• Tax planning: What to consider before 30 June 2014

With the end of the 2014 financial year rapidly approaching, now is the time to consider tax planning issues and items to be actioned before 30 June 2014 to ensure that you achieve the best tax outcome possible.

With the end of the 2014 financial year rapidly approaching, now is the time to consider tax planning issues and items to be actioned before 30 June 2014 to ensure that you achieve the best tax outcome possible.

Business income and expenses
Timing of income
Deferring income until after 30 June 2014 is a very effective tax planning strategy. If your taxable income for the year ending 30 June 2014 will be significantly higher than the year ending 30 June 2015, it is important to consider issues associated with the timing of income in the lead up to 30 June 2014, including:

  • the time of billing work in progress 
  • timing of sales income 
  • the date of entering into a contract for the sale of CGT assets

Maximising allowable deductions
Bringing forward deductions and utilising them before year end can reduce your taxable income for this year. These deductions may include:

  • prepaying interest on a deductible loan 
  • writing off bad debts 
  • paying membership subscriptions to trade or professional bodies 
  • ensuring your super contributions are made and received by the fund before 30 June 2014 
  • meeting bonus/commission and directors fee obligations
  • Depreciation can be claimed for assets first used, or installed ready for use before 30 June 2014

Prepayment of expenses
Small businesses (organisations with an annual turnover of less than $2 million) can claim expenses prepaid up to 12 months in advance such as rent, lease payments, interest, travel and insurance. Large businesses are generally limited to claiming expenses below $1,000.

Writing off bad debts
A deduction for a bad debt can be claimed in the 2013/14 financial year as long as the debt is declared bad by 30 June 2014. This can be done by preparing the minutes approving the write off and remove the bad debt from your debtor’s ledger.

Tip: Remember to also claim back the GST.

Superannuation guarantee
Employee superannuation contributions for the June 2014 quarter should be paid into the superannuation fund by 30 June 2014, rather than the statutory due date of 28 July 2014, to obtain a tax deduction this financial year.
Payment means that the funds have cleared the bank account and are received by the superannuation fund by the end of business 30 June 2014.

For the year ending 30 June 2014 all individuals have a concessional contributions cap of $25,000. Contributions above these caps are subject to tax at the top marginal tax rate.

Bonuses, commissions and Directors fees
Businesses can also claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June 2014, where it is “definitely committed” to the expense.

A company can also claim a tax deduction for Directors fees where it is “definitely committed” at 30 June 2014 and has passed an appropriate resolution to approve the payment. The Director is not required to include the fees in their tax return until the following year when the amount is actually received.

Even though payroll tax requires monthly monitoring of your payroll, it is a good idea to check that you have not exceeded the relevant annual payroll tax threshold, especially if you carry on business in more than one state or territory.  If you have exceeded the relevant threshold, you must register for payroll tax and be ready to report on your 2014 payroll.

Depreciation
Before the end of the financial year is a good time to review your depreciation schedule and note which assets have been scrapped.  Consider if any assets require a change in their effective life such that the current estimate of the effective life is inaccurate.  

Small business entities can elect to use the small business depreciation rules. These rules enable the immediate write off of depreciating assets as follows:

  • if acquired on or before 31 December 2013 – depreciating assets costing less than $6,500
  • if acquired on or after 1 January 2014 – depreciating assets costing less than $1,000

Stock on hand
Conduct a detailed physical stocktake of all stock on the 30 June 2014 and identify obsolete, damaged items and write them off before June 30, 2014.

Review valuations of trading stock in the lead up to 30 June 2014. Stock can be valued at the lower of the three different methods including:

  • cost 
  • sales value
  • market value

Small businesses are not required to perform a stocktake when the change in values is less than $5,000.

Personal taxation
New 2% Debt Repair Levy
The 2% Debt Repair Levy comes into effect on 1 July 2014. This levy will apply when an individual’s taxable income exceeds $180,000. It is imposed on the amount over $180,000. The levy effectively takes the top marginal tax rate from 46.5% to 49% including the Medicare Levy. Deferring income will result in more tax being payable if your taxable income exceeds $180,000.

Derivation of Income
It is worth considering whether assessable income should be deferred to the 2015 income year. The Medicare levy for individuals will increase from 1.5% top 2% from 1 July 2014 and the 2% Debt Repair Levy will also apply if your taxable income is greater than $180,000.  Deferring income to the 2015 year may result in more tax being payable.

Prepayments
In limited circumstances an immediate deduction is available for non-business prepaid (up to 12 months) expenditure (e.g. interest on investments).

Superannuation- Personal Deductions
It is important to check that the total of your personal contributions and any employer contributions made during the income year do not exceed $25,000. Otherwise, an excess contributions tax will apply. To be eligible for the superannuation personal deductions in 2014:

  • you must be under 75 years of age 
  • the amount you earn as an employee must be less than 10% of your combined assessable income, reportable fringe benefits and superannuation contributions; and 
  • you must notify the trustee of your fund in writing of your intention to claim a deduction

Rental properties
If you own a rental property, any net income or loss must be reported on your 2014 income tax return.

If you are likely to have a high taxable income then you may like to bring forward repairs and maintenance planned for the investment property into the 2014 financial year instead of leaving them to 2015. This decision should be weighed up with the increase in the Medicare levy and the imposition of the Debt Repair Levy if your table income is greater than $180,000.

Care should be taken in determining whether a maintenance or repair is deductible or considered a renovation or of a capital nature.

Tip: Keep accurate records and copies of receipts of all expenses relating to your rental property.

Summary
It is important that you take the time to focus on tax planning and the tax issues that may affect you and your business before 30 June 2014.

Significant tax and cash flow savings can be created by the general tax planning strategies as discussed above.