30 June 2016 approaches – are you ready for end of financial year?
The end of financial year isn’t too far away and planning for it this year may be more difficult than usual with the federal election being held just days after year end. This election could significantly impact a variety of taxpayers with forecasted changes being made to superannuation, business taxation and much more.
Practitioners everywhere are helping clients with year-end tax planning and helping clients understand what should be a priority for this year-end so as to make the most of the current tax arrangements while they are still law.
The following are some helpful hints that could potentially reduce your tax bill and maximise your long-term savings.
Defer making capital gains to the next tax year
If you are thinking of selling an asset which will result in a capital gain, hold off on signing the papers until after 30 June. Doing so will defer any associated capital gains tax on the sale of the asset for a full year.
If you have already sold an asset this year that resulted in a capital gain, look at selling other assets that will incur a capital loss which can then be offset against the capital gain you made this financial year.
Pay expenses and delay income
Bring forward any tax deductible expenses to the current financial year and delay income to the next financial year especially if your taxable income is likely to be higher this year than next.
Here are some of the ways to bring forward tax deductible expenses:
- Salary sacrifice work related items (even if the item is above $300)
- For an immediate deduction, purchase work related items less than $300 each
- Prepay interest on investment loans
- Make those repairs to your investment property that you have been putting off
Taking this step will reduce the amount of tax you’ll have to pay for this financial year and could also let you take advantage of any proposed future tax cuts.
If your spouse will earn less than $13,800 this financial year, you will be entitled to a tax offset of up to $540 if you make superannuation contributions to a complying superannuation fund on their behalf.
Instant asset write-off
Businesses with turnovers of less than $2 million should consider purchasing new equipment now! Similar to the last financial year, small businesses continue to be entitled to an immediate deduction when purchasing new assets, but the cost of the asset must be less than $20,000.
Lower tax rates
While the tax rate for this financial year has been reduced to 28.5% for small businesses, the current Government proposed during the May 2016 Budget to drop the income tax rate for small businesses even further to 27.5% after 1 July. Delaying income or prepaying expenses may help to ensure your business utilises the lower tax rate in the next financial year should the proposed changes become law.
Pay your employees’ super before 30 June for a tax deduction
Businesses should consider paying their June quarter employee superannuation contributions before 30 June in order to claim the deduction in this financial year.
As always, be aware: the required super guarantee (SG) contributions for employees should be made no later than 28 days after the end of the quarter to ensure that the contribution is deductible and no SG charges become payable.
Superannuation was a popular topic in the May 2016 Budget with significant proposed changes announced. It is important to understand what you can do before 30 June comes around to better your retirement savings whilst paying concessional tax rates.
Take advantage of free money!
If you make after-tax contributions to your super of $1,000 or less and you will earn less than $35,454 this financial year, then you may be entitled to a government co-contribution of up to $500. However, if you earn between $35,454 and$50,454, the co-contribution will be reduced and will cease entirely if your income exceeds $50,454.
Maximise use of the higher concessional contribution cap
If the May 2016 Budget proposed changes are passed, the concessional contributions cap will be reduced to $25,000 for all individuals from 1 July 2017. The current cap is $30,000 for individuals less than 49 years of age and $35,000 for those 49 or older. If you have the available funds, maximise the use of the higher caps before they are reduced.
Top up your super
Do you have surplus funds in your own name? If so, consider making additional contributions into your superannuation fund.
The current cap for non-concessional contributions is $180,000 per year or, if you are under the age of 65, $540,000 over a three year period. However, the May 2016 Budget has thrown a wrench in most clients’ year end plans when it comes to considering how much to contribute. The proposed changes include a $500,000 lifetime non-concessional contribution cap effective from 3 May 2016 and this lifetime cap includes non-concessional contributions made from 1 July 2007.
This proposed change announced by the current Government is causing all sorts of issues for taxpayers. Most will need to obtain contribution history dating back to 1 July 2007 to determine whether the cap has been exceeded already. Most will also need to consider whether or not to make their non-concessional contributions this year as per the current law but risk having to withdraw the excess from super should the proposed changes become law or adhere to the proposed changes and ensure their non-concessional contributions do not exceed the $500,000 limit. Doing the latter may mean missing out on the non-concessional contribution cap for this financial year end if the proposed changes are not enacted.
Have you taken enough of your pension?
If you have a pension (including a transition-to-retirement pension), make sure you pay the minimum payment amount, and do not exceed the maximum, for this financial year. If you do, there can be significant tax implications which include tax being assessed on earnings from assets used to support the pension account which are usually exempt from income tax.
The minimum payment includes a percentage of the account balance as at 1 July and is usually fixed for the year. If you started an account based or transition-to-retirement pension during the financial year, the payment is a percentage of the account balance as at the commencement date and is prorated based upon the days remaining in the year (except if the pension was commenced on or after 1 June upon which the minimum payment amount is set at zero).
Make sure contributions clear the SMSF’s bank account before 30 June
If you have a self-managed superannuation fund (SMSF), ensure your superannuation contributions for this financial year clear the SMSF’s bank account by 30 June.
This can be crucial if you want your contributions to count towards the concessional or non-concessional contribution caps or wish to claim a tax deduction for contributions made in this financial year.
Get rid of any collectables and personal use assets in SMSFs by 30th June
SMSFs that hold pre 1 July 2011 collectables and personal use assets must ensure they comply with the new rules for these types of assets from 1 July 2016 or dispose of these assets by 30 June 2016.
Want to know what a review of your business and personal circumstances could do for your finances? Please don’t hesitate to contact our experienced Newcastle commercial lawyers at Butlers Business and Law on (02) 4929 7002 or fill out an enquiry form on our website.