It’s that time of year when businesses can benefit by considering strategies to minimize their tax burden.
Here, we look at some actions small businesses can consider in order to reduce their tax for 2017.
When evaluating these strategies you should always keep in mind that spending money for the pure purpose of gaining a tax deduction can be counter-productive if the expenditure is not necessary for the business or expected to create a net improvement in profitability. With all transactions, the business decision should be made first with taxation considerations a secondary influencing factor.
The specific circumstances of each business can also impact on tax planning. For example, if a business is not currently making taxable profits it is of no use bringing forward tax deductions into the current year.
A welcome change for 2017 is the increase in the small business turnover threshold from $2m to $10m. This significantly extends access to a range of concessions, however unfortunately the Small Business CGT Concessions remain limited to $2m.
$20,000 Instant Asset Write-off
This has been a big attraction for a few years now and in the 2017 budget, this concession has been extended for one year to 30 June 2018. An immediate deduction is available for business acquisitions less than $20,000 and depreciation pools that fall below $20,000 can also be written off. The threshold is a GST-exclusive amount if registered for GST (therefore $21,999 maximum total spend on any one asset). The asset needs to be installed ready for use prior to 30 June. Excluded assets are those leased out to another party, capital works and certain in-house software.
Avoid a Credit Reference from the ATO
This is not really a tax tip as such, but could avoid enormous headaches. From 1 July 2017 the ATO will commence reporting outstanding tax debts of businesses to credit reporting agencies. This will only occur where the debt is in excess of $10,000, unpaid for over 90 days, not in dispute and no payment plan has been established (or an existing one has been defaulted).
We are informed that the ATO will notify businesses prior to referring a debt to credit bureaus however it’s strongly advised to contact the ATO promptly if any tax debt arises and arrange a payment plan. If a plan is defaulted, contact them again. It would also be prudent to review the ATO business portal, to ensure no overdue tax debts exist.
Restructuring can achieve various goals including asset protection, estate planning, income splitting and commercial objectives. It is often critical to complete these transactions while a business remains eligible for benefits such as the Small Business CGT Concessions and Restructure Rollover. It is also usually ideal to complete the transaction at the end of the financial year to simplify the accounting processes required.
To ensure sufficient time to analyse cost/benefits of restructuring and plan for implementation now is the time to be speaking with your accountant if anything is to occur this year.
If you have expenses that you need to incur in July, buy them before 30 June, 2017 if your cashflow allows for it.(prepayments are only deductible for businesses that qualify as small businesses i.e. turnover less than $10m).
Some tips for individual taxpayers:
If you like to donate money to charities, donate next year’s allocation before 30 June, 2017 to receive an instant deduction.
Income protection insurance
If you have income protection insurance cover, check with your insurance company what next year’s policy will be and prepay it, or if you pay monthly, prepay 13 months of the premium.
Prepay Membership Fees, Union Sees, Association Fees and subscriptions to trade journals and books
Prepaying deductible membership fees is a way of bringing forward a deduction into the current financial year.
Make sure you have receipts for all of your deductions.
The best way to keep them is to take a photo of the receipts at purchase time on your phone, or see your accountant about subscribing to Xero for its non-GST cashbook to record your personal deductions.
Salary sacrifice into superannuation. The limit for individuals under 49 years is $30,000, and for those 49 and over at 30 June, 2017, it is $35,000. This is the last year for substantial contributions into your superannuation fund. At 1 July 2017, the concessional contribution rate will decrease for all eligible parties to $25,000 per year. (see our separate article on superannuation changes).
Ensure you have a current log book maintained for the motor vehicle claims. If your log book is more than five years old, you need a new one. Make sure you start it before 30 June, 2017 so it will be valid for the 2017 tax year.
Temporary Budget Repair Levy
Remember that the temporary budget repair levy applies for the 2017 financial year for those who earn over $180,000, so if you can salary sacrifice super, or defer receiving this income until 1 July, 2017, that would help.