The end of financial year is fast approaching therefore it is now time to not only look at what has been achieved throughout the year, but also see whether any fine-tuning can (or should) be made before 30 June.
Maximising tax deductible expenses
If cash flow permits, you may consider prepaying deductible interest or bringing forward deductible expenses. By doing this, you may find that you are able to reduce your taxable income.
Depending on your personal circumstances, areas where you may want to consider applying this can include, for example:
- Income Protection insurance premiums.
- Donations to charities which are classified as ‘deductible gift recipient’ organisations.
- Interest payments on investment loans for things such as property or shares.
- Cost of repairs and maintenance to investment properties that are being rented out or available/advertised for rent.
- Work-related expenses, such as car expenses, travel expenses, clothing, self-education expenses, home office expenses, telephone, computer, internet expenses, tools and equipment expenses.
- Compulsory superannuation liabilities can be paid before the end of financial year. The cut-off for making 4th quarter contributions deductible in the 2019 financial year through the ATO Superannuation Clearing House is 24 June. You should check with your specific Superannuation Clearing House or software before paying any Superannuation liabilities early to ensure deductibility.
- Personal superannuation contributions are discussed in more detail below:-
- Consider writing off any bad debt. If have any debts that are unrecoverable and have previously been declared as income, record these in your accounting software as bad debts to obtain a deduction.
- If you pay staff bonuses and you want to bring expenses into the 2019 year, ensure they are quantified and documented in a properly authorised resolution – for example, board minutes – prior to year-end to enable a deduction to be incurred for employee bonuses where such amounts are not paid or credited until the subsequent year.
Immediate write off for assets for Small Business Entities
The small business instant asset write-off thresholds changed during the 2019 financial year. The threshold amounts are listed in the table below. If you buy an asset before the end of financial year and it costs less than $30,000 (that is, $29,999 or less), you can immediately deduct the business portion in your tax return.
|Date range||Threshold for each asset|
|7:30pm (AEDT) 02/04/2019 to 30/06/2020||$30,000|
|29/01/2019 to before 7:30pm (AEDT) 02/04/2019||$25,000|
|7:30pm (AEST) 12/05/2015 to 28/01/2019||$20,000|
You are eligible to use the simplified depreciation rules and claim the immediate deduction for the business portion of each asset (new or second hand) costing less than $30,000 if:
- you carry on a business and have a turnover less than $50 million, and
- the asset was first used or installed ready for use in the income year you are claiming it in.
Assets that cost $30,000 or more cannot be immediately deducted. They will continue to be deducted over time using the general small business pool. You write-off the balance of this pool if the balance (before applying any other depreciation deduction) is less than $30,000 at the end of an income year.
For those businesses that hold trading stock (retail businesses) you will need to undertake a stocktake on 30 June 2019 (or as close to that date as possible). Additionally, as part of this process you should review your stock for any obsolete items and remove them from your stocktake.
Superannuation remains a tax effective investment structure. As such, there are a few end of financial year planning tips worth noting.
- CONCESSIONAL CONTRIBUTIONS: Consider the ability to make further concessional contributions. While salary sacrifice is one way to make concessional contributions, the removal of the ‘10% test’ means that more employees will be eligible to make personal deductible contributions, which may be something worth considering before the end of the financial year. These contributions will help not only reduce your personal income tax, but also accumulate wealth for retirement in the concessionally taxed superannuation environment. The concessional contributions threshold is $25,000 per person, per annum. Careful assessment needs to be made to quantify all contributions you, your employer/s and others make on your behalf and the date that they were (or are expected to be) received by your superannuation fund. Doing this will ensure avoidance of a potential excess concessional contribution tax liability.
- NON CONCESSIONAL CONTRIBUTIONS: Consider the ability to make further non-concessional contributions to your superannuation fund before the end of the financial year. Whilst these contributions will not reduce your taxable income, there could be other reasons why such a strategy is advantageous. In addition, if your spouse will have assessable income below $40,000, consider making non-concessional contributions to their superannuation fund. If your spouse has earnings below $37,000 you can claim the maximum tax offset of $540 when you contribute $3,000 to his/her super. These higher earnings thresholds started on 1 July 2017. Additionally it is now important to understand the implications of your total superannuation balance (TSB). Your TSB determines your eligibility to several concessions/measures, including the making of non-concessional contributions, ability to utilise the bring-forward rule for non-concessional contributions, and eligibility for the Government Co-Contribution and the Spouse Contributions Tax Offset.
End of year distributions from family trusts
A trust resolution determines which beneficiaries will receive distributions and what portion of trust income they will receive for that financial year. Trust distribution resolutions must be made prior to 30 June. If they are not made by this date, the income of the trust will be subject to the highest marginal rate of tax (which could be significantly higher than the rate which would otherwise apply). In addition, the trust deed should be reviewed to consider how trust income is to be determined and to which beneficiaries income can be distributed to for the most tax effective outcome. We will be sending each family trust their trust distribution resolutions in mid-June 2019 for consideration and review.
Need tax advice? If you would like to discuss any of these strategies, please contact your Stratogen Accountant on 07 5474 0711.