Year End Tax Planning Tips

With the end of the financial year almost here, it’s time to take stock of activities during 2019 that will impact on compliance and tax for the year. Of key importance is the requirement for trustees of discretionary trusts to consider how best to distribute trust income and capital for the year to eligible and appropriate beneficiaries.

You should consider taking the following actions in order to reduce your 2019 income tax bill – most need to be actioned, cashflow permitting, before 30 June 2019:

Businesses

  • Ensure any eligible bad debts are written off correctly through your accounting software or the decision to write them off is documented correctly in a director’s resolution.
  • Consider the purchase of new assets costing up to $30,000 each (small and medium businesses only – aggregated turnover of less than $50m).
  • Ensure a full stock take is carried out, including scrapping obsolete stock.
  • Review your WIP to include only legally recoverable/billable amounts.
  • Pay employee super by 26 June if not already done to get the deduction this year (to be cleared to superfund by 28 June)
  • If intending to claim for eligible R&D expenditure, total expenditure/deductions must exceed $20,000 in general. Registration with Government Department must be within 10 months of the end of the income year and prior to lodgement of a tax return.

Recent changes to legislation:

  • Your business will continue to qualify as a small business for the 2019 and 2020 year (annual turnover below $10m). This will allow you to access small business income tax and GST concessions accelerated depreciation and simplified GST and income tax instalments (small business CGT concessions are unaffected).
  • Eligibility for the reduced corporate tax rate of 27.5% has been changed to apply to base rate entity companies with an aggregated turnover of $50m for the 2018/19 tax year.
  • The corporate tax rate for base rate entities will be progressively reduced to 25% over the next 3 years.
  • From 2 April 2019 the instant asset write-off is available for small and medium businesses (those with an aggregated turnover of less than $50m) that acquire depreciable assets costing less than $30,000. The instant asset write-off has been extended until 30 June 2020.

Individuals / Investors / Trusts

  • Pay any super contributions intended for the 2019 year by 26 June (so they are cleared to the superfund account by Friday 28 June).

You will need to subtract from the threshold any employer superannuation (including super guarantee) that will have been physically paid to your respective funds in the 2019 Financial Year when calculating the remaining concessional cap of $25,000.

  • You are able to claim a full deduction for personal super contributions you make to super and you do not need to do this through salary sacrifice, even if you receive employment income.
  • Make sure your motor vehicle log books or work related travel diary is up to date to substantiate any work related expense deductions. If you claim a tax deduction for work related motor vehicle expenses, you should note your odometer records at 30 June each year so that you can calculate the kilometres travelled. Maintaining a logbook of work related use of your vehicle will usually maximise the tax deduction you can claim. If your current logbook is 5 years old you will need a new one for a continuous 12 week period.
  • Ensure you have provided your accountant with details of the expected 2019 income and gains for your Trust and for any intended beneficiaries so that you can determine the most tax effective distribution of 2019 Trust income and gains.

Recent changes to legislation:

Tax

  • From 9 May 2017 the CGT main residence exemption was removed for foreign and temporary residents. Properties held prior to this date will not be subject to the removal of the exemption for disposals occurring on or before 30 June 2019.

 Superannuation

  • The concessional contributions cap was reduced to $25,000 for everyone from 1 July 2017. From 1 July 2018, individuals with a total superannuation balance of less than $500,000 at the end of a financial year will be allowed to make additional concessional contributions in the next financial year by accessing unused concessional contribution cap amounts carried forward from the previous five years.

Although the measures start from 1 July 2018, in practice, only unused amounts of the concessional cap from the 2018/19 and later years can be carried forward

  • The annual non-concessional contributions cap is $100,000, subject to satisfying the super balance cap of $1.6m.
  • You will be subject to the 15% surcharge on concessional super contributions in 2019 and subsequent years if your adjusted income (i.e. after deductions are added back) is $250,000.This results in an effective 30% rate on your concessional super contribution, which is still likely to be lower than your marginal personal income tax rate (up to 47%, including Medicare levy).
  • From 1 July 2018, a person aged 65 or over can contribute up to $300,000 from the proceeds of the sale of their home as a non-concessional superannuation contribution into superannuation (accumulation account), if they have owned it for at least 10 years.

We welcome your call to discuss tax planning for you or your business.