Tax planning guide for 2017 end of financial year

By Daniel Dubois

With the end of the 2017 financial year imminent, now is an appropriate time to review your affairs and ensure that all compliance matters are completed, and that appropriate avenues to minimise your tax liability are carefully considered and implemented.

In particular, with the staged reduction of company tax rates for small business entities shifting from 30 per cent to 27.5 per cent (link to company tax rate reductions article) among a series of other changes, legitimately minimising assessable income and maximising deductions are critical factors for the current year.

Here are some important factors for consideration for the 2017 financial year:

• Accelerated depreciation write-off: This provision allows a tax deduction for the full purchase price in the year of acquisition for assets up to $20,000 acquired by small businesses. The definition of a small business was recently confirmed as a business with $10 million turnover for the 2017 financial year. Assets must also have been installed for use and is inclusive of all costs associated with the purchase. The provisions have been extended to the 2018 financial year, although the early narrative is that this is unlikely to continue beyond next year
• Timing of income: This is typically assessable when an invoice has been raised or when the taxpayer has performed work that legally entitles them to the income. Careful consideration should be given to accrued income to determine whether it is assessable in the current or following year. Work in progress can be assessable income where you have a contractual right to recover
• Paying franked dividends: If your company is transitioning from 30 per cent to 27.5 per cent after the tax rate reductions, it may be beneficial to pay dividends to pass along franking credits to ultimate shareholders at the higher rate
• Supplier invoices: Ensure all your suppliers have invoiced you by June 30, 2017. For corporate entities, even if you have not yet paid the invoice you will be entitled to a deduction where the goods and services have been supplied in the 2017 tax year
• Stock valuations and obsolescence: Be sure to review your stock at financial year end, not only to ensure the number of items on hand are correct but also to confirm the appropriate valuation methodology (e.g. cost, market selling or replacement value). Some stock may also be unsaleable or have only a scrap value
• Employee superannuation: To receive a deduction in the current financial year, payments must have been made by the business and received by the fund or Small Business Superannuation Clearing House (SBSCH) by June 30, 2017
• Individual superannuation: Significant changes to superannuation come into effect on July 1, 2017. However, for immediate tax planning purposes, individuals should be aware of the base concessional contribution caps of $30,000 for the 2017 year, with taxpayers aged 49 and over eligible to a higher deductible contribution of $35,000.  This reduces to a flat $25,000 in the 2018 financial year so, depending on cash flow, taxpayers may want to take the opportunity to salary sacrifice into superannuation in the current financial year
• Cash basis income: Individuals are assessed on the basis of cash actually received in the financial year rather than on an accruals basis and the timing of invoicing, debtor receipts, and rental income. Take the time to carefully review these factors.
• Repairs and maintenance: These are generally deductible in the financial year the expenditure was incurred (businesses) or paid (individuals). Be careful to distinguish between improvements and genuine repairs
• Depreciation review: Examination of your depreciation schedule may reveal assets that require scrapping or writing off, self-assessing effective lives or reallocation to a low-value assets pool
• Staff bonuses: Where these are determined and approved before financial year end, as unconditional and properly documented as payable, they can be deducted in the current financial year
• Prepayments: Individuals and small business entities are entitled to claim eligible prepayments up to 12 months as a deduction in the year of payment. These are subject to some restriction but can still be valuable
• Bad debts: Review your trade debtors listing for long-standing debtors, assess each of them for recoverability, and ensure you have made all reasonable efforts to recover them. Where possible, you can then write these amounts off and claim a deduction for bad debts – this does not preclude you from recovering them later. Ensure you document the process.

Other administration

• Shareholder loans to current and former associates: Where a shareholder or associate has received a loan, advance, expense payment or had the benefit of a similar transaction from a corporate entity, it is possible that the company may be deemed to receive a taxable dividend from the company. This can have onerous and punitive consequences for both the company and individual and should be planned for and dealt with where possible
• Trustee resolutions: Trusts distribution resolutions now need to be made prior to June 30, 2017 otherwise the income of the trust may be subject to the highest marginal rate of tax
• Tax residency: The Australian Taxation Office (ATO) has firmed their position on residency status depending on the extent to which a foreign company’s central management and control is in Australia, including where board meetings are held. Please speak to us if you need assistance navigating this difficult area
• Motor vehicle deductions: Where you claim a motor vehicle for work purposes, ensure you understand the extent of travel (whether above or below 5000 km) and your entitlement to use the log book or cents-per-kilometre methods. Ensure your log book is up to date and valid. Please note that the one third of expenses and 12 per cent of vehicle cost methods are no longer available
• Corporate beneficiaries: If a trust intends to distribute to a corporate beneficiary this entity will need to be established prior to June 30, 2017. Under the revised corporate tax rates, it is important to note that a corporate beneficiary that does not carry on a business will remain taxed at 30 per cent
• TFN notification of trust beneficiaries: Where a trust includes a new beneficiary for the year ended June 30, 2017, it is important that the ATO be provided with the Tax File Number (TFN) via an appropriate notice by July 31, 2017
• BAS returns and PAYG withholding: Please ensure all your lodgements and payments are up to date and that you are aware of your reporting responsibilities in July.

Speak to the experts

Please note that this guide contains general information only and we urge you to seek professional advice to ensure that you receive guidance specific to your individual circumstances.

To find out more about how you can adequately plan for tax time, contact LDB by phoning (03) 9875 2900 or send us details via the contact form below.