18th May, 2010
Before the end of each year business and their owners should review what they have done and assess is there anything that they should do BEFORE the year finishes at 30 June 2010.
Business owners should, by now, be looking at strategies to legitimately reduce their tax bill for the 2009/10 tax year, assess their business structures, ensure their wills reflect current circumstances and their insurances reflect current circumstances.
If you have any queries or you wish to arrange a TAX PLANNING meeting please contact Scott Partners on (03) 9500 0511 or contact Christian Dal Cin at
The most common tax planning strategies that should be considered prior to 30 June 2010 include:
Prepayment of expenses
Certain prepayments are not subject to the above 12 month rule and therefore both SBE and non-SBE taxpayers may be able to claim deductions for expenditure that is:
- less than $1,000 GST exclusive; or
- incurred under a law of the Commonwealth, State, or Territory. Common examples are motor vehicle registration and compulsory third party insurance and Workcover premiums and statutory licences; or
- paid under a contract of service (e.g. prepayments of salary and wages, bonuses and commissions).
Deferring income & capital gains
- Businesses that return income on a cash basis are assessed on income as it is received. A simple end of year tax planning strategy is to delay “receipt” of the income until after 30 June 2010.
- Businesses that return income on a non-cash basis are generally assessed on income as it is derived or invoiced. Income may be deferred, in some circumstances, by delaying the “issuing of invoices” until after 30 June 2010.
- Realising a capital gain through selling shares or investment property after 30 June 2010 will defer tax on the gain by 12 months and can also be an effective strategy to access the 50% general discount which requires the asset to be held for at least 12 months.
Valuing trading stock
Both SBE and non-SBE taxpayers have the option of valuing trading stock on 30 June 2010 at the lower of actual cost, replacement cost, or market selling value. Furthermore, this valuation can be applied to each item of trading stock.
For example, where the market selling price of stock items at year-end is below the actual cost price, the taxpayer can generate a tax deduction by simply valuing the stock at market selling value for tax purposes.
In situations where stock has become obsolete at year-end (e.g. fashion clothing), the taxpayer may elect to adopt a lower value than actual cost, replacement cost, or market selling value.
Review your Debtors - Writing off bad debts
Where a taxpayer accounts for income on a non-cash basis and has previously included the amount in assessable income, a deduction for a bad debt can be claimed in 2009/10, as long as the debt is declared bad by 30 June 2010.
The business will need to show that it has made a genuine attempt to recover the debt by year- end to prove that the debt is bad. It’s preferable that this decision is made in writing (e.g. a board minute).
Businesses can also claim back the GST paid on debts that have been written off as bad, or where not written off as bad, the debt has been outstanding for 12 months or more.
Concessional superannuation caps
The concessional superannuation caps for the 2009/10 year are as follows:
Person aged below 50 years of age at 30 June 2010: $25,000
Person aged 50 and over at 30 June 2010: $50,000
Note that employer super guarantee contributions are included in these thresholds.
It is strongly advised that you DO NOT exceed these caps as it can result in the amount in excess being taxed at an effective rate of 46.5%.
The above contribution caps apply equally to self-employed taxpayers who can claim a 100% deduction where they satisfy the 10% test (where they earn no more than 10% of their income from wages, Allowances and FBT).
In order to obtain a deduction in the 2010 financial year, the June 2010 Quarter contribution must to be received and banked by the superannuation fund by 30 June 2010.
Private company loans to shareholders
Business owners who have borrowed funds from their company must ensure that the appropriate principal and interest repayments are made by 30 June 2010.
Wills
During a year allot can happen and most people forget about updating their will to reflect what has transpired in their lives. This is a timely reminder to ensure that you have taken the correct measures to protect your interests and your family should anything happen to you.
Insurances
Again, people accept what happened last year is a reflection of what will happen next year. But is it? Has your business increased/decreased its assets this year? Has the business increased/decreased its sales this year? Have you grown more/less pivotal to the business success? Are you covered should you get sick? Is the business cashflows covered if you get sick? Do you have life insurances that will cover your liabilities should anything happen to you?
For business, income protection and life insurance policies you can claim 100% of the premium if you pay it before 30 June 2010 for a year’s cover. So it’s a great time to get covered if you aren’t already.
