What Does the New Government Mean To You?

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What does the new Government mean to you?

On the first day of the Coalition Government, the new Prime Minister Tony Abbott instructed the Department of Prime Minister and Cabinet to draft legislation to remove the Carbon Tax (to be completed within a month), with the intention of introducing the legislation on the first day of the new Parliament. It was the first foray into a myriad of tax and structural changes promised during the campaign. Let’s take a look at what changes you can expect and how to capitalise on the timing of change:

Will change occur?

The new Government’s major problem with bringing about legislative change is the Senate – they do not have a majority. This election was a half Senate election and as such, the Greens will control the balance of power until 30 June 2014 and then micro parties will hold control.

For controversial changes, such as the abolition of the Carbon Tax, the Government will not have the support of the Greens and the Labor Party have stated that they will not support the abolition of the tax – although a compromise position is possible. So either the Government can negotiate with the micro parties and their myriad of vested interests or call a double dissolution – but even then there is no certainty that the end result will give them greater control in the Senate.

Tax and Tax reform

There are a number of tax changes we know the Government intend to make. These include:

  • Abolition of the Minerals Resource Rent Tax (mining tax) and a series of related measures including the loss carry back scheme, increase to the instant asset write off, accelerated depreciation and rephrasing of the planned increases to the superannuation guarantee rate.
  • Abolition of the Carbon Tax
  • Company tax rate cut by 1.5% from 1 July 2015
  • Parental leave levy – 1.5% levy on companies with a taxable income above $5 million (and apply to taxable income in excess of $5 million).

And of course, there are the changes that will never happen that were announced by the Rudd Government during the election campaign including the abolition of the statutory formula method for calculating the taxable value of car fringe benefits.

Then there are the tax changes we don’t know. As part of their reform agenda, the Government intend to create a “comprehensive” White Paper on tax reform. There has been a lot of recent speculation about the intended reforms including a potential increase in the GST rate – since ruled out by the Prime Minister.

Business

If you are in small business, be aware that some tax concessions available to you are planned to be removed and some planned taxes will be removed. If you can take advantage of the tax concessions available under the former Government, do it now. As long as the changes are not retrospective (which is unlikely), whatever you can take advantage of, you get to keep. For example, the loss-carry back rules will be abolished in conjunction with the mining tax but you can utilise these measures until the law changes. The loss carry back rules offer a way for many businesses to offset tax they have paid in previous years against current year losses. So, if your company is likely to be in a loss position for the 2013 income year and paid tax in the 2012 income year, we encourage you to send in your tax return information as soon as possible as the company may be entitled to a cash refund from the ATO.

For small business, if you need to buy depreciating assets in your business – computers, machinery, cars, etc., – then the there is currently an upfront write-off of $6,500 per item up for grabs between now and when the law changes. Currently, if your business qualifies as a small business and can access the simplified depreciation rules, any depreciating assets you buy below $6,500 can be written off in the year of purchase. If your business is registered for GST the $6,500 is GST exclusive, if not, the $6,500 is the GST inclusive amount. The write off will potentially reduce back to $1,000 when the law changes.

It’s also worth noting the likely impact on business when and if the Carbon Tax is abolished. The Government has already warned that fines of up to $1.1m will apply to entities “that introduce or maintain price increases, surcharges attributable to the carbon tax.” So, If your business ever published any sort of commentary blaming the carbon tax for your price increases – and let’s face it, there was a stage there when the Carbon Tax was blamed for just about everything short of the high level of teenage pregnancy in Australia – then you might want to pay attention.

Superannuation

The good news on superannuation is that the Government has stated that it “will not make any unexpected detrimental changes to superannuation…we won’t move the goalposts.”

For employers, the Government had flagged that it will slow the phased increase to superannuation guarantee in conjunction with the removal of the mining tax. In addition, the Government intends to give small business the option to remit compulsory superannuation payments directly to the ATO.

For all those concerned about inadvertently breaching the contributions cap, the Government has noted that it will develop a process that addresses all inadvertent breaches of the contribution caps where an individual can show that their mistake was genuine and the error would result in a disproportionate penalty.

For those with a SMSF, there will be a review of minimum pension payment levels.

Individuals & families

Sometimes no change can be a good thing. The Government has stated that it will not change the current income tax thresholds or pension and benefit fortnightly rates.

The SchoolKids bonus – that offers up to $820 per child to cover education expenses – will be abolished. The bonus was funded by the mining tax.

One of the most controversial of the Government policies during the election campaign was the introduction of a paid parental leave scheme at replacement wage. Scheduled for 1 July 2015, the scheme provides mothers with 26 weeks of paid parental leave at their full replacement wage or the national minimum wage (whichever is greater) plus superannuation. The replacement salary is capped at $150,000. Fathers will also be able to take 2 weeks paid parental leave (concurrently with mothers or separately) at their actual wage.

Australia is currently one of only two countries with a paid parental leave scheme that doesn’t base its payment on a woman’s actual wage.

The intention is to fund the paid parental leave scheme with a 1.5% levy on companies with a taxable income above $5 million (the levy applies to the taxable income above $5m).

Infrastructure

It’s worth noting the level of infrastructure projects the Government has committed to. In addition to delivering the troubled National Broadband Network, the Government has promised billions of dollars in roadway projects including the Bruce Highway, Pacific Highway from Newcastle in NSW to Brisbane, the WestConnex project in Sydney, the Gateway motorway in Brisbane, Swan Valley Bypass, complete the Perth Gateway, upgrade Adelaide’s North-South Road Corridor and a whole lot more.

How business operates and develops projects across State borders will be assisted by a planned one-stop-shop for environmental approvals. The initiative, if they can make it work, will overcome many of the horror stories of national projects.

SMSFs top half a million mark

The ATO regularly releases a statistical report on Self Managed Superannuation Funds (SMSFs). The latest report shows that the growth in SMSFs dropped by around 10% over the last 12 months but establishments remain high. There are now over half a million SMSFs in Australia with almost a million SMSF members.

Australian SMSFs hold assets worth approximately $495bn at June 2013. A majority of SMSFs have a total asset value of between $500k and $1m with the median asset value per member at over $292k.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

If you need expert advise in Accounting, Tax Services, Bookkeeping, Business Improvement SMSF, Succession & Estate Planning, Business Valuations and Asset Protection, contact PJS Accountants.

Quote of the month

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” –Aristotle

Gone Phishing – The Top Scams

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Every year, thousands of people are caught by scams. A recent Australian Competition & Consumer Commission report stated that in 2012, Australians reported losing over $93m – that’s just the people who reported the scam.

From the ATO

The ATO has issued a warning about a new phishing email scam.

10Pretending to be from the ATO, the email claims that the recipient is entitled to a tax refund and states they should click the embedded link and complete the online form. The link however takes users to a fake webpage that attempts to obtain your tax file number.

The ATO will never email you asking for personal or credit card details.

This latest scam is just one of many. In another scam, an email purporting to be from the ATO asks the recipient to complete a form attached to the email to receive a tax refund. If opened, the attached zip file releases a virus.

Not the Yellow Pages

An old scam has resurfaced recently asking business operators to confirm Yellow Page Australia (notice it’s not Yellow Pages) and Open Business Directory listings. What appears to be a confirmation of contact details from Sensis Yellow Pages is actually an agreement to sign up to the directory for $99 per month for a minimum of 2 years.

In 2011, the Federal Court imposed penalties totalling $2.7m on two overseas companies, Yellow Page Marketing and Yellow Publishing Limited for misleading thousands of businesses into thinking they were dealing with real Sensis Yellow Pages.

Money mules – fake jobs and romance

Money mules are middlemen for stolen funds and usually receive a small commission on the transferred funds. They receive the funds into their account and then transfer them to another account.

Money mules are generally recruited through job advertisements offering quick commissions, or through romance scams where singles are asked to receive money with the promise of romance.

Not your bank

A phone call from the Australian Bankers Association might be following through to refund overcharged bank fees or completing a customer satisfaction survey. Both are scams starting with a few basic questions before delving into collect your personal information.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.

Losing it! How To Make the Most of Your Losses

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No one in business likes a loss at the end of the financial year. Most of us have grown up on the mantra ‘brackets are bad.’ Recent changes however might soften the blow by giving you access to a cash refund from the Australian Tax Office (ATO).

9Australia might have been a shining economic light in the global community maintaining an average growth rate of around 3% during the financial crisis, but for many businesses the resource boom boosted GDP headline was hiding a different picture. This year has seen a record number of business bankruptcies and a higher than usual level of debtors reaching a business related debt agreement.

For others, the brackets around the bottom line number are a result of high growth.

Whatever the reason for the loss, new rules offer a way for many businesses to offset tax they have paid in previous years against current year losses. In effect, you can carry-back your losses.

How do the loss carry-back rules work?

Prior to the introduction of the loss carry-back rules, companies could only carry forward their tax losses to deduct against taxable profits made in future income years, subject to meeting a few tests. The new rules give companies the ability to choose to carry-back up to $1m of certain tax losses rather than carrying them forward (limited to the company’s franking account balance for that year).

In most cases, the rules apply when a company carries-back a tax loss that is made in the current income year. From the 2014 income year onwards, losses can be claimed against tax liabilities of either of the two previous income years. However, in the 2013 income year it will only be possible to claim current year losses against the company’s tax liability for the 2012 income year.

So, if your company is likely to be in a loss position for the 2013 income year and paid tax in the 2012 income year, we encourage you to send in your tax return information as soon as possible as the company may be entitled to a cash refund from the ATO.

Let’s look at an example….

Company A is eligible to access the loss carry-back rules. In 2013/2014 they make $500,000 and pay tax of $150,000. In 2014/2015 they make $2m and pay tax of $600,000. In 2015/2016, they make a loss of $5m.

Company A can choose to carry-back $1m of the tax loss incurred in 2016. This equates to $300,000 of tax payable. While there are a number of options for carrying back the loss, the most likely approach is to carry-back $500,000 of losses to each of the 2014 and 2015 income years. This would produce a refundable offset of $300,000 and the company would still carry forward $4m of losses to future income years. A much better cash flow position for the company with $300,000 extra to use.

The losses are claimed in the company’s tax return.

Do I have to carry-back losses?

The loss carry-back rules are not compulsory and don’t automatically apply. You can choose whether to carry-back losses to prior income years as you see fit. This means there is no requirement for losses to be carried back to the earliest eligible income year or for the earliest losses to be carried back first. For example, you might want to limit the amount of a tax loss you carry back because of the impact this will have on the company’s franking account balance. You might prefer to retain franking credits to enable franked dividends to be paid to shareholders.

So, companies can choose:

  • Whether to claim a tax offset under the carry-back rules;
  • How much of the losses from the current year or prior year to carry-back; and
  • Which year or years to carry a loss back to.

Who can access the new rules?

Like with most tax benefits, there are a number of conditions that need to be satisfied. These are:

  • You need to be a corporate tax entity – generally, a company, corporate limited partnership, corporate unit trust, or public trading trust;
  • You have a tax loss from the current year or carried forward from the preceding income year;
  • You have an unutilised tax liability for the preceding income year or the year before that;
  • You have lodged all your tax returns for the current year and each of the previous five income years;
  • You have a positive franking account balance at the end of the current year; and
  • You do not fail the specific loss carry-back integrity rule – basically where there has been a change in control of the voting power of the company and someone connected with the change in control had the intention of benefiting from the loss carry back rules.

Also, there are a few types of losses that are not eligible such as capital losses, losses created by excess franking credits, and some types of losses transferred between companies.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.

ATO Fires First Warning Shot

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The Tax Office has fired the first warning shot in the war against naive, deceptive and dishonest taxpayers, revealing its targets for 2013/2014.

The big picture or big brother?

people vectorFundamentally, the way the Tax Office addresses compliance has changed. Gone are the days of comprehensive audits and visits. Instead, most compliance issues are identified by data-mining. In essence, the Tax Office looks at the information you report relative to a myriad of other information sources. Firstly, to identify differences between the information you report and the information held by third parties. And secondly, to identify whether your information is consistent with industry norms and patterns of behaviour. Once you are identified as being a potential problem, you are contacted by the Tax Office and asked to explain. The issue is then closed if not further action is warranted or progressed to the next step. Human intervention is for high risk taxpayers.

There are very few data sources the Tax Office does not have access to. Past data programs have included bank information (particularly low doc loans), credit card data, car and property sale data and much more. This year the Tax Office are looking at:

  • private health insurance rebate claims
  • flood levy exemptions
  • taxable government grants and payments
  • payments to contractors in the building and construction industry.

Trusts under attack

The number of trusts in Australia has grown and with it Tax Office concerns about their use. The Budget provided an additional $217m for a Trust Task Force and the Tax Office plans to put that into good use. Of particular concern to the Tax Office is the use of trusts to conceal income, mischaracterise transactions, artificially reduce trust income amounts and underpay tax. This year, there will be around 5,000 data-matching cases alone.

Building & construction industry

It’s the first full year of the new contractor reporting regime for the building and construction industry. The Tax Office will be using this data to review what contractors are reporting to identify under reporting.

The wealthy & complex business structures

The Tax Office has stated that “the blurring of distinctions between business and personal income and expenses is a common issue attracting our attention.”

This means that high income individuals who utilise trust, company and other structures will come under close scrutiny. For taxpayers affected, it will be important to make sure that there is clarity and documentation to support the flow of money from various entities to shareholders and beneficiaries.

Self funded retirees and tax planning

It seems that many self funded retirees are accessing tax planning schemes that promise high income returns and significant tax deductions. The Tax Office stands by the adage that if it looks too good to be true it probably is.

Online and global business – including e-business

Profit shifting – where businesses shift profits from Australia to another country to reduce their tax liability – is a major focus for this financial year. Already we have seen legislative changes designed to tighten the Tax Office’s controls in this area. Interestingly, it’s not just the big boys being targeted but the myriad of Australian online businesses that work globally.

Capital gains

The Tax Office is concerned about businesses reclassifying revenue and capital items to access concessional tax treatments. In other words, they think more people are accessing the CGT concessions than there should be. In addition, they are concerned about reclassifying revenue and capital items. So, if you have sold business assets, you can expect the Tax Office to be looking closely at how those proceeds are managed and taxed.

Income from overseas

Income from foreign sources is on the Tax Office watch list once again. The Tax Office is making sure that all taxable income is reported regardless of its source.

Changing business structures

Simply changing business structure could attract the Tax Office’s attention this year. In particular, complex business structures and changes will come under scrutiny where one of the impacts is on the tax paid by the entity.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.

Driving you crazy: FBT and cars

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In mid July, the Government sparked a frenzy when it announced plans to remove the statutory formula method for salary sacrificed and employer provided vehicles.

fbt-header-960x350The announcement has meant that most businesses, and as it turns out Governments, have postponed entering into any new agreements (e.g. novated leases) until there is greater clarity. The reason for the postponement is simple, if the FBT change goes ahead, it may fundamentally alter the tax outcome of the arrangement and impose a higher FBT liability on the employer (which would normally get passed onto the employee). As such, it’s impossible to understand the true financial impact of any car packaging arrangements until the result of the election is known.

Under the current fringe benefit rules, you can choose to use the log book method (also called the operating cost method) to physically record the business and private use of the car over a 12 week period, or the statutory formula which provides a flat 20% for personal use. So, if your business use of the car is high and personal use low, you would generally choose the log book method as this would often give you the lower FBT liability. Everyone else tends to use the statutory formula method. Fringe benefits tax applies to the personal use percentage.

The proposed changes

  • Applies to salary sacrificed and employer provided cars
  • Abolishes the 20% statutory method
  • New rules would apply to all new and materially varied contracts from 16 July 2013
  • Log book method will apply to all car fringe benefits from 1 April 2014

Under the announced changes, the option to apply a flat 20% statutory rate would be abolished. Everyone would need to use the log book method from 1 April 2014. The only exception would be for existing contracts as at 16 July 2013 (the date the announcement was made). As long as these arrangements are not materially varied after 16 July 2013, the statutory formula method will continue to be available until the contract ends. While it is unclear what ‘materially varied’ might mean (there is nothing more than a media release and basic fact sheet at this stage), if we look at other areas of recent FBT change, materially varied could mean renegotiating the residual value of a car, extending the term of the lease or making changes to the salary sacrifice arrangement between the employee and employer.

Who will be affected?

Outside of the car and car financing industry, the change if enacted is likely to apply to almost anyone who has a car salary sacrifice agreement in place, unless they are already using the log book method due to relatively high levels of business use.

What should you be doing now?

8Businesses or employees looking to enter into new arrangements should stop and consider whether the arrangements can be postponed until at least after the Federal election. If this is not possible, it will be necessary to work through some worst case scenario calculations and clarify in writing whether the employer or employee will bear the cost of any increased FBT liabilities.

In relation to existing arrangements it will be important to inform employees and other relevant people within the organisation of the risk of making any changes to those arrangements until there is more certainty in this area.

If you need help, please contact us today to discuss your options.

What changed on 1 July 2013

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Here’s a brief summary of what changed on 1 July:

  • The minimum rate for superannuation guarantee contributions increases from 9% to 9.25%. The rate will continue to increase steadily until it reaches 12% from 1 July 2019 onwards.
  • The upper age limit for super guarantee has been removed. That means eligible employees aged 70 and over will receive super guarantee.
  • For those aged 60 and over, you will be able to contribute more to superannuation with the concessional contributions cap increasing to $35,000 (up from $25,000). The concessional contributions cap for those aged 50 and over will increase to $35,000 from 1 July 2014.
  • An increased tax rate applies on contributions made by high-income earners with a ‘total income’ in excess of $300,000.
  • The net medical expenses tax offset (NMETO) will be abolished although there will be a transitional period for those currently claiming the offset. The NMETO previously allowed you to claim a tax offset for medical expenses above the threshold.
  • For the 2013 income year, companies will be able to carry back up to $1m of tax losses incurred in the 2013 income year to recoup tax paid for the 2012 income year. This change assumes the legislation makes it through Parliament. The refundable tax offset that can be claimed is limited to the company’s franking account balance for that year.

Expect the Unexpected

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As part of your cash flow forecast identify your capital expenditure requirements. Don’t deal with these on a one-off basis as they arise, plan them in advance.

Expect the unexpected

spring notebookGrowing to death is often the result of unplanned growth opportunities. It’s ironic that seizing a major sales contract or big new client can be your business’s ruin but its more common than you think.

Many business operators are very good at what they do. Most have an excellent knowledge of the business they conduct and understand their products and services. Most also have an in depth knowledge of sales performance and revenue. Few however, have a high level of financial management expertise, so when a big new opportunity presents, critical financial questions are not part of the vocabulary. As a result, there can be a sudden and unintended impact on their financial position. A rush of sales might be a great thing but it is not always counterbalanced by a rush of income and profit. Free cash and liquidity are the victims.

9For businesses without strong financial management and control, there is simply no way of understanding what impact the opportunity will have until they have experienced it. With no background history to rely on, the warning signs of impending financial crisis don’t appear.

Take all the tax advantages you can

For small business in particular there are a range of concessions and funding you can access. Many businesses simply don’t realise the opportunities available to them.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.

The Top 5 Issues Holding Back your Business

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Overcoming the biggest problems in business often comes down to the simple things. Here are a few simple things you can do to capitalise on your opportunities and reduce your risks in 2013/2014.

“I didn’t get time to…” No more excuses

1Most people simply don’t set aside the time to do the forward planning they know they need to do. Here’s a simple test: write down your goals for the business. Now ask yourself if you are doing something towards achieving those goals every day or every week? If not, it’s not a goal. It’s just a nice thought.

Set a realistic budget

Financially mapping your business reduces your risk and removes some of the surprises that can occur. Your budget needs to be realistic – not just a percentage increase on last year.

9Start with an operating budget and assess each line critically. Map your revenue to see where, how and when the money is coming in to create a reliable estimate of your income for the coming year. Once you have your revenue expectations in place, look at what is required to generate that income. For example, what advertising, marketing and resources will be required?

Once you are comfortable with your revenue, work up your expenditure budget. Be tough on costs. Don’t forget to allow for growth and the increases that are likely to flow through.

Once your budget is complete and you have a good idea of your likely profit margins, do a couple of alternative estimates for your key revenue drivers so you understand the impact of changes to your assumptions. Once you have all this in place, track and measure it throughout the year. Where possible, your management team should be a part of this process and take responsibility for achieving the budget numbers they give you. When people don’t take the steps that they knew were required to achieve the budget the gaps become obvious fairly quickly. Having a budget in place that you need to report on regularly makes you focus on what really needs to be done.

Map Your Cash

Even some very large businesses have failed because they ran out of cash. Understanding your cashflow needs is vital particularly for high growth business.

3Understanding your cash position is about understanding the timing differences: How long will it take for your customers to pay you? How much stock will you need to hold? And, what are the payment terms required by your suppliers? With your cash flow, don’t forget to allow for things like tax payments, loan repayments, dividends and any capital purchases that are planned. These can be ‘big ticket’ items and if you don’t allow for them then you will get caught out.

A simple example is trading stock valuations. Your trading stock is an asset that is recorded on your balance sheet. In most cases it should be tax neutral to you. The cost of purchasing stock is expensed in your profit and loss account and offset by the value of the stock asset, until you sell it. So, while the amount of stock you are carrying will impact on your cash position, because you have your funds tied up in it, there is no direct impact on your profits or taxable income until you sell that stock. However, if at June 30 some of your stock is worth less than its cost price, you have the option to value it at the lower figure and take the tax write off now, rather than wait until the stock is sold. This reduction in your stock value will produce a tax saving for you.

For tax purposes, there are a number of ways of valuing stock. Once you have done your stocktake (assuming you need to do one), you can choose what method to apply depending on the stock and your circumstances. The different ways of valuing stock can produce different results. Most businesses chose to value trading stock at cost – but you have the option of valuing your stock at the lower of cost, market or replacement value.

For example, if you have stock that is about to become obsolete valuing it at cost price for tax purposes is not going to help you. In this situation you would be better off to value the stock at market value, particularly if it is a large quantity. Take the example of vitamins with a use by date that only has a month or two left on it. Leading up to and once the vitamins reach their use by date they are unsaleable. In this case, you would estimate how much of the stock you are likely to sell prior to the use by date and at what price. Using previous sales as a guide, if you only expect to sell 15% of the stock prior to the use by date, you would use the market value of this 15%. Other than when you sell your stock, your tax return gives you a once a year opportunity to adjust your stock values and realise any losses.

4Another classic way small businesses disadvantage themselves is not taking the Government concessions available to them. The R&D concessions and Export Market Development Grants are a classic case. In the case of R&D concessions, if you develop new technologies or products, you might be eligible for a 45% refundable tax offset (equivalent to a 150% deduction). The Export Market Development Grant reimburses up to 50% of eligible export promotion expenses above $10,000 provided that the total expenses are at least $20,000 for existing and budding exporters. While it takes time to manage these grants and concessions, the outcome can be very rewarding.

We can help your business capitalise on the opportunities available to you and make the 2013/2014 financial year a great one for you.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.

Time to Start Thinking About Tax time

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The countdown to the end of the financial year is on and that means you should start to focus on your end of financial year position and any tax planning that is appropriate for you. Don’t leave it till the last minute. No decision, or rushed decisions, can lead to the wrong outcome. Here is the starting point of the process:

1. Get your health & hygiene tax list together

There are lots of little things that need to be attended to that can add up to tens of thousands of dollars in tax savings. Writing off bad debts, maximising stock valuation outcomes, declaration of bonuses and director fees, prepayments, income deferrals, trustee resolutions to appoint income, maximising depreciation charges, superannuation payments.

2. Where are the bigger tax planning opportunities

Beyond these health and hygiene opportunities there may be larger tax planning opportunities that should be considered. This could include being eligible to claim R&D tax concessions, taking advantage of the loss carry back rules to get a refund of company tax paid in the last year, and export market development grant eligibility. All of these opportunities are time sensitive and time limited. The things you do between now and June 30 could make a significant difference in the benefit obtained.

3. Are you creating permanent benefits or simply a timing advantage?

Consider whether your decisions are creating a permanent benefit or simply deferring the tax liability to a later date. Both can be valuable however permanent benefits will always be more valuable. This is relevant if you have to create a hierarchy of the options. You may not be able to do everything possible.

4. Are there cash flow implications?

An essential consideration. Some of the options will require you to spend money, bring forward expenditure or defer income. These will all have cash flow impacts and you need to ensure that creating the best tax outcome does not cause a short-term cash flow problem. Calculate the funding impact of your choices and if you need funding support from your bank, then talk to them early. You need to map out how much you need, how long you’ll need it for, and what is being covered.

5. Are there any risks?

Keep in mind that there could be some risks with the decisions being taken. These could include tax risks, funding risks and business risks. Tax benefits always need to stack up on the risk to reward matrix. Quantify the benefit and assess any risks.

You should take advice on your tax planning. Spend some time with your accountant and map out a plan that works for you.

If you feel like you need support in making your way through the uncertainties and tough times ahead, or simply have a question or want more information, please contact PJS Accountants on (07) 33903177 or click here to contact us.

June’s Did You Know

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  • The 2009/2010 Budget estimates were closest to the actual Budget figures than any future year.
  • The worst year for budget forecasts was the 2010/2011 Budget that predicted the deficit for 2011/2012 to be -$13 billion. Turned out this forecast was over $30 billion off at -$43.4 billion.
  • The budget deficit for the current financial year is expected to be $19.4 billion (or 1.3% of GDP, that is 1.3% of the economy). The deficit for the new financial year is expected to be $18 billion.

If you feel like you need support in making your way through the uncertainties and tough times ahead, or simply have a question or want more information, please contact PJS Accountants on (07) 33903177 or click here to contact us.

Quote of the month

“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”

Thomas Sowell