The 2019 end of financial year (EOFY) is fast approaching and you should be considering the available options that may just boost your business or your personal financial position. So, as thoughts turn to getting your house in order before the EOFY, what tips and traps should you be aware of?
Prepaying expenses before year end can reduce your current year tax liability. If payments are due early next financial year, a pre-payment may entitle you to the tax benefit much earlier.
A small business can claim an immediate deduction for certain prepaid business expenses where the payment covers a period of 12 months or less that ends in the next income year. The most common expenses that you should consider prepaying by 30 June include lease payments, interest, rent, business travel, insurances, business subscriptions, etc.
Also, Individual taxpayers such as employees and investors can claim a deduction for a prepayment of up to 12 months of expenses. Typically, this includes subscriptions, memberships, interest paid on investment loans (including negative gearing property loans) and investment property repairs & maintenance. Remember that travel to inspect an investment property is no longer on the deduction table.
Write-off for assets up to $30,000
As announced in the 2019 Federal Budget, a small business is able to claim an immediate tax deduction for ‘individual’ assets (including motor vehicles) costing less than $30,000 (GST exclusive), including individual assets that form part of a set. This provides a great opportunity to get an upfront deduction for assets that would otherwise be depreciated over a number of years.
Defer income & capital gains tax (CGT)
If you’re in a position to defer taxable income (by invoicing later or delaying completion of a job for instance) until the start of the new tax year, this revenue will be taxed next year.
Businesses that utilise a cash basis are assessed on income as it is received. A simple end of year tax planning strategy is to delay “receipt” of the income until after 30 June 2019. Businesses that utilise a non-cash basis are generally assessed on income as it is derived or invoiced.
Realising a capital gain after 30 June 2019 will defer tax on the gain by 12 months and can also be an effective strategy to access the 50% general discount which requires the asset to be held for at least 12 months. The date of the contract is the realisation date for CGT purposes.
Make Super contributions by 30 June 2019
The maximum concessional superannuation contribution limits for the 2019 financial year is $25,000 for all individuals regardless of age.
This means that your business can claim a tax deduction for all concessional contributions made for employees. In order to claim a deduction in the 2019 financial year, the contributions must to be received by the superannuation fund by 30 June 2019. In order to ensure that you can claim a deduction for the superannuation contributions, it may be prudent to make these payments via Electronic Funds Transfer (EFT) and in the week ending 21 June 2019.
If you are a sole trader or an employee and making a personal superannuation contribution, you may be eligible to claim a personal super contributions tax deduction in the 2019 financial year. This tax deduction could be as high as $25,000 (less any super contributed by your employer). In the 2017 Federal budget, the Australian government removed the 10% maximum earnings restriction on the personal superannuation contributions tax deduction. This means, if you are eligible, you will need to do the following to claim a personal super contribution tax deduction in the 2019 financial year:
make personal (after tax) super contributions directly to your super fund before 30 June 2019
give your super fund a notice of intent to claim or vary a deduction for personal super contributions
obtain acknowledgement from your super fund of your notice of intent before you lodge your 2019 tax return
Use the CGT rules to your advantage If you have made and crystallised any capital gain from your investments this financial year (which will be added to your assessable income), think about selling any investments on which you have made a loss before June 30. Doing so means the gains you made on your successful investments can be offset against the losses from the less successful ones, reducing your overall taxable income. Keep in mind that for CGT purposes a capital gain generally occurs on the date you sign a contract, not when you settle on a property purchase or share transaction.
Write-off Bad debts
If your business accounts for income on a non-cash basis and has previously included the amount in assessable income, a deduction for a bad debt can be claimed in the 2019 financial year, so long as the debt is declared bad by 30 June 2019.
Tax exempt minor benefits
Employers can provide minor and infrequent benefits, valued less than $300, to employees. Gift cards of less than $300 are tax exempt to the recipient, deductible and FBT free for the employer. If you want to give a year-end bonus, consider a gift card rather than a cash bonus.
Claim deductions for expenses not paid at year end
All businesses are entitled to an immediate deduction for certain expenses that have been “incurred” but not paid by 30 June 2019. This may include:
Directors Fees. A company can claim a tax deduction for directors fees it is “definitely committed” to at 30 June 2019 and has passed an appropriate resolution to approve the payment. The director is not required to include the fees in their taxation return until the amount is actually received.
Salary and Wages. A tax deduction can be claimed for the number of days that employees have worked up to 30 June 2019, but have not been paid until the new financial year. This also applies to staff bonuses and commissions.
Let’s have a chat
Of course, tread carefully and don’t let mere tax drive your business and/or investment decisions. You should determine whether the strategies will suit your circumstances. If you have any questions, let’s set up a time to discuss and agree on your pre-30 June action plan. Email me at firstname.lastname@example.org or call on 0411 034 275.
Other EOFY considerations
Motor vehicle log books
To reduce your Fringe Benefits Tax or to maximise your vehicle deductions, it is a good idea to keep a log book if you haven't kept one in the last 5 years. A log book must be maintained for a continuous 12 week period and is valid for 5 years.
Trust distribution resolutions should be put in place by June 30. If you are considering making a distribution to a new beneficiary in 2019 you will need to report the tax file number to the ATO by 28 July.
Australian Taxation Office (ATO) rules require that stock be physically counted at the end of the financial year, unless there is a perpetual stock record system. Stock take records should be retained as part of the business records. Small Businesses can be exempt from conducting a yearly stock take if the value of stock has moved by less than $5,000 during the year.
PAYG payment summaries for employees
PAYG Payment summaries should be provided to your employees by no later than 14 July 2019. The PAYG payment summary statements need to be lodged with the ATO by 14 August 2019. Don’t forget to include reportable employer super payments and reportable fringe benefits.
Single Touch Payroll Single Touch Payroll (STP) changes the way that employers report tax and superannuation information to the ATO. Ultimately you will send your employees' tax and super information to the ATO each time you run your payroll and pay your employees. Small employers (those with 19 or less employees) need to start STP reporting before 30 September 2019. If you're an employer with four (4) or less employees you will have additional options.
The information presented is general in nature and not to be used, relied or acted upon without seeking professional advice to ensure that the information appropriate for your individual circumstances. National Taxation accepts no liability for any errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. www.nationaltaxation.com.au. ABN 63 665 545 130.