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The 2011 Financial Year Is Coming To An End

This special Business Plus+ newsletter contains commentary on many of the items that you may encounter as part of your end of financial year deliberations.

Please contact us for a copy of our End of Year Tax Planning paper and checklist.  Both will assist you in identifying items that you might like to discuss with us.

End Of Year Tips

Prepayments - If your turnover is under $2M, consider any prepayments prior to 30th June 2011.

"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%

It might be worthwhile receiving income prior to 30 June 2011.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Taxing Of Trading Income

There are two forms of taxing trading income depending on whether the business is assessed on a:-
 - “Cash” basis - businesses are assessed when payment is received; or
 - “Accruals” basis - businesses are assessed when a legally recoverable debt arises, usually at invoicing.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Small Business Entity Rules

The small business entity rules apply to a sole trader, partnership, company or trust which has a group turnover of less than $2M in the previous year, or likely to be less than $2M in the current year.

Depreciation Rules
If the asset costs less than $1,000 it may be written off in full in the year in which it was acquired.  Most other depreciating assets, with an effective life of less than 25 years, are pooled and depreciated at 30%.

Trading Stock Rules For Small Business Entities
Small business entities do not have to account for changes in trading stock or do a stocktake for tax purposes where the difference between the value of the opening stock and a reasonable estimate of the closing stock is $5,000 or less.

Entrepreneur's Tax Offset
A tax offset of 25% is available to small business entity taxpayers with an aggregated turnover of less than $75,000 for the year ending 30 June 2011.

Prepaid Expenses
A small business entity taxpayer can claim an immediate deduction for certain prepaid business expenses that satisfy the 12-month rule.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Deductions

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.

Prepayments - Not Defined As Small Business
The prepayment rule for other small businesses applies to business taxpayers with a group turnover of $2M or more.

Prepayments “Excluded Expenditure”
There is an exemption for payments of “excluded expenditure”. (See us for further details.)

Interest On Investment Loans
Taxpayers who have borrowed money for a non-business investment (e.g. rental property) can check with their lenders to see if they can prepay interest prior to 30th June 2011.

Staff Bonuses

Ensure a cheque has been written prior to 30th June and PAYG withholding tax deducted.

Staff Holidays
Where practical, encourage staff to take holidays prior to 30th June 2011.

Superannuation
Contributions of up to $25,000 can be made for a person under 50, and up to $50,000 for a person 50 & over.

Self-Employed Persons
Self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees. 

Salary Sacrifice Arrangements
Salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.

Non-Concessional Contributions
Non-concessional contributions can be made up to $150,000 per annum or a total of $450,000 over a 3-year period.

Superannuation Minimum Contributions
Superannuation contributions have to be paid to all eligible employees who are paid at least $450 gross per month.

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,

Interest On Loan Funds
Interest can be claimed on loans taken out for business purposes or to buy income producing properties and/or shares. 

Repairs And Maintenance
Ensure that the work has been completed prior to 30th June.

Directors’ Fees
Ensure cheques are drawn prior to 30th June and that PAYG Withholding Tax is deducted.

Travel Deductions

  • Overseas – prepare a full itinerary & diary.
  • Local – more than 6 nights you are required to maintain a diary

Taxation Advice
Fees payable to an accountant or registered tax agent for taxation advice can be claimed.

Motor Vehicle Expenses
There are 4 methods available to calculate tax deductions for work related motor vehicle expenses:-

  • cents per kilometre method;
  • logbook method;
  • 12% of the original value method; or
  • 1/3 of actual expense method.

Expense Substantiation
Ensure that you can justify all employment related expense amounts incurred.

Depreciation
Review capital expenditure and ensure you claim depreciation at the highest legally allowable amount.

Donations
Any promised tax deductible donations should be made prior to 30th June.

Building Allowance
Construction costs of income producing buildings can be written off at 2½% or 4%, depending on date of construction.

Borrowing Costs
Borrowing costs can be claimed over the shorter of five years or the term of the loan.

Entertainment
Entertainment is not deductible unless it is provided as a fringe benefit and Fringe Benefits Tax has been paid.

Research And Development
Special conditions exist for companies that incur expenses on Research and Development.  Contact your professional accountant for information.

Gifts
Ensure that the payment is made to a tax-deductible charity on or before 30th June.

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.

Negative Gearing
The net loss, which may include interest, borrowing costs etc, may be deductible.

Audit Fees
Deductible if there is a contract that creates a presently existing liability before the 30th June.

Salary Packages
Ensure that salary packages for 2011/12 are negotiated and documented prior to 30th June 2011.

Working From Home Expenses
Expenses can be claimed for working from home (as distinct from having a home office).  However, you could be subject to capital gains tax when you subsequently sell the property.

Expenses For Shareholding Investments
Expenses incurred in gaining income from shares are a tax deduction.

Legal Costs
Review any legal costs that have been incurred.  If the legal costs relate to regular business operations, e.g. debt collections, separate them from costs relating to capital items which are not claimable for income tax purposes.

Luxury Car Tax
The Luxury Car Tax is 33% and applies to the GST inclusive value in excess of $57,466 (2010/11). The Luxury Car Tax for fuel efficient vehicles applies from a cost of $75,375.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Deductions On Accruals Basis

SUBJECT TO TAX RETURN BEING LODGED ON AN "ACCRUALS" BASIS

Fringe Benefits Tax Payment (Accruals Basis)
If a Fringe Benefit Tax instalment is due on 21st July 2011, it can be accrued and claimed as a tax deduction in the year ending 30th June 2011.

Commissions Owing (Accruals Basis)
Where employees or another business are owed commission by your business for services rendered up to 30th June 2011, the accrued amount can be claimed as a tax deduction at 30th June 2011.

Bad Debts (On An Accruals Basis)
Actually write-off any bad debts prior to 30th June and prepare minutes authorising the write-off.

Interest (Accruals Basis)
Any accrued interest outstanding on a business loan that has not been paid at 30th June 2011 can be claimed as a tax deduction at 30th June 2011.

Salaries And Wages (Accruals Basis)
The accrued expense for the days that employees have worked, but not paid at 30th June 2011, can be claimed as a tax deduction at 30th June 2011.

Commercial Bills (Accruals Basis)
Where the term of a Commercial Bill expires beyond the 30th June 2011, the discount applicable to the period up to 30th June 2011 can be claimed as a tax deduction.

Rent (Accruals Basis)
If rent is in arrears, the part that is owed up to 30th June 2011 can be claimed as a tax deduction.

Investment Deductions

It is recommended that you have a meeting with your professional accountant prior to committing to a Managed Investment Scheme (MIS) investment. 

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Stock

Stock On Hand
Review stocktake list as at 31st May, 2011.  Determine whether to conduct "sales" prior to 30th June 2011.  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.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

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.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

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.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Superannuation Funds

  • Contributions to superannuation funds are taxed at 15% of the contribution.
  • Earnings made in a superannuation fund are taxed at 15% and paid by the superannuation fund.
  • For people 60 years or over and who have started drawing a pension, payments from the superannuation fund are, in the majority of cases, tax-free. 
  • Generally, moneys invested in superannuation funds cannot be accessed until 55 years of age.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

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.

Interest Earned
Declare interest earned on bank accounts, loans, etc.

Employee Share Schemes
If you are a member of an employee share scheme you should ensure that any income that has been earned is included in your income tax return.

Qualifying Employee Share Schemes
Scheme Formed before 1st July 2009
- Any discount on the shares is subject to taxation. If the scheme qualifies under the Employee Share Scheme Rules, the employee can choose when they include the discount in their assessable income. If the employee elects to include the discount benefit in their tax return for the year of receipt of the benefit they are eligible for an exemption of the first $1,000 of the discount.

Scheme Formed After 1st July 2009
The discounts on Employee Share Schemes are taxed either upfront or on a deferred basis. For 'qualifying' schemes, if the employee is earning less than $180,000 taxable income plus reportable fringe benefits, reportable superannuation contributions and total investment losses, then the employee can claim a $1,000 exemption from the inclusion of the assessable discount.

Government Grants
If your business has received a grant from a government department, it is most likely paid to you on the basis that it is taxable income and therefore you need to disclose in your tax return the receipt of the government grant.  If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all of the government grant funds have been expended on tax-deductible items prior to 30th June (if possible). 

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Companies

Franking Account
A company’s dividend payments and franking profile should be reviewed before year-end to ensure sufficient franking credits are available. 

Company Loans
The law requires that the loan to the shareholder is properly documented.  If there is no security offered, the term of the loan should not exceed 7 years.  If security is offered, the loan should not exceed 25 years.  Interest rate to be charged during 2010/11 is a minimum of 7.4%.  If loans have been made to shareholders that have not been supported by properly documented loan agreements, then the Taxation Office can treat these payments as being dividends that are assessable to the shareholder.

Personal Service Income
Taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole-trader or through a company, trust or partnership; these are known as the Personal Services Income (PSI) measures.  A taxpayer who meets certain specified tests will be treated as carrying on a personal services business and will be able to claim a wider range of deductions.  If you are operating a personal service business you need to be aware of the Australian Taxation Office’s strict approach to income retention and income splitting.

Non-Commercial Losses
For a business to be commercial under the “non-commercial losses tests”, the business needs to meet certain prescribed tests.  If the tests are not met, any losses arising from the activities have to be carried forward and offset in a later year against future income from the same type of source.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Capital Gains Tax Items

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.

50% Capital Gains Tax Discount
You should check your eligibility for the general 50% capital gains tax discount for individuals.  If you are a small business operator and are able to meet the $6M net value asset or have turnover of less than $2M, you might be entitled to further capital gains tax concessions.“

“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.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Personal Planning

Zone Allowance
Record the number of days that you spend in Zone A or B, especially if you live in Zone B but spend some time in Zone A during the year.

Personal Insurance Payments
Premiums for Sickness and Accident Cover are tax deductible.  Payments can be made by the employer without incurring Fringe Benefits Tax. 

Home-Office Expenses
If you use an area in your home, you can claim the expenses of a home-office. 

Utilising Tax Free Threshold
Every adult taxpayer has a tax-free threshold of $6,000.  If a taxpayer is verging on losses, consideration should be given to the decision being made in relation to the  valuation of stock, bringing forward or delay of sales etc., to utilise the tax-free threshold otherwise it will be lost forever.

Tax Offsets
There are a number of tax offsets available within the income tax legislation.

Work Related Expenses
Items such as travel, uniforms, laundry of clothes, subscriptions, union fees and self-education.
Dividends, Interest, Managed Funds Distributions etc.
The ATO matches information provided in tax returns with information received from external sources, such as public companies, banks, managed funds etc. 

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.

Salary Packaging
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.

Superannuation Contributions
Special concessions are available to low income or non-working spouses relative to superannuation contributions,

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

End Of Financial Year Review

If you have any queries on any other items that have not been discussed in this newsletter, or you have general matters that you would like to discuss with us relative to your taxation affairs for the year ending 30th June 2011, please contact us so that a convenient time for a meeting can be arranged.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

Business Review 2010/11

Now is an ideal time to talk to us about a "Mentoring for Growth" strategy for your business.  Particularly relating to:-

  • Cashflow Management
  • Debtors
  • Bank's/Lender's Review
  • Business Costs
  • Customer Review
  • Exports
  • Gross Profits Analysis
  • Insurance
  • Leadership
  • Market Overview
  • Marketing
  • Sales Targets & Calculations Of “What If’s'”
  • Risk Management
  • Sales Analysis
  • Stock • Succession Planning
  • Suppliers
  • Team Members
  • Theft & Pilferage
  • Wages To Turnover Analysis
  • Wastage
  • Work In Progress

If you would like us to undertake a business review on your business, please contact us as soon as possible.

For more information contact us for a copy of Paper 012-065 End of Year Tax Planning - Checklist 2011 and Paper 028-001 Federal Budget 2011 Issues for SMEs

 

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