Individuals and businesses should put strategies in place to minimise their taxation liabilities for the financial year ending 30 June.
Tax planning is as much about the year ahead as the one just gone. If the goal is to minimise tax, then choosing when to contribute to superannuation or sell assets, for example, can make a considerable difference to the amount of tax paid, not just this year but also in the next one.
Generally business owners should look carefully to defer income and bring forward deductions regardless of the size of their business. Here are 6 ways that could help you minimise your tax bill.
INVOICING
If you are able to raise an invoice after 30 June, this will allow the income to be included in the next financial year.
Also, no one likes bad debts but writing them off before 30 June can create a tax deduction.
YOUR CAR CAN BE A TAX SAVING MACHINE
Many clients undervalue the benefit of keeping a log book.
In our experience the benefit of having the log book to use can make a considerable difference to a client’s tax bill.
Timing the purchase of a motor vehicle is important as the ATO have changed the small business concessions.
This allows a $20,000 immediate deduction for buying a motor vehicle before 30 June 2018.
INSTANT ASSET WRITE-OFF
The $20,000 instant asset write-off threshold has been extended until 30 June 2018.
If you are a small business, you can immediately deduct the business portion of most assets that cost less than $20,000 each if they were purchased:
- from 1 July 2016 to 30 June 2018, and your turnover is less than $10 million
- from 7.30pm on 12 May 2015 to 30 June 2016, and your turnover is less than $2 million.
This deduction is used for each asset that costs less than $20,000, whether new or second-hand. You claim the deduction through your tax return, in the year the asset was first used or installed ready for use.
In the 2018-19 Budget, the government proposed extending the $20,000 instant asset write-off (immediate deductibility) threshold to 30 June 2019. This change is not yet law.
SUPER SAVINGS
Why pay tax above 46.5% when you could pay tax at 15%?
You can contribute to superannuation and receive a 100% tax deduction for the amount contributed.
It is important to keep in mind the caps that apply and that the contributions must be received by the fund prior to 30 June.
From 1 July 2017, the general concessional contributions cap is $25,000 for all individuals regardless of age.
Penalty tax applies to anyone who breaches the caps.
Business owners nearing retirement require careful planning in relation to their ability to utilise the superannuation system to minimise the tax implications and maximise retirement wealth.
CLAIM FOR THINGS YOUR HAVEN’T PAID FOR
Just because you haven’t paid for something doesn’t mean that you can’t make a claim. This is on the basis that you have incurred the cost before the end of financial year, eg:
- Deductable expenses like repairs which you have incurred before 30 June but haven’t paid for until the next financial
- Staff bonuses and commissions that are owed in June and paid in July
OLD STOCK & EQUIPMENT
Scrapping and writing off unused assets from your depreciation schedule or stock listing which have minimal value to the business, can generally create a tax deduction for the written down value.
HALVE OR PAY NO CAPITAL GAINS TAX
Halve your capital gains tax… Holding on to investments for more than 12 months may entitle you to a 50 per cent discount on your capital gains tax bill.
Or pay NO capital gains tax… If you hold investments in a self-managed superannuation fund (‘SMSF’) and are about to commence taking a pension you may be better to defer your sale of investments. This is because the tax rate for SMSF’s in pension mode drops from 15 per cent to nil.
Remember, to keep in mind that any tax planning initiatives must also take into account cashflow priorities. You don’t want to leave your business short on cashflow, just to save a dollar in tax.
If you have any questions contact us.
The material contained in this communication is of the nature of general comment only. No reader should rely on it without seeking accounting or legal advice.