2017 Year End Tax Planning
Written by Weston, Woodley & Robertson on 26 June 2017
With the end of financial year drawing to a close, we understand you will be busy with matters to be attended to prior to 30 June and consideration should be made of year end tax planning. We set out in our article some useful year end tax planning tips that should be considered.
Defer Income & Accelerate Deductions
- Legitimately defer the receipt of income and bring forward tax deductible expenditure by looking at the timing of sales and expenditure.
- Possible deferral of income by considering timing of contracts or when income is actually derived. Defer capital gains until the next financial year or crystallise capital losses prior to 30 June.
- Bring forward tax deductible expenditure such as certain repairs & maintenance, prepayments of less than $1,000, committing to staff bonuses or director's fees.
- Review fixed asset register for assets that should be scrapped before year end and check correct depreciation rate is being used for additions.
- Trading stock can be valued at the lower of cost, market value or replacement value at 30 June.
- Consider any old, obsolete or damaged stock that should be scrapped prior to 30 June or written down to market value.
- Conduct a stock take on 30 June 2017.
Small Business Simplified Depreciation Rules
- An immediate deduction can be claimed by small businesses for depreciating assets costing up to $20,000 purchased and installed ready for use. Legislation has now passed to extend the instant asset write off until 30 June 2018.
- Depreciating assets costing more than $20,000 will be allocated to the general business pool which is depreciated at 15% in the first year and 30% in subsequent years.
- From 1 July 2016 the small business entity turnover threshold increased from $2m to $10m (the $2m threshold is retained for access to the small business capital gains tax concessions)
- Ensure your accounting software package allows you to print reports after year-end or print at 30 June.
- Maintain records for capital gains tax and ensure record substantiation expenses (receipts) are kept.
Capital Gains Tax
- Hold investments / assets for at least 12 months to access the 50% capital gains tax discount concessions for individuals and 331/3% concession for superannuation funds.
- Beware of 'wash sale' arrangements when disposing and reacquiring capital gains tax assets (over short periods of time). The ATO has issued a ruling on the application of Part IVA of the Income Tax Assessment Act 1936 (anti avoidance legislation) to 'wash sale' arrangements. These may be considered a scheme to reduce income tax and may be subject to penalties.
- To be entitled to franking credits, you must own shares for at least 45 days (90 days for preference shares) (applies to investors with $5,000 or more in franking credits).
- Review your trade debtors ledger for any bad debts and write off before 30 June. You must have declared it as income in a prior year tax return to claim a bad debt deduction. Other tests may apply.
- Bring forward deductions by prepaying certain business or investment related expenses by 30 June. If you prepay interest, ensure that the financial institution also charges the interest to your loan account.
- The Corporations Act requires companies to pass several requirements to declare dividends to shareholders. Dividends are not restricted to being paid out of profits (subject to the company's constitution).
Private Company Loans to Shareholders or their Associates and Certain Trust Loans – Division 7A
- If private companies have made loans to shareholders, the loans need to be put under a written loan agreement or repaid prior to the actual lodgement or due date of the company's tax return.
- Ensure minimum repayments have been made by 30 June for existing Div 7A loan agreements.
Unpaid Present Entitlements
- Unpaid present entitlements (UPEs) occur when a trust makes a beneficiary entitled to trust income, but has not physically paid it to the beneficiary and it is showing as a liability owing to the beneficiary on the trust's balance sheet.
- The ATO requires a UPE to a corporate beneficiary be repaid by 30 June of the following year or covered by a Division 7A loan agreement by the lodgement date of the corporate beneficiary's income tax return for the year that the UPE relates to. Please contact us if this affects you.
Discretionary Trust Distribution & Streaming
- Trustees need to prepare minutes resolving the distribution of income to beneficiaries for the year ending 30 June 2017 by the earlier of 30 June 2017 or the date specified in the trust deed. Trustees should take the below points into consideration when making the resolution:
- Children under 18 years old can only receive $416 tax free (if they have no other income).
- The tax legislation enables trustees to stream net franked dividends and capital gains to specific beneficiaries (subject to the trust deed). The other income of the trust will be distributed to the beneficiaries on a proportionate basis.
- Advice should be sought when making trust distributions for the year ending 30 June 2017. Please contact our team for assistance.
Franking Credits and Trusts
- Franking credits can only be passed onto beneficiaries where trust income includes at least $1 of income.
- Where a trust derives franked dividends and costs are incurred in deriving these franked dividends, these costs must be offset against that income if you are intending to stream this income to specific beneficiaries. If the net franked income is negative, the franking credits cannot be streamed but will still be distributed to those beneficiaries who are entitled to the other income of the trust.
Motor Vehicle Claims
- If the log book method is used to claim motor vehicle deductions, ensure that you retain a current log book (a log book can be used for 5 years for the same vehicle). A declaration can be made if a new car is purchased so that the log book for the original car is valid for the replacement car. Conditions apply.
- Record closing odometer readings at 30 June 2017.
- Ensure all necessary documentation is maintained to support your claims.
Farm Management Deposits (FMD)
- The FMD scheme allows primary producers with non-primary production income of less than $100,000 to claim a deduction for FMD's made before 30 June.
- When the FMD is withdrawn the amount is included in assessable income in the repayment year.
- Primary producers affected by natural disasters can access FMD's within 12 months of making the deposit and still retain tax concessional treatment (note eligibility criteria applies).
- Employers must make the superannuation contributions by the 28th day of the month after the end of the quarter.
- In order to obtain an income tax deduction for superannuation contributions paid, the superannuation contribution must be received by the nominated superannuation fund on or prior to 30 June 2017.
- The table below summaries concessional caps for the current and future financial years:
Concessional cap – for up to 48
Concessional cap – aged 49 to 58
Concessional cap – aged 59 +
- The limit for non-concessional (undeducted) contributions is $180,000 for the 2016/17 tax year. You may be able to bring forward two years of non-concessional contributions and contribute up to the cap $540,000 for the 2016/17 tax year (please contact our office for more information).
- Individuals aged between 65 and 74 are required to pass the work test in order to make contributions.
- To claim a deduction for personal concessional contributions, your employment income (including reportable fringe benefits and reportable superannuation contributions) must be less than 10% of your total income.
- Income amounts that are derived by a superannuation fund from assets used to pay a pension are exempt from income tax. Minimum pension amounts must be paid from the fund to be eligible.
- Consider the tax offset entitlement for contributions made in respect of a spouse.
- Ensure that all minimum and maximum (if applicable) pension payments are made prior to 30 June 2017. Note that the standard 24-hour settlement period means your fund will be required to be notified by 28 June 2017.
Tax Savings on Superannuation Contributions
- Salary sacrificed superannuation contributions are taxed in the super fund at a maximum rate of 15%-30%, rather than at marginal rates of tax (up to the concessional contributions cap).
- If you are planning to make a donation to a charitable organisation, you should consider making it prior to 30 June to be able to claim a tax deduction in your 2016-2017 tax return. Only donations made to deductible gift recipients can be claimed as a deduction. Please ensure that you maintain receipts to support your claims.
Please contact our team if you wish to discuss any matters you wish to address prior to 30 June 2017.
The information presented is for general information only and does not constitute the provision of advice. The information provided herein should not be used as a substitute for consulting with our office on your individual circumstances. No responsibility is accepted for any person or entity acting upon the contents of this article.