The end of the financial year tends to sneak up on all of us. According to chartered accountant, Susan Milicevic from Aspire Consulting, now is the perfect time to plan for EOFY, in order to best leverage any savings that might come your way.
Instant asset write off
Businesses with a turnover of less than $50 million can take advantage of the instant asset write off. This applies to assets valued less than $30,000 and means your business can claim the full depreciation in the current financial year, rather than having this amount spread over a number of prospective years.
Susan Milicevic said: “This applies to all assets used for the production of assessable income. Let’s say you wanted to buy a new, expensive printer for your business, if you buy it before June 30, you would be able to get a 100 percent tax deduction for that. You can even buy yourself a second hand business vehicle, which would qualify as well.”
The boost to $30,000 is in proposal stages, and its fate will be decided come election time.
It’s critical to monitor your current rate of PAYG Installments to ensure you’re not paying too much each quarter, or too little, by doing some tax planning now.
The Pay As You Go (PAYG) installment system is quarterly payments put towards your expected annual tax liability. So for businesses, including sole traders as well as incorporated companies, if you have lodged a previous tax return with an amount payable, you are going to be put into the PAYG installment system. This ensures businesses pay tax on expected profits at regular intervals throughout the year, rather than having a big lump sum payable at the end of the financial year.
“Unless you really closely monitor your expected profits throughout the year, you could either have a big, nasty surprise come tax time or vice versa. You could have been paying way too much every quarter and causing yourself cash flow strain unnecessarily,” said Ms Milicevic.
“It’s a really great opportunity to look at this now, as you’re usually in a good position to be able to project what your profits are going to look like and to prepare for that. We have the opportunity to vary this amount and pay a little more, or claim credits.”
There are different threshold amounts where the PAYG installments are triggered, for different company structures. Generally the ATO will write to inform you of the installment amount required, or check their website for more details.
Every discretionary or family trust has a trustee, who is responsible for deciding the allocation of the tax and taxable income.
The ATO forces the trustee, before 30th June, to make the determination about the percentage of allocations to each beneficiary.
“And that’s really difficult for businesses who might not be closely monitoring their performance.” said Ms Milicevic.
This makes tax planning, anticipating profits then sharing those in the most tax effective way important for all businesses who operate a trust. Otherwise the ATO rules the trust resolution invalid and trustees must pay tax on any profits in the trust at the highest individual tax rate.
“The ATO is really strict on this area” explained Ms Milicevic. “I would urge everyone to contact your accountant and make sure this resolution is carried out properly, on time and tax effectively.”
Staying on top of superannuation changes
Superannuation must be paid on time to be eligible for tax deductions by businesses. The amount of superannuation that can be contributed tax effectively for individuals has reduced this year.
“The last thing we would want is to have someone who has a salary arrangement with their employer, which they haven’t reduced to take into account these new limits.” said Ms Milicevic, “so everyone should check the ATO website. They should find out what their limit is, get some advice, determine what has been put into superannuation and what limit is left. Although there are limit changes, it’s never been easier to top up super and get a tax deduction for it due to recent super law modifications.”
For businesses to get a tax deduction, superannuation needs to be paid on time. For the June quarter, this means superannuation must be paid and received by the super fund before June 30.
If you’ve been accessing cash from your business in a way other than salary or dividends, this can present serious pitfalls if not documented and carried out correctly.
“You’ve got to be really proactive,” said Ms Milicevic. “If people have been taking money out their company and don’t have a strategy in place before the 30th June, a lot of the options and tax effective measures are taken away from us.”
Without proper documentation in the current tax year, it is very difficult for your accountant to reclassify salary and wages. It can result in foregoing superannuation tax deductions due to the fact that superannuation will be paid retrospectively and can also mean that BAS statements need to be amended, incurring a further cost.
In the worst case scenario, without a tax plan in place before June 30th, you’ll pay company tax on the extra income and then pay tax again on it as your personal income.
Ms Milicevic believes this is a really easy way to become a potential audit target for the ATO too.
“Contact your tax accountant and make sure this is done now. Tax planning is essential, needs to be done on time, properly and tax effectively.”
The best way to minimise tax and make the most of your income is to be proactive and to have a plan in place. If your in the market to take your business to the next level, contact the team at Morris Finance to get started today.