Year
End Tax Tips June 2016 for Small Business – CPA Australia
Check
eligibility for small business tax regime
Small businesses (sole traders, partnerships, companies
and/ or trusts with a turnover of less than $2 million) may be eligible for a
range of tax benefits including immediate write off of assets costing less than
$20,000, a 28.5 per cent company tax rate, simplified depreciation, capital
gains tax concessions and accounting on a cash basis. Broadly, the small
business must carry on a business and its annual turnover (excluding GST)
cannot exceed $2 million. Turnover will also be aggregated to include the annual
turnover of certain affiliates and entities connected with the taxpayer. While
meeting the $2 million turnover test automatically entitles small businesses to
choose certain concessions such as simplified rules for both tax depreciation
and trading stock, it is important to note that additional eligibility tests
apply to claim the small-business CGT concessions. The government has proposed
increasing the annual small business threshold to a turnover of $10 million
from 1 July 2016. This would normally create a number of year-end tax planning
opportunities for businesses with an annual turnover of between $2 million to
$10 million, however at the time of writing it is uncertain whether this
proposed increase will become law, therefore we suggest that taxpayers be
circumspect.
Maximise
depreciation deductions
Small businesses can get an immediate tax deduction for
nearly all individual assets purchased by 30 June 2016 that cost less than
$20,000, to the extent it is used for an income producing purpose and is
installed ready for use by the end of the financial year. This measure is due
to expire 30 June 2017.
For businesses registered for GST, the $20,000 threshold is
calculated on a GST-exclusive basis, but for businesses not registered for GST,
the threshold is calculated on a GST-inclusive basis.
A depreciating asset that is not immediately deductible (an
asset costing $20,000 or more) will be automatically depreciated at a flat rate
of 15 per cent in the year it was bought to the extent the asset is used for
income producing purposes, and is used or installed ready for use by 30 June
2016. The adjustable value of such an asset can be depreciated, on that basis,
at 30 per cent in subsequent years.
For those businesses with a turnover of between $2 million
to $10 million, they may wish to delay the purchase or delivery of assets
costing less than $20,000 until next financial year as such expenditure may
then qualify for an immediate deduction.
However given the uncertainty as to whether the small business
turnover threshold increase will become law, we suggest that businesses factor
that uncertainty into their decision(s) on whether or not to change the timing
of asset purchases until the new financial year.
Tax
cut for SMEs from 1 July 2016
Normally we would encourage taxpayers to consider taking
advantage of a number of year-end tax planning opportunities that a proposed
company tax rate cut creates, however it is uncertain whether this proposed
cut, especially for companies with a turnover of between $2 million to $10
million will become law, so again we suggest that taxpayers take care.
If you do want to take the risk, the following changes
announced in the budget provide a number of tax planning opportunities:
the proposed reduction in the company tax rate from 28.5
to 27.5 per cent for companies that have an annual turnover of less than $2
million from 1 July 2016
the proposed reduction in the company tax rate from 30 to
27.5 per cent for companies with a turnover between $2 million to $10 million
from 1 July 2016
the proposed increase in the unincorporated small
business tax discount from five to eight per cent on the income tax payable on
business income received from an unincorporated entity that meets the relevant
small business test, capped to $1,000 per individual.
In particular, eligible businesses can bring forward
expenses into this financial year (to receive a higher deduction for such
expenses), and delay revenue into the next financial year (as revenue will be
subject to a lower tax rate).
As always, care should be taken to ensure that any actions
do not breach the tax general anti-avoidance rules or any specific provisions
such as the tax prepayment rules.
Review
salary sacrifice arrangements
Employees can consider salary sacrifice arrangements under
which their gross salary may be foregone to obtain either a packaged car for
fringe benefits tax (FBT) purposes, or they can make additional superannuation
contributions.
A 20 per cent flat rate applies when calculating a car
fringe benefit under the statutory-formula method, regardless of how many
kilometres the vehicle travels annually. However, there may still be some tax
savings in packaging a car under these rules compared to the cost of funding
all your car expenses from your net salary.
In addition, under these rules employees who predominantly
use a car for work-related travel may be able to obtain tax savings by
calculating the FBT paid on the car under the operating-cost method rather than
funding their car expenses from their after-tax salary.
Make
trust resolutions by 30 June
As always, trustees of discretionary trusts are required to
make and document resolutions on how trust income should be distributed to
beneficiaries for the 2015-2016 financial year by 30 June.
If a valid resolution is not executed by 30 June, any
default beneficiaries under the deed will become presently entitled to trust
income and subject to tax (even where they do not receive any cash
distribution), or the trustee will be assessed at the highest marginal tax rate
on any taxable income derived but not distributed by the trust.
A trustee must be able to show how an effective resolution
was made through minutes, file notes or an exchange of correspondence
documented before year end. However, the trust's accounts do not need to be
prepared by 30 June.
As a corporate trustee may need time to notify its
directors that a meeting must be convened to pass and record a resolution, such
a notice should be sent out well before the 30 June deadline.
Seeking
professional advice when starting a business
From 1 July 2015, the professional expenses associated with
starting a new business, such as legal and accounting fees, are deductible in
the year those expenses are incurred rather than deducted over a five-year
period as was the case in previous years.
Small
business restructure rollover relief
From 1 July 2016, small businesses will be able to change
the legal structure of their business without incurring any income tax
liability when active assets are transferred by one entity to another.
This rollover applies to active assets that are CGT assets,
trading stock, revenue assets and depreciating assets used, or held ready for
use, in the course of carrying on a business.
If you are in the process of or considering restructuring
your small business, you should consider delaying the restructure until after
the new financial year commences.
Stream
trust capital gains and franked dividends
Broadly, trustees of discretionary trusts can stream
capital gains and franked dividends to different beneficiaries if the trust
deed allows the trustee to make a beneficiary “specifically entitled” to those
amounts. The trustee must document this resolution before 30 June and the
beneficiary receives or is entitled to receive an amount equal to the net
financial benefit of that gain or dividend.
Private
company loans
Income tax law can potentially treat a payment or a loan by
a private company to a shareholder or an associate (like a family member), or
the forgiveness of a shareholder’s or associate’s debt, or the use of a company
asset by a shareholder or their associate, or the transfer of a company asset
to a shareholder or their associate as an unfranked deemed dividend unless an
exemption applies.
The most common exemption is to enter into a written loan
agreement requiring minimum interest and principal repayments over a specified
loan term, which may be seven or 25 years depending on whether or not the loan
is secured.
There are various things a private company can do before
its 2015-2016 income tax return needs to be lodged to minimise the risk of a
shareholder or an associate deriving a deemed dividend. Depending on the
circumstances, these strategies may include repaying a loan, declaring a
dividend or entering a complying loan agreement before the return needs to be
lodged.
Prevent
deemed dividends in respect of unpaid trust distributions
An unpaid distribution owed by a trust to a related private
company beneficiary that arises on or after 1 July 2014 will be treated as a
loan by the company, if the trustee and the company are controlled by the same
family group. In these circumstances, the associated trust may be taken to have
derived a deemed dividend for the amount of the unpaid trust distribution in
2015-2016.
However a deemed dividend may be prevented if the unpaid
distribution is paid out, or a complying loan agreement is entered into before
the company's 2015-2016 income tax return needs to be lodged. Alternatively, a
deemed dividend will not arise if the amount is held in an eligible sub-trust
arrangement for the sole benefit of the private company, and other conditions
are satisfied.
Write-off
bad debts
Businesses can only obtain income tax deductions for bad
debts when various conditions are met.
A deduction will only be available if the debt still exists
at the time it is written off. Thus, if the debt is forgiven or compromised
before it is written off as bad in the accounts no deduction will be available.
The debt must also be effectively unrecoverable and written off in the accounts
as bad in the year the deduction is claimed. The bad debt must have been
previously brought to account as assessable income or lent in the ordinary course
of carrying on a money-lending business. Certain additional requirements must
be met where the creditor is either a company or trust.
SuperStream
Originally due to come on line on 1 July, the ATO has
announced it is extending the compliance deadline for small businesses to adopt
SuperStream until 28 October. This means
that if you are an employer with 19 or fewer employees you will pay super
contributions for your employees electronically (EFT or BPAY) and send the
associated data electronically.
There is no change for larger employers as they already do
this.
The data is to be in a standard format so it can be
transmitted consistently across the super system – between employers, funds,
service providers and the ATO. It's linked to the payment by a unique payment
reference number.
This means you can make all your contributions in a single
transaction, even if they're going to multiple super funds.
If you are not prepared for SuperStream, seek professional
advice or visit the ATO website www.ato.gov.au.
Seek
independent advice on end of year tax effective investment products
The end of the
financial year often sees the emergence of tax effective investment products.
If you are considering such an investment, seek independent advice before
making a decision, particularly from your CPA Australia-registered tax agent.
Disclaimer
Every effort has been made to offer the most current, correct and clearly expressed information possible within this site. Nonetheless, inadvertent errors can occur and applicable laws, rules and regulations may change.
These materials on this website are general in nature. It is made available on the understanding that the JH Business Services & Taxation is not thereby engaged in rendering professional advice. Before relying on the material in any important matter, users should carefully evaluate its accuracy, currency, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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