2014 Tax Planning for Business Owners
The end of financial year is your time to congratulate yourself for navigating your business through choppy waters for 2013/14. A flat year in spending and investments, interrupted by the Federal election with the only positives being the general confidence that comes from steady interest rates, inflation and unemployment.
However, June has its silver lining because now is your opportunity to take on board tax planning strategies that can will reduce your 2013/14 business and personal tax liabilities.
Please take advantage of the tax strategies outlined below and contact Simon Jones & Co (Tel: 9742 3844) to discuss how these ideas can be tailored to your business, investment, superannuation and personal circumstances.
Accelerate your deductions
Bringing forward deductions and utilising them before June, will minimise your tax this year. These may include:
- Prepay interest on a deductible loan
- Write off bad debts
- Maintenance and repairs
- Ensure your super contributions are paid before 30 June
- Pay membership subscriptions in relation to trade or professional bodies
• Meet bonus and commission obligations - Commit to (by passing a resolution to approve the payment) paying any director's fees that may be accrued.
You are generally able to claim a full deduction in the year of payment where the expense covers a period of no more than 12 months. These expenses could include:
- Rent on business premises or equipment.
- Lease payments on office equipment.
- Interest - prepay up to 12 months interest in advance.
- Business trips even if taken after 1 July 2014
- Training courses that run after 1 July 2014
Deferring income until after 30 June
Subject to cash flow considerations, deferring income is a very effective tax planning strategy, especially if you expect lower income for 2014/15 compared to 2013/14. For businesses using a cash-accounting system, income will not be derived until it is received or credited on the taxpayer's behalf. Consequently, you may consider conducting large transactions in July rather than June.
Claiming deductions for expenses not paid at year end
Both SBE (Small Business Entities) and non-SBE taxpayers are entitled to an immediate deduction for certain expenses that have been "incurred" but not paid by 30 June including:
- Salary and Wages - a tax deduction can be claimed for the number of days that employees have worked up to 30 June 2014, but have not been paid until the new financial year.
- Directors Fees - a company can claim a tax deduction for directors fees it is "definitely committed" to as at 30 June 2014 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 following year when the amount is actually received.
- Staff Bonuses and Commissions - a business can claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June 2014 where it is "definitely committed" to the expense.
Increased Capital Allowance Concessions for small business reversed
The House of Representatives has passed legislation to repeal the Minerals Resource Rent Tax (MRRT) and related measures. In March this year the Senate rejected the bill. The Abbott government will need to bide its time until the new Senate arrives in July before reintroducing the bill. Assuming the legislation is passed, small businesses that utilise capital allowance concessions will be affected.
From 1 January 2014, immediate deductions will no longer be available for assets valued between $1,000 and $6,500. New assets must have been installed ready for use prior to 1 January 2014 in order to qualify for the higher thresholds.
From 1 January 2014, the relevant thresholds will be:
- Immediate deduction for assets purchased for less than $1,000
- All assets purchased for more than $1,000 are allocated to the Small Business Pool, and depreciated at a rate of 30% diminishing (15% in the year purchased)
- A Small Business Pool with a value less than $1,000 may be written off in full
- Upfront deduction for motor vehicles no longer available,
Tip: Review your depreciation schedule to be sure that there are no items on the schedule that should be removed, no longer exist or are no longer in use. The written down value of these obsolete capital items can be written off, which will increase the entity's deduction for that year.
Writing off bad debts
Where a taxpayer 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 2013/2014 as long as the debt is declared bad before 30 June 2014. The business will need to show that it has made a genuine attempt to recover the debt by year end to prove that the debt is bad. Ideally this decision should be made in writing (e.g. a board minute).
Tip: remember to also claim back the GST if you are registered for GST.
Victorian Payroll Tax Rates
Payroll Tax Rates - From 1 July 2010
1 July 2010 onwards
Payroll Tax relief welcomed by Victorian business
The State Government announced a cut to the payroll tax rate to 4.85% from 1 July 2014.
2009 - 2014 Victorian Land Tax Rates
2009 - 2014 General Rates
Total taxable value of landholdings
Land tax payable
$250,000 to < $600,000
$275 plus 0.2% of amount > $250,000
$600,000 to < $1,000,000
$975 plus 0.5% of amount > $600,000
$1,000,000 to < $1,800,000
$2,975 plus 0.8% of amount > $1,000,000
$1,800,000 to < $3,000,000
$9,375 plus 1.3% of amount > $1,800,000
$3,000,000 and over
$24,975 plus 2.25% of amount > $3,000,000
2009 - 2014 Land Tax Rates for Trusts
Total taxable value of
Land tax payable
Stock on hand
You should conduct a detailed physical stock take of all stock on 30th June.
Identify obsolete stock - if any of the stock is to be scrapped, physically scrap it prior to 30th June.
Tip: Stock can be value using different methods for each item of stock.
- Sales Value; or
- Lower of Cost, Market Selling Value or
- Replacement Cost. Capital Gains
It is important to note that a Capital Gain is determined at the time a contract is entered into and not settlement date. If you are considering selling shares or property you may wish to delay signing the contract until the new financial year;
Realising a capital gain after 30 June 2014 will defer tax on the gain by 12 months. This can also be an effective strategy to access the 50% general discount which requires the asset to be held for at least 12 months. (not available for companies)
Consider realising capital losses if you have already realised capital gains on other assets for the year ending 30 June 2014.
You should also consider the availability of other small business CGT concessions which have the effect of reducing or deferring a capital gain arising from the disposal of a business asset.
Tip: The date of the contract is the realisation date for capital gains tax purposes and not settlement date. In a recent AAT case, it was held that the date of the contract for the sale of a business was when the parties signed the heads of agreement, and not when the formal contract for sale was executed.
Employee superannuation contributions for the June 2014 quarter should be paid to the superannuation fund by 30 June 2014, rather than the statutory due date of 28 July 2014.
This will enable the entity to obtain a tax deduction for the contribution in this year. Payment means that the funds have cleared the account by the end of business on 30 June.
Concessional contributions cap
The concessional contributions cap is the limit on the amount of concessional contributions you can make each year.
The general concessional (before tax) contributions cap for 2013-14 is $25,000.
From 1 July 2013 if you are 59 years old or over on 30 June 2013, the cap increases from $25,000 to $35,000. From 1 July 2014:
the higher cap of $35,000 will also apply to people who are 50 years or over
the general concessional contributions cap will rise to $30,000.
Changing concessional caps
General concessional cap
Concessional cap - aged 50 to 59
Concessional cap - aged 60 or more
We remind you that superannuation contributions must continue to be calculated at least on a quarterly basis and paid into the fund by the 28th day after the end of the quarter.
If you miss this date in respect of any quarter you MUST lodge a Superannuation Guarantee (SG) Statement and pay the SG to the ATO rather than the employee's super fund.
This amount will not be tax deductible and will include an administration fee of $20 per employee per quarter and an interest charge for late payment.
Non - Concessional contributions cap
Non-concessional contributions include personal contributions for which you do not claim an income tax deduction.
People aged under 65 years may be able to make non-concessional contributions of up to three times their non-concessional contributions cap over a three-year period. This is known as the 'bring-forward' option. The bring-forward cap is three times the non-concessional contributions cap of the first year. e.g. If you brought forward your contributions in 2013/14, it would be 3 x $150,000 = $450,000.
If you are aged between 65 and 74 you will also need to satisfy the "work test" before making a contribution and you cannot take advantage of the bring forward rules.
The non-concessional contributions cap will increase from $150,000 to $180,000 for the 2014/15 year.
Tip: This may present a planning opportunity for those turning 65 after 30 June 2014, particularly if you wish to trigger the "bring forward" option.
Market Valuations of SMSF Assets
While it has been common practice at our firm to value all assets within SMSFs at market value, however, from the year ended 30 June 2013 this has become mandatory. While this is simple enough for many assets, such as shares and trusts, it can be difficult for property and unlisted shares.
Therefore, it will be incumbent on trustees to carefully consider the asset, its condition, potential market, and general economic conditions to determine a value themselves, or obtain an independent valuation. This change has received Royal Assent and came into effect from 1 July 2013.
Discretionary Family Trusts
From 2011/12 financial year onwards, Trusts are now required to sign resolutions/minutes declaring the split of its profit to beneficiaries before 30 June. This can be simple for some family trusts, but more complex for more detailed business structures.
A review is generally required in order to accurately forecast and allocate business profits and help minimise tax. If the resolution is not completed by 30 June 2014, the ATO has the ability to tax the income of the trust at the top marginal rate (46.5%).
Private Company Loans - (Loans to shareholders - Division 7A)
Loans to shareholders (paid outside ordinary wages and dividends e.g. 'drawings') made by private companies can be deemed to be dividends unless they meet strict legislative requirements. The ATO is currently focusing risk review and audit activity on loans to shareholders.
Unpaid Present Entitlements (UPEs)
Unpaid Present Entitlements made after 16 December 2009 by a trust to a company will be treated as a loan by the company to the trust.
The documentation and legislative requirements for Loans to Shareholders and Unpaid Present Entitlements are very strict. Tax planning provides an opportunity to review these issues prior to year end and also plan for dividends that you may need to declare to meet the minimum repayments.
Review 2014 Trading Profits together with Owners Wages
This is one of our favourite year end planning tools, as taking the time to review your management accounts a few months before year end with your tax advisor can identify tax areas and opportunities that require further consideration:
Typical items identified may include:
Owner salaries - review the overall position of the practice with the view to increasing or decreasing your personal salary accordingly. You may find that there is an added cost in paying a larger salary to yourself if it is not necessary.
Calculate the estimated tax position for the year to assist with year-end planning and budgeting. If the estimated tax payable is lower than anticipated, consider varying the entity’s June business activity statement to lower the final PAYG instalment payment for the year.
Finally, consider further superannuation contributions, prepayment of expenses, deferral of income and writing off assets as discussed previously.
2014 Tax Planning Strategies
Although tax laws are complex and constantly changing, there are always opportunities to minimise your tax liability.
With the right knowledge and advice you will be able to implement an effective tax strategy.
To discuss your individual circumstances or concerns, please contact us:
Simon Jones: firstname.lastname@example.org
(03) 9742 3844| Suite 23, 2 Station Place, Werribee 3030
Disclaimer: This publication is issued exclusively for the general information of clients of Simon Jones & Co. The contents are not a substitute for specific advice and should not be relied upon as such. Accordingly, whilst every care has been taken in the presentation of the publication, no responsibility is accepted for persons acting on this information.
Liability limited by a scheme approved under Professional Standards Legislation.