The end of the financial year is almost upon us, but there are still a number of actions that business owners can take to help reduce their tax liabilities for the 2007 tax year. Often, this is simply a case of ensuring that your intentions are correctly recorded and dated, which will also be helpful when it comes to presenting records for the accountant or bookkeeper.
Pay expenses before 30 June to get any tax deductions this year
If payments for liabilities are made on or before 30 June, business owners can claim the tax deduction for applicable expenses this year rather than waiting for next year. For example, while compulsory superannuation contributions are accepted up to 28 July, payments made after 30 June won’t generate a tax deduction in this year’s return.
Review staff bonus arrangements
Similarly, year-end bonuses to staff must be paid before 30 June to be a deduction this year, unless it is recorded before 30 June that a bonus will be paid to employees after that date, under the terms of their contract, without further conditions, and there is an objective formula for calculating the amount of the bonus.
For those payments that cannot be made before 30 June, it is a good idea to review the documentation for staff bonus arrangements to ensure that the conditions for deductibility are met. If there is not much documentation existing for the bonus arrangements, at least some basic documentation should be prepared to assist in justifying the tax deduction.
Write off bad debts
A ‘bad debt’ deduction can be claimed for any debts that are written off in accounts and records before 30 June. This is particularly useful for businesses that have had a strong trading year and will therefore have a large taxable profit, or that have had a windfall profit this financial year, e.g. from the sale of an asset. Business owners should take the time to clean up their accounts and make sure they are not carrying forward any unrealistic debts.
It is also recommended that any credit notes are issued and dated before 30 June. In this instance, don’t forget to claim GST adjustments in BAS, which businesses often forget to do. This means that, if GST was paid when the sale was reported, the business is entitled to claim back the GST when the debt is written off as bad.
Scrap fixed assets that can no longer be used
Similarly, a tax deduction can be claimed for the written down value of any fixed assets that can no longer be used, but only if the assets are actually written off in the fixed asset register on or before 30 June. For example, a piece of machinery that has been replaced and is now obsolete should be written down and a deduction claimed for the loss on disposal.
Make tax-deductible donations
Make any donations by 30 June, and get the receipt to back up the deduction. The donation can then be included in this year’s tax records as a deduction.
Make loan repayments
Business owners that have taken out a loan from the company must make sure that the loan has been appropriately documented, and that any repayments for previous years’ loans include the appropriate amount of interest.
For current year loans, be aware that there are concessions allowing the loan to be repaid in full prior to lodging the company’s tax return, without needing to charge interest.
Capital gains tax (CGT) planning
It is worthwhile reviewing the business structure to see if it gives you the maximum benefits from the small business CGT concessions in the event of a future sale.
These concessions have been made significantly easier to access in the last two years, and are extremely worthwhile as they can reduce or totally eliminate the tax payable on a future business sale. Now is the time to put the right structure in place – don’t wait until the business is about to be sold because it will probably be too late.
Maximise superannuation contributions
Review the current superannuation contribution limits, and make the maximum allowable deductible contribution ($50,000, or $100,000 if aged over 50) before making any undeducted contributions. Also consider making deductible contributions for a spouse, either as employer contributions or (if the requirements are met) having your spouse make self-employed contributions.
Make a family trust election
If the business structure involves a family trust owning shares in a company carrying on the business, it is generally necessary for the trustee of the family trust to make a family trust election, and to report this to the Australian Tax Office (ATO) on the trust’s tax return. If the family trust election is not made, the trust would generally not be able to pass franking credits on dividends received through to its beneficiaries, increasing their tax liability.
Look at payroll tax registration
As a business grows, its wages can approach and exceed the relevant thresholds for payroll tax registration. Now is the time to review the situation and, if the threshold has been exceeded, register for the current and future tax years.
In the context of payroll tax, ‘wages’ generally includes superannuation contributions, grossed up fringe benefits and certain payments to contractors. The threshold varies in each state and territory, ranging from $550,000 in Victoria to $1,250,000 in ACT and NT.
Be aware that registration is measured based on total Australian wages, although pro-rata adjustments are made where the business has employees in two or more states/territories.
Make all compulsory superannuation contributions
While it is necessary to comply with superannuation guarantee requirements on a quarterly basis, now is a good time to ensure that the business has met its obligations. When the ATO reviews the records of a business, it generally does so initially on a financial year basis, with reference to the employees’ earnings as reported on their PAYG payment summaries. Discrepancies may lead to more detailed investigation.
Identify and report fringe benefits tax
As well as paying the appropriate amount of fringe benefits tax (FBT), it is important to ensure that reportable fringe benefits are correctly shown on employees’ PAYG payment summaries. Rates have changed in recent years so make sure you have the most up-to-date information.
Is your business turnover less than $2 million?
If so, consider the range of small business concessions that are now available to be applied on a selective basis. These include all the concessions that were formerly part of the Simplified Tax System (STS), as well as the FBT car parking exemption and the small business CGT concessions (even where the $6 million net assets test is breached).
Some useful tax references guides for businesses
Company tax rates
| Type of company |
Tax rate |
| Private or public company |
30% |
| Life insurance company:
– Ordinary class – Complying superannuation class |
30% 15% |
| Non-profit companies:
– First $416 of taxable income – Shade-in above $416 up to $915 – Above $915 |
Nil 55% 30% |
Fringe benefits tax rates
| FBT year ending |
Tax rate |
| 31 March 2006 |
48.5% |
| 31 March 2007 |
46.5% |
| 31 March 2008 |
46.5% |
Individual tax rates (not including Medicare levy of 1.5%)
|
Taxable income |
Tax payable |
% tax on excess |
|||
|
2007-2008 |
2008-2009 |
2007-2008 |
2008-2009 |
2007-2008 |
2008-2009 |
|
$6,000 |
$6,000 |
Nil |
Nil |
15% |
15% |
|
$30,000 |
$30,000 |
$3,600 |
$3,600 |
30% |
30% |
|
$75,000 |
$80,000 |
$17,100 |
$18,600 |
40% |
40% |
|
$150,000 |
$180,000 |
$47,100 |
$58,600 |
45% |
45% |
Peter Bembrick is a partner with accountants and business and financial advisers HLB Mann Judd Sydney
