tax planning

Tax Planning

Deferring Income

  • Income received in advance of services to be provided will generally not be assessible until the services are provided.
  • Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June to defer the income.
  • A taxpayer is required to calculate the balancing adjustment amount resulting from the disposal of a depreciating asset. If the disposal of an asset will result in assessable income, a taxpayer may want to consider postponing the disposal to the following income year.
  • Consider whether the criteria for classification as a small business entity (i.e. turnover under $2m) are satisfied to access various tax concessions such as the simpler depreciation and trading stock rules.

Maximising Deductions

Business taxpayers

  • Debtors should be reviewed prior to 30 June to identify and to write off any bad debts.
  • A deduction may be available on the disposal of a depreciating asset if a taxpayer stops using it and expects never to use it again. Therefore, asset registers may need to be reviewed for any assets that fit this category.
  • Review trading stock for obsolete stock for which a deduction is available.

Non-business taxpayers

  • A deduction for a personal superannuation contribution is available where the 10% rule is satisfied.
  • Assets costing $300 or less may qualify for an immediate deduction, subject to certain conditions.
  • Outgoings incurred for managed investment schemes may be deductible.
  • Up to 12 months prepaid interests on any investment loans may be deductable.

Companies

  • Loans, payments and debts forgiven by private companies to their shareholders or associates may give rise to unfranked dividends that are assessable to the shareholders or associates. Shareholders and entities should consider repaying loans and payments on time or have appropriate loan agreements in place.
  • Companies should consider whether they have undertaken eligible research and development (R&D) activities that may be eligible for the R&D tax incentive.
  • Group companies may want to consider consolidating for tax purposes prior to year-end in order to reduce compliance costs and take advantage of tax opportunities available as a result of the consolidated group being treated as a single entity for tax purposes.
  • Companies should carefully consider whether any deductions are available for any carry forward tax losses, including analysing the continuity of ownership and same business tests.

Trusts

  • Taxpayers should review trust deeds to determine how trust income is defined. This may have an impact on the trustee’s tax planning.
  • Trustees who own 100% of the shares in companies should consider whether a family trust election (FTE) is required to ensure any losses or bad debts incurred by the company will be deductible and to ensure that franking credits and dividends will be available to beneficiaries.
  • If a trust has an unpaid present entitlement to a corporate beneficiary, consideration should be given to paying out the entitlement by the earlier of the due date for the lodgment of the trust’s income tax return for the year and the actual lodgment date, in order to avoid possible tax implications.

Capital Gains Tax

  • A taxpayer may consider crystallising any unrealised capital gains and losses in order to improve their overall tax position for an income year.
  • Eligible small business entities can access a range of concessions for a capital gain made on a CGT asset that has been used in a business, provided certain conditions are met.
  • The Government has announced that it will remove the 50% CGT discount for foreign residents on capital gains accrued after 7.30pm (AEST) on 8 May 2012. However the CGT discount will remain available for capital gains that accrued prior to this time where foreign residents choose to obtain a market valuation of assets as at 8 May 2012.

Superannuation

  • The ATO has reminded taxpayers to consider the superannuation contributions caps and the timing of when contributions are made when planning their tax affairs, in order to avoid excess contributions tax.
  • Eligible individuals who breach the concessional contributions cap by up to $10,000 will be given a once-only option for the excess contributions to be refunded without penalty.
  • A member of an accumulation fund (or whose benefits include an accumulation interest in a defined benefit fund) may be able to split with their spouse superannuation contributions.
  • Taxpayers aged 50 years or over should review their transition to retirement pensions and salary-sacrificing arrangements to take into account the reduction in the concessional cap from $50,000 to $25,000 for 2012/2013 and 2013/2014. However, note that the Government proposes to increase the concessional contributions cap to $35,000 for seniors.

Fringe Benefits Tax

  • The living-away-from-home (LAFH) rules have been significantly overhauled. While the rules remain in the FBT regime, there is an increased requirement to ensure LAFH payments are properly tracked, categorised and substantiated.
  • The four rates used in the statutory formula method for determining the taxable value of car fringe benefits are being replaced with a single statutory rate of 20%. Taxpayers should review contracts for changes to a “pre-existing commitment”.
  • The Government has proposed amending the FBT law to remove the concessional FBT treatment for in-house fringe benefits accessed by way of salary-packaging arrangements.

 

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