As the financial year comes to a close, many businesses may have the opportunity to implement specific strategies before 30 June that will reduce or defer tax payable for the year.  In this article, we summarise some common strategies, as well as review income tax changes effective this year that are relevant to businesses, and changes that are relevant to individuals.

General Year End Tax Planning Strategies

Business Income and Expenses

If your cash flow can allow it, we often recommend businesses consider deferring income until after 30 June, especially if you expect lower income for 2016/17 compared to 2015/16. This means you simply wait until 1 July to prepare your invoices, even if they relate to June.

Most businesses are taxed on income when it is invoiced (“accruals basis”). Some small businesses may be taxed only when income is received (“cash basis”). Income from construction contracts is generally taxed when progress payments are invoiced or received.

Ensure that you have complied with the requirements to claim deductions in 2015/16:

• Bad debts must be written off in your accounts before 30 June
• Employer and/or self-employed superannuation contributions must be paid to, and received by, the super fund before 30 June and must be within the contributions cap ($35,000 for individuals aged 49 or over on 30 June 2015, otherwise $30,000)
• Depreciation can be claimed for assets first used, or installed ready for use, before 30 June
• Small businesses (turnover less than $2 million) can claim expenses prepaid up to 12 months in advance – for larger businesses, this is generally limited to expenses below $1,000
• Wages paid to your spouse or family members must be reasonable for the work performed

Small businesses planning major purchases or replacements of capital equipment should contact us for advice. Careful timing of those transactions can result in substantial tax savings.

Review valuations of trading stock in the lead up to 30 June. Best practice is generally to value stock at the lower of cost or market selling value. This may change if you expect a tax loss for 2015/16, or substantially higher income in 2016/17 compared to 2015/16.

Other Tax Planning Considerations

Contact us for advice if you have moved to or from Australia for an extended period. You may need to review your residency status for tax purposes. There are important tax consequences if you change residency.

Trustees of trusts should ensure that all necessary documentation is completed before 30 June, where you intend to stream capital gains or franked distributions to specific beneficiaries.

Family discretionary trusts may need to make a family trust election if the trust has unrecouped losses, or has beneficiaries whose total franking credits for the year may exceed $5,000.

Be sceptical of year-end tax shelter schemes. You should not enter a scheme without advice regarding both its tax consequences and commercial viability.

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Income Tax Changes – Small Businesses

Tax Rate

The tax rate for small business entity companies is 28.5% from 1 July 2015.
Individual small business taxpayers are entitled to 5% discount of the income tax payable on the business income received from a small business entity (other than a company), up to a maximum of $1,000 a year.

Accelerated Depreciation

An immediate deduction is available for an asset costing less than $20,000 acquired on or after 12 May 2015 and first used or installed ready for use between 12 May 2015 and 30 June 2017.

The balance of the general small business pool is also immediately deducted if the balance is less than $20,000 at 30 June.

Blackhole Expenditure

From 1 July 2015, start-up companies, trusts or partnerships can immediately deduct a range of professional expenses associated with starting a new business (e.g. professional, legal and accounting advice).

Employee Share Schemes

From 1 July 2015, there are new rules for the tax treatment of employee share schemes, including tax concessions for start-up companies that meet certain conditions. Please contact us if you think you might be affected .

In-house Software Expenditure

From 1 July 2015, the period over which capital expenditure on in-house computer software is depreciated has been increased from four years to five years, with associated changes to the software development pool rules.

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Income Tax Changes – Individuals

Car Expenses

From the 2015/16 tax year, the 1/3 of actual expenses and the 12% of original value method for claiming work related car expenses can no longer be used.

A single flat rate of 66 cents per kilometre is to be used for the cents per km method.

Income Test for Dependant Tax Offsets

The income threshold for dependant tax offset purposes has been reduced from
$150,000 to $100,000 from the 1 July 2015.

Zone Tax Offset

From the 2015/16 tax year, the zone tax offset excludes ‘fly-in fly-out’ and ‘drive-in drive-out’ workers where their normal residence is not within a ‘zone’.

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Superannuation

The balance threshold for transferal of small lost member superannuation accounts to the ATO has been increased from $2,000 to $4,000 from 31 December 2015.

From 1 July 2015, super fund members can access their superannuation based on the diagnosis that they have 24 months or less to live. Up to 30 June 2015, it was 12 months.

The full co-contribution rate applies for income up to $35,454 and the partial co­contribution applies for income up to $50,454 for the 2015/16 tax year.

The maximum super contributions base for high income earners is $203,240 per annum for the 2015/16 tax year.

As announced in the 2016/17 Budget, from 3 May 2016, a lifetime non­concessional contributions cap of $500,000 was introduced. The proposed lifetime cap will replace the existing annual caps which allow annual non­concessional contributions of up to $180,000 (or $540,000 over a three-year period for individuals under 65).

The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.

Primary Producers

From 12 May 2015, primary producers are allowed to immediately deduct the cost of fencing and water facilities (e.g. dams, tanks, bores, irrigation channels, pumps, water tower and windmills).

The cost of fodder storage assets (e.g. silos and tanks used to store grain and other animal feed) can be depreciated over 3 years.

Fringe Benefits Tax

The FBT rate for the year ending 31 March 2016 is 49%.