Use this Checklist as a guide to 2018/19 year end tax planning considerations to be covered in a client meeting, whether over the phone or in person.
Extension and increase of instant asset write-off
The instant asset write-off for small business has been extended and increased during the 2018/19 income year, allowing more businesses access to the write-off.
The following is a table which will show when the changes to the write-off thresholds have come into effect. These changes apply to small businesses with an aggregated turnover under $10m.
In addition to the above increase and extension of the instant asset write-off, businesses which are medium-sized will have an opportunity to utilise the write-off. Businesses over $10m but under $50m in aggregated turnover will be eligible to write-off assets purchased after 2 April 2019 and costing less than $30,000.
Company tax cuts
For 2018/19 income year, companies with an annual aggregated turnover under $50m will have a reduced tax rate of 27.5%. To be eligible for the reduced rate, the company must be a base rate entity.
Single touch payroll
Entities who are employers are required to report the following information to the ATO from 1 July 2019:
- withholding amounts and associated withholding payments, on or before the day by which the amount is required to be withheld
- salary or wages and ordinary time earnings information on or before the day on which the amount is paid, and
- superannuation contribution information on or before the day on which the contribution is paid.
There are some exceptions to the single touch payroll allowed for employers who only make payments to closely held employees.
Fodder storage assets allowed immediate write-off
For primary producers, a new law has been enacted which allows fodder storage assets to be immediately written off.
Fodder storage assets may include silos and hay sheds, and are used to store grain and other animal feed. The immediate write-off will apply if the asset is purchased and first installed ready for use on or after 19 August 2018.
Similar business test
A company is now allowed to claim a prior year loss against business profits as long as it satisfies the similar business test from 1 July 2015. This test adds on to the same business test, which was less flexible to pass.
The former same business test is failed unless the company carries on the same business and has not derived income from any new kinds of business or transactions. The new test makes it easier for companies to pass where early investors have entered the company ownership.
As the legislation takes effect as of 1 July 2015, companies in this position have an opportunity to amend income tax returns from the 2015/16 income year. Also, a company going back and amending their tax return to include the company loss deduction would do so in that prior year at a higher company rate. However, careful analysis of the company loss is advised.
There have been recent announcements regarding changes to Div 7A, including introducing unpaid present entitlements and 10 year loans. A part of a bigger regime of changes, the original announcements from the 2016 federal budget have been updated each year.
However, it should be noted that at present no announced changes have become law.
This may be the best opportunity to put systems in place to ensure a favourable position for Div 7A loan holders in the future.
Trust tax planning should be undertaken as soon as possible. The resolution appointing or distributing income to beneficiaries needs to be made on or before 30 June 2019, or earlier if required by the trust deed.
Capital losses realised before year’s end can be used to offset capital gains of that year.
Deferral of income
Subject to cash-flow considerations and anti-avoidance rules, income could be deferred to the following year, particularly if:
- income in the following year is likely to be lower, or
- tax rates for the following year are expected to be lower.
Note: For cash businesses — deferral of income can be risky, especially when the deferral puts them outside the ATO small business benchmarks.
If your client:
- rents out a room or a whole dwelling on a short-term basis
- provides taxi travel services (ride-sourcing) for a fare
- provides services such as creative or professional services (eg graphic design, website development), or odd jobs (eg deliveries and furniture assembly), or
- rents out a car parking space,
you may need to consider whether they are carrying on an enterprise. They may also need documentation of all their income and allowable deductions for the year.
Subject to cash-flow considerations, deductible purchases could be made by year’s end in order to accelerate deductions. This applies particularly if the income in the following year is expected to be lower than in the current year.
For obsolete stock, or in other special circumstances, a special lower valuation could be adopted. Also, no adjustment for closing stock is necessary when a reasonable estimate of closing stock is within $5,000 of opening stock.
A properly authorised resolution is required when writing off a bad debt and claiming a tax deduction. A GST adjustment may also be required on the original invoice.
To claim a current year deduction for directors’ fees, the company should have definitively committed itself to the payment, ie by passing a properly authorised resolution.
For the quarter ending 30 June 2019, employer superannuation contributions must be made before 30 June for a deduction to be available in the 2018/19 year.
For family businesses, it is important that annual caps for concessional and non-concessional superannuation contributions are not exceeded. The caps for superannuation contributions in 2018/19 are:
- Concessional contributions: $25,000
- Non-concessional contributions: $100,000
Source: CCH iknow