At this time of year, a few clever actions can be vital.
As you are no doubt aware the financial year draws to an end on Sunday 30 June 2013. In preparation for this we have identified a number of strategies you should consider prior to 30 June 2013 to assist with your taxation planning. A summary of these potential strategies is listed below.
1. Superannuation Contributions
Personal and Employer contributions must be made by 30 June 2013 (actually receipted into the Superannuation Fund bank account on or before that day) if you wish to claim them as a deduction in the 2013 tax year. Remember 30 June this year is on a Sunday so you will need to bank these contributions by 27 June 2013. For employers, if you miss the 30 June 2013 deadline, please make sure that you make all contributions on behalf of your employees by 28 July 2013; otherwise you completely lose the ability to claim the contributions as a tax deduction.
Tax Deductible Superannuation Contributions for 2013:
Up to $25,000 for everyone
Please note: Those individuals with a taxable income of over $300,000 will have their tax concession halved. Also, for 2014 the contributions cap for those over 60 increases to $35,000.
2. Spouse super contribution tax offset
You may be able to claim an 18% tax offset on super contributions of up to $3,000 you make on behalf of your non-working or low-income-earning spouse. This is a benefit of up to $540! You must not claim a tax deduction for the contribution and your spouse’s assessable income (including fringe benefits and reportable super amounts) must be les than $13,800.
3. Super Guarantee Charge (SGC)
It is important for everyone to remember that as of 1 July 2013 the SGC increases from 9% to 9.25%.
4. Government Co-Contributions
If you are likely to earn less than $46,920 for the year, you should consider making ‘after-tax’ contributions to super to qualify for the superannuation co-contribution. The government will contribute 50 cents for every dollar of ‘after-tax’ contributions you maker up to a maximum of $500 for a person earning up to $31,920, reducing progressively to nil at $46,920. Please note: Eligibility for the Government Co-contribution is based upon meeting certain specific Income Tests which we are happy to advise on.
5. Minimum Pensions from your SMSF
If your Self Managed Superannuation Fund (SMSF) is in pension phase, it is essential that you at least withdraw your minimum pension amount to keep the ‘tax-free’ exempt pension status within the fund. These amounts must come out of the bank account of your SMSF prior to 30 June 2013.
6. Medical Expenses Tax Offset
In 2013, the Net Medical Expenses Tax Offset (NMETO) you can claim varies depending upon your Adjusted Taxable Income (ATI) levels.
For singles with no dependant children:
Income < $84K: 20% of net medical expenses > $2,120
Income > $84K: 10% of net medical expenses > $5,000
For couples or singles with dependant children:
Income < $168K: 20% of net medical expenses > $2,120
Income > $168K: 10% of net medical expenses > $5,000
Please note: As of 1 July 201,3 the NMETO has effectively been abolished. To be eligible to claim it in the 2014 year you must have claimed it in the 2013 year. Similarly, to claim it in the 2015 year you must have claimed it in the 2014 year. After 2015 no one will be able to claim it!
7. Private Health Insurance
Remember that everyone doesn’t automatically get the 30% government rebate on private health insurance any more. The rebate is now scaled according to your income, age and family circumstances. Singles with income less than $84K and families with income less than $168K get the full 30% rebate. The rebate then scales down until it becomes 0% for Singles with income greater than $130K and families with income greater than $260K. Please note: There is no advantage in prepaying this year.
8. Asset Purchases & Depreciation
As of 1 July 2013, an eligible Small Business Entity (SBE) can claim an immediate tax deduction for assets up to $6,500 in value. Therefore, an eligible SBE may want to consider purchasing any such assets (e.g. office equipment, computers etc) prior to 30 June to reduce your taxable income. Please note: The broad definition of a SBE is that it must carry on a business and its turnover (ex GST) cannot exceed $2M.
9. Motor Vehicles and Log Books
As of 1 July 2013 an eligible SBE may claim an immediate tax deduction for the first $5,000 on the purchase of a motor vehicle. The cost of the motor vehicle is added to the general pool but unlike other assets, the deduction is $5,000 plus 15% of the remaining amount.
Also, for those of you using the Log Book method for your motor vehicle claims, it’s a good idea to make sure you keep your log book up to date to ensure you maximize your claim. Log Books only carry forward for 4 years, so check to make sure when you last did one to determine if its time you did a new one.
10. Defer Income and Accelerate Deductions
If it looks like your taxable income may be high this year, it can be a smart tax management strategy to defer income and/or accelerate deductions. Deferring income means holding off invoicing customers/clients where possible until after 30 June and for those on the Simplified Tax System, holding off on collecting your outstanding debtors until after 30 June (if your cash flow allows for it). In certain circumstances you can accelerate expenses and get a full tax deduction for them in this year by pre-paying them prior to 30 June. This can include expenses such as interest, income protection insurance and other payments where the service period does not exceed 13 months. Most pre-payment strategies are only effective for personal tax payers and not business entities. It is also worthwhile ensuring all outstanding tax deductible expenses are physically paid prior to 30 June 2013 to ensure their deductibility (especially for individual and simplified tax system tax payers). Please note: It is important to contact us first to ensure the expense you are considering pre-paying qualifies as a tax deduction.
11. Rental Property – Depreciation Schedule
Having a depreciation schedule prepared by a specialist can create a significant rental property depreciation deduction against your rental income. Please note: It is advisable to contact us first should you wish to assess whether or not getting a Depreciation Schedule for your rental property is a worthwhile strategy.
12. Negative Gearing
Negative gearing is a strategy whereby the taxpayer borrows funds and invests those funds into income earning assets i.e. property or shares. The interest on the borrowed funds is higher than the income generated by the assets and the difference between the two is a legitimate taxation deduction. This strategy, when used in conjunction with the pre-payment strategy (see Point 9 above), can result in a potentially large tax deduction being brought forward into the current financial year. To implement this strategy advice from a qualified financial planner would be needed.
13. Capital Gains and Losses
If you have been fortunate enough this financial year to crystallise a capital gain it is important to review any other investments you hold that may be in a loss position. If there are assets that are in a loss position it may be worthwhile considering selling these assets prior to 30 June 2013 to offset the capital gain. Please make sure you consider all aspects of selling an asset prior to implementing this strategy as taxation is only one such item that warrants consideration. It would also be prudent to discuss this with your financial planner.
14. Assets Review and Bad Debt Write-Off
Prior to 30 June 2013 it is important to review both your Fixed Asset Depreciation Schedule and Debtors Ledger to see if there are any items/amounts which have become obsolete, redundant or bad. In order to claim a tax deduction for bad debts all avenues of recovery must be exhausted and there must be no reasonable chance of collection. The debt also needs to be physically removed from your debtors system prior to 30 June 2013. A full review of your prior year depreciation schedule should also be completed to identify any assets that have been disposed of or are no longer usable by your business. The unclaimed portion of these assets can then be written-off in the 2013 financial year. Please contact us should you require a copy of your Fixed Asset Depreciation Schedule to review.
15. Trading Stock
In regard to stock and work in progress at 30 June 2013 (closing stock), tax legislation allows for valuation subject to obsolescence, and that can be any stage of obsolescence, and also if special circumstances exist.
Some examples are:
? Stock less marketable due to change of circumstances
? A loss of market which spans a period of more than one income year
? An error in over-ordering or over-producing
? Damage or physical deterioration
Whether you write-down stock or not, it is important to realise you must have a detailed physical stock-take item by item, unless you can justify your physical count, with accurate day by day recording systems.
If you are considering stock write-downs (a definite tax saving benefit) please contact us to discuss the correct principles to be applied, and also if you are unsure of your valuation process regarding stock and work in progress, again please take the opportunity to discuss with us.
16. Contact Proctor Major
Prior to implementing ANY taxation planning strategy it is strongly recommended that you contact Michael Lewis, Brett Cox, Stuart Major or any other member of the Proctor Major professional team on 03 9571 8822 to ensure the strategy is effective, compliant and fits with your overall personal and/or business