YEAR END TAX PLANNING CHECKLIST

For year ended 30th June 2012

  • For Individual Tax Payers (Non Business)
  • For SBE Business Tax Payers
  • For Non SBE Business Tax Payers

INDIVIDUAL (NON BUSINESS) TAX PAYERS

There aretwo major avenues through which tax liability for 2012 year can be reduced. These are:

  1. Deferring Income

- This means delay the receipt of income until after the end of the financial year,

i.e. receiving income only after 30/6/2012.

- This concept is based on the fact that most taxpayers are assessed on a cash basis, which means income is taxed in the year in which it is actually received.

  1. Accelerating Deductions

-This involves bringing forward to the 2012 income year, future or proposedexpenditure / payments for claimable expenses, even though the due date falls beyondJune 30, 2012.

Note that the one off flood levy applies to 2011/2012. The “effective” tax rates for taxpayers earning under $80,000 per annum will also be cut from July 1, 2012. You will need to consider these issues when deciding whether to defer income or bring forward deductions.

TAX PLANNING TIPS

DEFERRING INCOME

  • Consider deferring the income from interest, dividends, rent, royalties or insurance proceeds etc.
  • Work in Progress of professional practices is generally not taxable until at least a bill for that work is raised. Hence consider delaying the issue of bills for Work in Progress.
  • Derivation of income in general might be deferred where possible.
  • In line with the Arthur Murray case, taxpayers may be able to defer recognition of income received before year end for services not yet performed.
  • Defer the disposal of Capital Assets to a subsequent year if there are large unrealised capital gains which will be realised in the current year if they are sold prior to June 30.
  • Defer the disposal of Capital Assets to ensure the asset has been held for at least 12 months, to take benefit of the 50% Discount scheme.
  • Bring forward sales of Capital Assets to the current year if unrealised capital losses will be realised and capital gains were derived earlier during the year.

ACCELERATING DEDUCTIONS

  • Ensure that Superannuation contributions are paid by year end.
  • The outlay for deductible expenses may be brought forward.
  • Maximise prepayments subject to existing prepayment rules.
  • Consider realising foreign exchange losses and deferring the realisation of gains.
  • Ensure that bonus obligations are incurred before year end.

Outdoor Workers

For people who work in an outdoor environment most of the time, they can claim items such as sunscreen, hats and sunglasses. Please keep receipts for these items if you wish to claim these as a tax deduction this tax season.

Note: If you are unsure whether your occupation falls within this category, please contact our office.

Pre-Payment of Private Health Insurance:

The government has now passed measures to cut the 30% private health insurance rebates for higher income earners. From July 1, 2012 the rebates will be available to taxpayers as follows:

Singles / Families / Singles / Families / Singles / Families / Singles / Families
Income Level / $84,000 or less / $168,000 or less / $84,001-
$97,000 / $168,001-
$194,000 / $97,001-
$130,000 / $194,001-
$260,000 / Greater than $130,001 / Greater than $260,001
Aged 65 and Under / 30% Rebate / 20% Rebate / 10% Rebate / No Rebate
Aged 65 to 69 / 35% Rebate / 25% Rebate / 15% Rebate / No Rebate
Aged 70+ / 40% Rebate / 30% Rebate / 20% Rebate / No Rebate

Taxpayers who prepay their private health insurance up until December 31, 2013 prior to June 30, 2012 will still be eligible to receive the full 30% rebate so taxpayers on higher incomes should consider prepayment of their policy before the end of the financial year.

SMALL BUSINESS ENTITY (SBE) TAX PAYERS

The followings are some of the distinctive features available to anSBE taxpayer;

  • An SBE taxpayer can choose to be taxed on their income on a receipts “cash” basis, and can claim deductions on a ‘paid’ basis.
  • An SBE taxpayer may take advantage of the SBE depreciation provisions, allowing an immediate write-off in the year of purchase for assets costing less than $1,000.
  • All other business assets may be depreciated as part of an SBE pooling system.
  • Where the difference between opening stock and closing stock does not exceed $5,000, it does not have to be accounted for, although the tax payer can choose to do so.
  • An SBE taxpayer may be eligible for the Entrepreneur Tax Offset provided their aggregate turnover is less than $75,000 and have other income for ETO purposes of $70,000 for singles and $120,000 for families. The Entrepreneur Tax Offset will be abolished from July 1, 2012. [For more information click here]
  • More accommodative pre-payment rules allowing SBE’s to pre-pay larger amounts and still claim a tax deduction up front.

Tests to become eligible for SBE tax payer

a. Must carry on business in that year and

b. Must have an aggregate turnover for that year of less than $2m.

TAX PLANNING TIPS

There aretwo major avenues of tax planning for SBE tax payers, these are;

i. Accelerating deductions, and

ii. Prepayments.

Accelarating Expenditure for SBE Taxpayers

1. Depreciable assets costing less than $1,000

Consider purchasing these items by 30 June 2012, as they are written off in the year of purchase.

2. Depreciable assets costing more than $1,000

Changes to depreciation rules announced in the federal budget will allow SBE’s to claim an immediate deduction for assets costing less than $6,500 from July 1, 2012 so small businesses should consider deferring these purchases until after June 30, 2012.

3. Motor Vehicles purchased for business use

Changes to legislation announced in the federal budget will allow businesses to claim an accelerated deduction of $5,000 in the first year of acquisition of a motor vehicle from July 1, 2012. Small businesses should consider deferring purchases of motor vehicles until this time.

4. Payment of Outstanding Bills

Consider paying bills already received, by 30 June 2012, to bring deduction into the 2012 income year.

5. Consumables (e.g. Office Supplies, Stationery and Spare Parts)

Consider making a purchase of consumable items, to be consumed within 3 months, by 30 June 2012.

Please Note: Where items are purchased beyond the immediate requirements of the

Business, the ATO may require deductions to be made on a usage basis. Immediate usage would generally be within 3 months.

6. Superannuation Contributions

Consider making actual payment of Superannuation Contribution by 30 June 2012. Superannuation contributions are only deductible in the 2012year to the extent they are actually paid in the 2012 income year.

7. Client Gifts

If it is a common business practice to offer gifts to clients, suppliers etc, consider purchasing gifts by 30 June2012.

8. Asset Pools

Assets purchased after July 1, 2012 will be subject to new streamlined pooling rules where all assets will be added to a single pool to be written off at a single rate.

Consider making the following payments by June 30, 2012

  1. Lease Payments. (e.g. non-luxury cars and office equipment).
  1. Car Registration (deductible annual car registration fees)
  1. Insurance (deductible insurance premiums).
  1. Interest. Consider organising with financier to prepay interest or to be charged interest in advance.
  1. Travelling Costs (e.g. airfares, accommodation and other costs) for business trip to be undertaken after 30 June 2012.
  1. Seminars and Conference Training Fees for those taking place after 30 June 2012.
  1. Subscriptions

The following items can be accrued and paid after June 30, 2012 and still claimed as a deduction:

  1. Work Cover payments
  1. Fringe Benefits Tax instalments
  1. Wages earned by employees but not yet paid.

Prepayments for SBE Taxpayers

A SBE taxpayer can only claim a deduction for prepaid expenditure where either of the following conditions are met:

a. The 12 month prepayment rule is satisfied.

- the prepaid expenditure has an eligible service period not exceeding 12 months.

- the eligible service period ends in the income year after the one in which the expenditure was incurred.

b. The expenditure qualifies as excluded expenditure.

- It is less than $ 1,000.

- It is required to be incurred by law.

- It is incurred under a contract of service.

NON SBE BUSINESS TAX PAYERS

There are 2 major avenues for non-SBE business taxpayers to reduce tax liability for the 2012year. These are:

a. Accelerating Expenditure

This involves bringing forward to the 2012income year, future or proposed expenditure (e.g. depreciable items costing less than $100).

b. Accrued Expenditure

This involves ensuring that so much of a deductible expense that has been incurred but not yet paid for as at 30/6/2012, is brought to account as an allowable deduction in the 2012 income year (e.g. salary and wages and rent etc.)

TAX PLANNING TIPS

1. Maximising Depreciation Deductions

  • Consider purchasing depreciable assets costing $100 or less by 30 June 2012, as 100% of these items are written off in the year of purchase.
  • Consider purchasing assets less than $1,000 by 30 June 2012. These assets are allocated to low value pool, which are depreciated @ 18.75% in their first year (irrespective of the date of purchase).
  • Consider selling or scrapping an asset by 30 June 2012, where the asset’s sale proceeds (if any) is less than its adjustable value, so that the loss can be claimed in the 2012 income year.

2. Consumables (e.g. office supplies, stationery and spare parts)

  • Consider making a purchase of consumable items (to be consumed within 3 months) by 30 June 2012.

Please Note: Where items are purchased beyond the immediate requirements of the

Business, the ATO may require deductions to be made on a usage basis. Immediate usage would generally be within 3 months.

3. Superannuation Contributions

  • A tax deduction can be claimed for superannuation contributions made to a complying fund for the sole trader himself or for any employee, up to certain limits.

Please Note: Superannuation contributions are ONLY deductible in the 2012 income year to the extent they are actually paid to the fund by June 30, 2012, even though they may not be required to be paid until 28 July 2012 for superannuation guarantee purposes.

4. Client Gifts

  • If it is common practice within a business to offer gifts to clients, suppliers, etc. (e.g. bottles of wine), consider purchasing gifts by 30 June 2012.

5. Repairs to business assets

  • Consider incurring any planned repairs by 30 June 2012.

6. Write off bad debts

  • Write off any bad debts before June 30, 2012.

Disclaimer: These notes are intended to be a guide only. Business Intranet Systems Pty. Ltd. (BIS), its directors, employees and consultants expressly disclaim any and all liability to any person, whether a purchaser or not, for the consequences of anything done or omitted to be done by any such person relying on a part or the whole of the contents. Do not act on the information without first obtaining specific advice regarding your particular circumstances from a tax professional.

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