With the end of financial year vastly approaching, now is the time for individuals and businesses to consider the following:
Benchmarks have been developed to identify taxpayers who report income or expenses different to similar businesses across industries. It allows the ATO to identify businesses that are not fulfilling their tax obligations.
Bad debts are taxable sales that have been overdue for 12 months or more and have no chance of being recovered. It is important to write off bad debts before year end. The debt must be bad, not doubtful and must have been previously included as assessable income.
Capital expenditure vs repairs
Review all spending during the year to determine if all items are deductible or it they are capital (assets) and need to be depreciated.
The depreciation schedule can add a significant tax deduction. The cost of quantity surveyors reports are also tax deductible. For businesses which maintain depreciation schedules, it is important to determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30th June 2014.
If you are considering making tax deductible donations in the coming months, you may wish to bring forward the donation to before 30 June to obtain a tax deduction in your 2014 income tax return.
A small business entity (turnover <$2 million) taxpayer can claim an immediate deduction for certain prepaid expenses that satisfy the 12-month rule.
Private Company Loans?
It is important to ensure that private company loans that extend beyond the end of the income year are properly documented, to ensure that a tax liability is not triggered under the tax rules in this area known as Division 7A. Adequate annual repayments of a properly documented loan are also required. Non-compliance with the rules can result in the loan balance being deemed a unfranked dividend, which will increase the income of the ‘borrower’, with no franking credits attached.
The ATO is maintaining its strong focus on this area because of the large amount of revenue involved. The ATO looks out for things such as repairs versus improvements, ensuring the property was really a rental property, and that interest on any property loans was correctly claimed.
Shares, capital gains and losses
If you have a capital gain in the 2014 year, any capital loss in the same year will reduce the tax payable on that gain. It may be wise to look at your non-performing shares to see if any shares should be sold before 30 June so that the capital loss can offset against the capital gain.
Similarly if you intend to sell shares and realise a capital gain, consider deferring the sale to July 2014 to ensure any Capital Gains Tax liability is deferred.
Stock on Hand
It’s not sufficient to simply make an estimate of your stock, or to take a guess. Each year you need to include a value in your accounts of stock on hand and work-in-progress at 30 June. Closing stock can be valued at cost, replacement or market value or less if obsolete, but you have to document which method you use.
Employers must ensure they have made sufficient superannuation contributions (9.25%) for all employees on a quarterly basis throughout the financial year to avoid the risk of incurring a penalty under the Superannuation Guarantee Charge (SGC) regime.
Eligible superannuation contributions for the June quarter must be paid by 30 June to be tax deductible and to avoid penalty. Book entries alone are not enough. Even if you miss the 30 June deadline for deductibility, you must make the payment by 28 July to avoid SGC penalties.
Self-employed taxpayers also have equivalent access to the co-contribution, which in some cases will be more beneficial than claiming a deduction for such a contribution.
Trustee distribution minutes are needed before 30 June 2014, or individuals can expect to pay 46.5 per cent on trust profits.
The ATO compliance program again focuses on over-claiming of employee’s work-related expenses. Such expenses typically include employee claims for expenditure incurred on items such as travel, uniforms, subscriptions, union fees and self-education. Please ensure you have documentation for each.
Please contact us if you would like to discuss any of the above opportunities.
Tags: Tax planning