Tax Planning

Simply put, tax planning is the arrangement of a taxpayer’s affairs so as to comply with tax laws at the lowest possible cost which involves objectively assessing and actively managing tax risk.

Common tax planning techniques are deferring the derivation of assessable income and bringing forward allowable deductions.

Deferring Income

· Income received in advance of services to be provided will generally not be assessable until the services are provided.

· Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June to defer the income.

· Consider whether the requirements to be classified as a small business entity (SBE) are satisfied. A SBE can access various tax concessions such as the simpler depreciation rules and the simpler trading stock rules.

· Individuals operating personal services businesses should ensure that they satisfy the relevant test to be excluded from the Personal Services Income regime. Alternatively, a determination to be excluded can be sought from the Commissioner.

Maximising Deductions

Business taxpayers

· Debtors should be reviewed prior to 30 June to identify and to write off any bad debts.

· Capital assets costing $100 (GST inclusive) or less are eligible for an immediate deduction.

· Review the asset register to identify any low-cost and/or low-value assets that may be pooled to access an accelerated rate of depreciation.

· Business-related capital expenditure may be deductible, including establishment of business premises, research into likely markets or profitability of a business and due diligence reports.

· Write off any depreciating assets which are no longer being held for use because a deduction may be available.

· Employees’ superannuation contributions should be paid before 30 June to obtain a deduction and to avoid the Superannuation Guarantee Charge.

· Review trading stock for obsolete stock for which a deduction is available.

· A one-off bonus deduction for eligible tangible depreciating assets purchase between 13 December 2008 and 31 December 2009 may be available. (This measure has not received enactment.)

Non-business taxpayers

· Investors should consider prepaying interest on margin loans to obtain a deduction.

· Outgoings incurred for managed investment schemes may be deductible following a Full Federal Court decision.

· Assets costing $300 or less may qualify for an immediate deduction subject to certain conditions.

A deduction for personal superannuation contribution is available where the 10% rule is satisfied.

Capital Gains Tax

· Consider deferring the disposal of an asset to the 2009/10 income year to take advantage of the changes to the individual tax rates.

· Consider deferring the disposal of shortly-held assets to access the CGT discount, where available.

· Consider crystallising any unrealised capital losses in the income year if a significant capital gain is anticipated. Individual taxpayers can consider contributing some or all of the gain to her or his superannuation fund because a deduction may be available for personal superannuation contributions.

· Consider whether a rollover relief is available to defer any capital gains.

· Consider the availability of the small business CGT concessions which can disregard, reduce or defer a capital gain arising from the disposal of an asset which has been used by an entity in the course of carrying on its business.

Companies

· The franking percentage for distributions to shareholders should be the same for each franking period to avoid a franking deficit tax.

· A private company has four months after the end of the income year to provide its shareholders with a distribution statement for dividends paid.

· Loans, payments and debt forgiveness by private companies to their shareholders and associates may give rise to unfranked dividends assessable to the shareholders and associates. As such, loans or payments should be repaid by the earlier of the due date for lodgment of the company’s return for the year or the actual lodgment date. Alternatively, appropriate loan agreements should be in place.

Trusts

· A minor (ie aged under 18) can receive up to $2,667 in non-taxable distribution for the 2008/09 income year.

· Avoid retaining income in the trust because the income may be taxed at 46.5%.

· If a company is owned by a discretionary trust, consider whether a family trust election (FTE) is needed to ensure any losses or bad debts incurred by the company will be deductible.

· If shares are owned by a discretionary trust, consider the necessity for the trustee to make a FTE to ensure any franking credits attached to the dividends will not be ‘wasted’.

· If a FTE has been previously made, avoid distributing outside the family group to avoid the family trust distributions tax.

· If a trust has an unpaid present entitlement to a corporate beneficiary, the unpaid entitlement should be paid by the earlier of the due date for lodgment of the trust’s return for the year or the actual lodgment date.

Superannuation Strategies

· A re-contribution strategy may produce tax benefits for taxpayers under age 60.

· Low-income earners (including self-employed persons) should consider making a personal superannuation contribution to qualify for the government superannuation co-contribution payment.

· Consider splitting contributions between spouses to effectively transfer concessional contributions to the older spouse who will reach age 60 first.

· A tax offset may be available to taxpayers who made eligible contributions to a superannuation fund on behalf of their low-income or non-working spouse.

· Taxpayers who have reached their preservation age should consider the benefits of a transitional to retirement pension.

· The government has introduced a measure allowing pensioners the option to draw half of the year’s minimum required pension amount.

Developments since 1 July 2008

Taxpayers should note recent tax law changes, which include:

· the Education Tax Refund – eligible families can claim a tax refund for qualifying expenses incurred on their children’s education, subject to a maximum limit;

· the Medicare levy surcharge thresholds for individuals and families have increased; and

· the Fuel Tax Credits Scheme has been expanded thereby most business taxpayers can claim credits for fuel used in their businesses.

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Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

The Australian Taxation Office (ATO) has announced that tax bonus payments will begin to be delivered to eligible tax payers this week.

The tax bonus payments, which are part of the government’s economic stimulus package, will be paid to eligible tax payers who lodged their 2007/08 income tax returns before the end of March 2009.

The payments will be distributed over the next six weeks. The ATO will also write to people to provide advice regarding the timing of the payments. The payments and written notifications will be made progressively to ensure an even distribution of mail across the country each working day. This means people in the same neighbourhood or even in the same household may receive their payment at different times.

Eligible tax payers who lodge their tax return after the end of March can expect their tax bonus as a separate payment around 4 weeks after receipt of their refund or notice of assessment.
If you are unsure whether you are eligible to receive a tax bonus payment or have yet to lodge your 2007/08 tax return, contact Davenports on (03) 9510 7600 or by emailing info@davenports.biz.

The Government has introduced the Tax Laws Amendment (2009 Measures No 1) Bill into Parliament. The amendments include:

• providing reductions in PAYG instalment amounts;

• changing the reporting requirement for employees’ PAYG summaries; and

• changing the income tests for tax and social security programs.

PAYG instalment reduction

In addition to the 20% PAYG instalment reduction for small businesses for the December 2008 quarter, the Bill proposes to allow the tax regulations to reduce PAYG instalment amounts in certain circumstances.

PAYG summary reporting requirement

The Bill will ensure that reportable employer superannuation contributions (RESC) are reported on employees’ PAYG summaries.

Amendment of income tests

The Bill will amend the income tests used to determine an individual’s eligibility for tax programs and/or social security programs.

Reportable superannuation contributions, RESC, adjusted fringe benefits total and total net investment losses will be included in income tests, where appropriate.

The tax programs and social security programs that will be affected include:

• Medicare levy surcharge;

• senior Australians tax offset;

• Government superannuation co-contribution scheme;

• mature age worker tax offset;

• deductions for personal superannuation contributions;

• Commonwealth Seniors Health Card; and

• Family Tax Benefit Part A and Part B.

In broad terms, RESC include salary sacrifice amounts and superannuation contributions above the minimum prescribed support (currently 9%).

Broadly, reportable superannuation contributions consist of two components: personal superannuation contributions for which a tax deduction is available and RESC.

Ø      TIP: Total net investment losses will capture losses which arise from investment losses, margin loan arrangements and rental properties.

Ø      TIP: Individuals who currently sacrifice an amount of their salary into superannuation should
re-evaluate their eligibility for the government co-contribution payment.

Phone Davenports on (03) 9510 7600 or email info@davenports.biz if you have any questions on the proposed amendment to tax laws or advise on your taxation affairs.

Temporary tax breaks for businesses is one of the key sections of the Federal Government $42 billion economic stimulus package announced earlier this year. The tax breaks have yet to pass through Parliament but when they do Australian businesses undertaking capital investment this year will be able to significantly cut their tax liability.

If you own or run a business it’s important you know the details of the draft legislation and your entitlements. To help educate business the Australian Government’s Treasury Department has released a Frequently Asked Questions document regarding the tax break:

• To view the Small Business and General Business Tax Break document click here.

• To read more about the tax breaks and the economic stimulus package, visit www.davenports.biz/govannounce.html.

Phone Davenports on (03) 9510 7600 or email info@davenports.biz if you have any questions on the tax break. Our aim is to ensure you pay the minimum amount of tax legally payable and claim every benefit you are entitled to.

By Martin Miller

Businesses need to deal with accounting issues on a regular basis. These may vary from the treatment of hire purchase agreements, software packages (e.g. MYOB, CFM), daily recording of transactions, monthly reconciliations and year end issues.

Accounting terminology can be confusing if you aren’t involved with them each day.

Terms such as – Accruals basis, Cash basis, BAS, GST, Assets, Liabilities, Balance sheets, Banks/loan finance, Leases and Hire purchases can all sound confusing.

Let’s face it – who actually knows what these terms mean? Probably not your average small business person.

So where do you go to for advice – that’s where your accountant can help.

A lot of accounting is numbers and plenty of them. If you don’t want to deal with them on a daily basis you will need someone to help you.

Initially the day to day stuff can be sorted out by a bookkeeper – recording all of the transactions, reconciling bank accounts, loan statements etc.

Quarterly deadlines for BAS lodgements mean that you need to have your record keeping up to date to keep away from any Tax Office penalties.

Year end accounting requirements will need to be tied together by your accountant.

It may all seem a little overwhelming but with some expert help it is easy to keep up to date. And in these uncertain times it pays to be up to date.

davenports FINANCIAL SOLUTIONS

Phone:: (03) 9510 7600

www.davenports.biz

Disclaimer: This post is just the view of the blogger only. It should not be relied upon as susbtitute for professional advice regading actual facts or circumstances. The blogger do not accept any liablity for any injury, loss or damage resulting from any person acting, or referring to act, in reliance on all or part of these materials.