Our top 20 list of potential measures to consider before & after 30 June to improve your 2018 tax outcome.
1. asset write-off under $20,000
The 100% depreciation write-off continues to apply for a small business asset purchase under $20k in 2018, as well as for next year. The small business threshold for using Simplified Depreciation is turnover of $10m, and if chosen all its rules must apply. All depreciable assets should still show on your depreciation schedule and balance sheet, in case of future disposal.
2. pooled asset write-off under $20,000
The write-off may also apply if your pool balance is below $20k. For these purposes the pool balance is the opening depreciated value, plus any additions, less any disposal proceeds, and before applying depreciation, for the year.
3. depreciate assets over $20,000
These will get a 15% flat depreciation deduction in the first year, then 30% thereafter. They will join the pool balance above and so 100% may also apply if this pool falls below $20k in future. A GST credit would also be refundable in your June BAS.
4. tools & replacements
It should be noted that Low-value items with an expected life of less than 3 years can generally be expensed 100% rather than depreciated. These might include hand tools, minor office equipment, furnishings, kitchenware etc.
5. defer income
Invoices can be issued later if delivery of work/goods/services is incomplete and not yet a recoverable debt. Any customer prepayments or deposits might also be excluded from income and GST if yet to be performed, instead they are a repayable liability.
6. bring-forward or prepay expenses
Bring forward the incurring of expenses from creditors so you can claim them this year. But note that purchasing stock may not be worthwhile, as stock on hand is an add-back to deductions at year end. Alternately you can prepay some expenses up to 12 months in advance, even if not incurred yet, examples are rent, subscriptions, insurance, advertising, travel and business seminars.
7. pay staff super now
Super is not deductible unless paid by 30 June, and it will be due for payment by the 28th July at any rate. So it's worthwhile paying this out up to date before year-end. Also important it's received by the super fund well before 30 June (a Saturday this year).
8. pay your own super
This year deductible contributions are capped at 25,000. Ensure you don't exceed this if receiving super from elsewhere. In any case, your business needs to pay the minimum 9.5% SGC Super on any salaries, wages, directors fees, etc that are ordinary earnings and go on your payment summary. If paying more than the 9.5%, this excess is Reportable Super on your payment summary.
9. personally deduct your own super
A new option this year is that you can deduct up to the 25,000 cap in your personal return without any employee tests, up to age 75. This can provide a better tax outcome for those on high marginal rates or directly receive profits, distributions or dividends. At the same time it removes the super from Payroll tax, Workers Comp, etc that may be payable by your business. Note - You must also send your super fund a Notice of Intent form and receive acknowledgement before lodging your tax return for that year.
10. SGC amnesty
This applies from 24th May 2018 for 12 months. It means if you or an employee were not paid past minimum SGC super up to March 2018 or prior years, you can now pay it (plus the nominal 10% interest). No penalties will apply and a deduction will also be allowed. Furthermore, it will not be treated as being in excess of your deductible contribution $25k cap, if that occurs.
11. split income
Generally owners don't have to justify salaries or distributions. However note director fees or salaries have to go on a payment summary, and is reported separately in the return. A Trust needs a 30 June distribution resolution. A PSI company is prohibited from wages to spouses/family. Partners may need to evidence major changes to distributions/salaries with an agreement.
12. stock write-off
Document a stocktake at 30 June and value all items at the lower of cost or realisable value, disposing of obsolete items. Small business concessions allow you to avoid a stocktake if the difference between opening and closing stock is less than $5000, based on a reasonable estimate. However note that you then also can't account for any change in stock, unless you do a stocktake.
13. bad debt write-off
Non-recoverable trade debtors can be expensed as a bad debt, but only if it has been previously bought to account in income. It also needs to be bad by 30 June, not at a later date when the return is due, so document this in accounts/correspondence.
14. capital gains & restructures
Offset any current year capital gains by realising any loss-assets. Also note that small business CGT concessions may apply. The turnover threshold for these remains just $2m, or under the $6m net assets threshold. A Small Business Restructure Rollover (SBRR) can now make a restructure possible without tax consequences, including to a Trust, conditions apply to prevent abuse.
15. shareholder loans
Repay loan accounts prior to 30 June to avoid ATO dividend deeming provisions (Div7) or interest chargeable on such loans. While this is often accomplished by the crediting of wages or dividends in your return, returning cash can help ease this outcome.
16. travel & allowances
Bring to account all business travel costs, being careful to apportion any personal use time. You can also be paid a non-taxable travel allowance based on approved ATO rates issued each year, but need a travel diary schedule to evidence and calculate this.
17. car fringe benefits
Any non-commercial car available for private use is subject to fbt rules and potential fbt return and tax. A car benefit reimbursement into business income will avoid this and also allow the deduction of all vehicle expenses inc depreciation. So ensure you have a logbook % or we can use the simpler method of 20% of car cost. Note that GST applies to this income.
18. pay company tax 27.5%
This can actually be an alternative, if you would otherwise pay personal tax at a higher rate. Company tax is not lost forever and becomes a refundable tax credit for future dividends, possibly in a year you have less other income. If you are a trust, consider distributing excess profits to a company. Important – tax must be paid by 30 June in order to issue it as a dividend for that year.
19. issue franked dividends
Further to the above, if past company tax has been paid, consider issuing a franked dividend. It won't be a tax deduction like a salary, but also can avoid payroll costs. Crediting dividends to a loan account can also resolve excess drawings.
20. small business tax offset
If you are a trust, partnership or sole trader, remember that a small business tax offset applies when preparing your personal return. The turnover threshold for this is $5m. The offset is now 8% of small business income, to a maximum $1000.
2018 tax estimates
Estimate company tax here, & personal tax from dividends, trust/partnership distributions or sole trader profits;
2019 financial year changes
A brief summary of changes you also need to consider implementing from 1st July 2018.
ato audit boost
Extra funding has been provided to the ATO for auditing the 2018 year, in particular the cash economy as well as those areas mentioned above. Individual returns will receive special focus for the omission of any foreign source income and the over-claiming of employee deductions. Even the $300 no-receipt deduction will be checked to ensure there is a sound basis for each claim.
The aim of small business is to extract the highest possible return, safely. So don't spend on deductions or take risks that don't enhance this goal, nor provide you a worthwhile tax benefit given your marginal tax rates. Also consider how low income returns will look to banks etc. Paying some tax is painful but mostly unavoidable to ensure a successful future.
Please note that the above is a summary only, may not suit your circumstances, and some new laws are yet to be passed.
Kind Regards BCA Team
Last updated: 24/06/2018
Company Tax Estimator
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2019 BUSINESS TAX CHANGES
Effective from 1st July 2018 for your attention
1. stp – single touch payroll
This is a new ATO system from 1/7/18, but only applies to those with over 20 employees. For all others it's not required until 2019, and we recommend you leave it until then so they iron out the bugs and make it easier. Otherwise let us know if help needed. 2. gst - offshore imports
GST will now apply to goods costing under $1000 supplied from offshore. This may also mean Aus businesses that drop-ship goods need to start charging GST. If goods are for your own use quote your ABN and GST registration to exempt paying the supplier GST. 3. award wage increase
The Annual Wage Review decision means a compulsory minimum wage and award increase for first full pay week after 1st July. 4. unused super caps
If you don't utilise your $25k cap in 2018/19 then the unused balance will increase your cap in the following year or years. Unused amounts carry-forward for a maximum 5 years, and providing your total super balance is under $500k at that time. 5. r&d offset changes
The R&D tax incentive has changed significantly in terms of eligibility, calculation and limits on cash refunds. 6. trust distribution anti-avoidance
A specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts. The ATO will also be applying stronger Div7 deeming rules to unpaid beneficiary loans between entities. 7. unpaid director bonuses
The ATO has indicated these will not be allowed as they contravene the Related Party provisions whereby any deduction needs to matched in the income of the corresponding person/entity. More stringent laws are coming in 2019 for any employee/contractor. 8. cleaning & courier business
These industries have been added to the Taxable Payments Annual Report requirements next year, so ensure your record-keeping of such contractors is detailed and up to date from 1st July 9. low & middle income tax offset
This will be a non-refundable offset up to $530, phasing out at $125,333, and issued on year-end lodgement. It is in addition to the existing Low income offset. 10. income tax reduction
The threshold of 87,000 will change to 90,000 from 1/7/18. After 90k the tax rate goes from 32.5% to 37% (plus 2% medicare levy).A program of reductions to 2024 has now been passed in Parliament 11. medicare threshold
The low-income threshold increases each year and will be 21,980 for singles, 37089 families + 3406 each child. 12. employee payroll
The above may result in slight changes to gross wages, withholding tax and net pay, so ensure your payroll is updated from 1st July 2018.