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TAG Tips for Businesses

As the end of financial year approaches, it is important that you take the time to focus on tax planning and tax issues that affect your business before 30 June 2015 arrives.

We have outlined some of the key tax considerations in our Tax Planning information sheet for businesses.

Asset Disposals

Consider deferring the disposal of assets that will generate a capital gain until after 30 June.  Where there are some assets with unrealised capital losses, consider selling those assets before selling assets with unrealised capital gains.  This will allow the capital loss to be used to offset the capital gain.

 Superannuation Contributions

Ensure superannuation contributions are paid into superannuation funds prior to 30 June to ensure a tax deduction for your business in the current year.  From 1 July 2014, if you exceed your concessional contribution limit (i.e. $35,000 if you are aged 49 and over, $30,000 if under 49), you will have the option of withdrawing the total excess contribution out of your superannuation fund.  This amount, plus a penalty amount at an ATO determined default rate will then be included in your personal income tax return, and taxed at your marginal tax rate.

The non-concessional contribution limit has also increased to $180,000. If you are aged under 64, you are able to “bring forward” 2 years of this limit and contribute a maximum of $540,000 per person. If you are considering this option, we recommend that you contact us first as significant penalties may apply if you inadvertently exceed the limits.

If you are over 65 years of age, you will still need to satisfy a work test in order to make any contributions.

 Small Business Entity Concessions

If you carry on business and your aggregated turnover is less than $2 million or you own net assets of less than $6m, you may be able to access certain concessions including:

 Wages or Dividend

In certain circumstances, it may be beneficial for a business owner to receive fully franked dividends from the company rather than wages.  In particular, a dividend may be preferred where the company is in a break-even or loss situation.  Discuss this topic with your TAG adviser prior to lodging your Annual PAYG Summary.

 Income in Advance

Where you have received income that relates in part or in full to services or goods you have not provided prior to 30 June, record that income so that it can be taken up as income in advance rather than as earned, taxable income.  This will defer the recognition of the income until the next financial year.

Delay Raising Invoices

Wherever possible without affecting your client relations or cashflow of your operations, do not raise invoices for work which can be delayed until the new financial year. This will have a direct impact on your bottom line by reducing your sales income for the current financial year.

 Immediate write off for Small Business

From 1 January 2014, small businesses will be able to immediately write off the cost of eligible new business assets costing less than $1,000.

 Valuation of Trading Stock

Businesses can value their stock at the lower of actual cost, replacement cost or market selling value – different methods can be applied to different stock lines.  A reduction in the holding value of stock will reduce the profit of the business by the same amount.

 Bonuses/Directors Fees

Bonuses/Directors Fees that have been incurred and committed (by minute) to by the business prior to 30 June (and are not subject to discretion) may be claimed as a tax deduction by the business.

 Company Loans to Shareholders

Company loans to shareholders (and their associates) may become a deemed unfranked dividend (resulting in additional tax to be paid by the shareholder) if not repaid before the end of the financial year or put on loan terms.  These rules also extend to:

These loans either need to be repaid or documented in a 7 year loan agreement (with repayments) to avoid the application of Division 7A rules.

 Bad Debts

Analyse your list of debtors prior to 30 June to identify those debtors you consider unlikely to be collected.  In order to claim a tax deduction for these bad debtors, you need to physically write them off before 30 June.

 Trust Distribution Minutes

Recent changes to the interpretation of Trust Law by the ATO now require trustees to prepare and sign distribution minutes prior to 30 June each year.  This requires using estimates and forward planning to predict the best tax result.  Failure to correctly prepare a distribution minute will result in tax being paid in the Trust at the top marginal rate. We recommend you contact your TAG adviser to discuss potential strategies to trust distributions.

 Appropriate Structuring

One of the most effective and underrated tax planning tools is to ensure that your business operations are correctly structured through the use of companies, discretionary trusts and individual beneficiaries.  Call us to discuss whether your current structure is right for you.

 More Information

If you have any questions after reading this or would like to book in a time to plan your tax before the end of the financial year, please contact your TAG Financial Services adviser on (03) 9886 0800 or via email.

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