Many of you are business owners and investors.
This article has been written to assist you with your year-end tax considerations, but I suggest that these may be only some of the points you need to consider – along with longer-term tax planning and retirement strategies. These all take time and planning.
It may be that your current tax structures – such as companies, partnerships, trusts – which were once appropriate are no longer the best arrangement for you. Speak to your accountant.
DO NOT use last minute tax strategies unless they have been properly analysed and you are sure they are right for you. Many a taxpayer has ended up in tax-effective investments such as “Happy Plantations” and Horse Breeding, etc. Start tax planning for the future now.
Things you can do to minimise your tax:
- Claim all deductions – home office, etc.
- Ensure you are making the best choice in expensing deductible motor vehicles, eg FBT is not always the best option – explore mileage claim, 1/3 of expenses or 12% of original value – keep a log book.
- Depreciation – ensure you are claiming everything; write off assets from depreciation that have been disposed of – a small business can claim an immediate deduction for an asset costing less than $1,000. If you have an investment property, it may be worth considering having an expert determine the value of your depreciable assets, including hot water systems, stoves, etc.
- Defer income if possible; this may cause a cash flow problem so factor in the delay in income when making such a decision.
- Accelerate deductions if possible – ie you may be able to pay for some expenses in advance.
- Ensure you have paid maximum superannuation contributions for yourself and your working spouse.
- If you own the business premises in your super fund, ensure that maximum market-value rent is paid; this will ensure the growth of the fund at minimal tax rates and maximise deductible expenses in the business. The lease should make the business pay all the expenses, such as rates and land taxes – again, ensuring the higher-taxed entity is making the tax deduction.
- Consider undeducted contributions into superannuation as a retirement strategy.
- Review salary sacrifice arrangements and otherwise deductible expenditures are being paid by the appropriate person/entity.
- Make and document trust distribution resolutions by 30 June 2014.
- Claim dividends when they are received, not when they are declared (if this is appropriate).
- Stream trust distributions to appropriate beneficiaries (where the trust deed allows) – eg income with franked dividends vs capital gains.
- Comply with Division 7A: The ATO is vigilant in cracking down on businesses that use either the funds or assets of a private company for personal purposes. Any personal expenses (eg school fees) paid by a private company in respect of a shareholder or associate (eg family member) of the company, or any funds withdrawn from the private company by that shareholder as a loan, may be treated as a deemed dividend to the shareholder. Make sure you have a loan agreement in place to avoid a deemed dividend, and declare a dividend to avoid being placed into a deemed dividend situation.
- Pay yourself a wage prior to year end, ensuring that superannuation is also paid. If cash flow doesn’t allow for the total amount, pay the PAYG tax and the superannuation – the remainder can be credited to your loan account until sufficient cash is available.
- Write off bad debts – often they sit in the accounts for years.
- Claim all costs incurred in keeping an investment – eg travel to shareholders’ meetings, interest, bank charges etc.
- Consider realising capital losses if you have already realised capital gains. It may be more advantageous than holding on to an asset and hoping it will increase its value.
- Consider deferring the sale of a capital gain asset until after year end.
The best advice I can give you is to ask for advice from your accountant BEFORE you do something, giving them time to assist you appropriately.
Do not listen to the guy at the club – listen to your accountant.