from your after-tax income
- It's not unheard of for people to exceed both the concessional and non-concessional caps
- It also pays to be aware that any excess concessional contributions are counted towards your non-concessional cap
- This could result in an effective 93% total tax on your contributions
- There is scope to appeal to the ATO if you exceed your contribution caps; although that is a challenging process
- Self-Employed Persons: Self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees.
- Superannuation Co-Contribution: The government will give lower income earners $1 for each $1 they contribute to superannuation from their after-tax salary up to a maximum of $1,000,
Other special concessions are available to low income or non-working spouses relative to superannuation contributions,