Preparing in advance for the end of the financial year could give your small business a significant boost in 2018/19.
Rather than viewing it as a season to get caught up, think of June and July as an opportunity to get in front - and put in place business strategies with long-term benefits.
With 30 June fast approaching, now is the time to consider your year-end tax position. We have compiled the following list of items to assist in the year-end tax planning process.
Deferral - You may be able to defer sales from the 2018 year to the 2019 year or bring forward sales into the 2018 year in appropriate circumstances
Company Tax Rate – Small Business Entities now include companies with a turnover of under $10 Million and will be taxed at 27.5%
Unearned Income / Income In Advance – You should consider whether any income received is in advance of the goods or services being supplied and can, therefore, be taxable in a future year
Construction Contracts – The ATO allows construction contract revenue to be recognised under various methods and may impact when the revenue is taxable. The application of the different methods must be consistently applied
Interest and Dividends – Income is generally booked as revenue when received. If you have received a loan from a related company or trust you should consider whether a Division 7A dividend is likely to be paid
Personal Services Income (PSI) / Personal Services Business (PSB) – If you provide services by yourself through a company or trust it is likely that you have derived PSI/PSB and any profits may need to be attributed to the person(s) providing the services until you are deemed to be operating a "business" by the ATO
Deductibility - You should check whether any expenses incurred during the year may not be deductible
Capital - Entities with an aggregated annual turnover of less than $10 Million are entitled to an immediate deduction of all assets costing less than $20,000, these assets should be bought and installed before 30 June 2018. Any assets over $20,000 will be depreciated in a pool at 15% for the 1st year and 30% for each year after. A pool balance of less than $20,000 can also be written off
Bad Debts - if you write off doubtful debts before 30 June you will be entitled to a tax deduction. You should consider whether you have made all necessary attempts to collect before writing off
Trading Stock - You should perform a stock take to ensure the correct gross profit is being taxed. As an SBE if your inventory movements are under $5,000 each year you are not required to perform a stocktake. You can choose to value your year-end stock as cost, market value or obsolete value
Employee Bonuses or Director Fees - If you are paying bonuses or Director Fees you should ensure that you are committed to paying them before 30 June and some documentation should be kept for the bonuses and a resolution for the Director Fees.
Prepayments - Prepayments that have a period prepaid of 12 months or less are entitled to an immediate deduction
Accruals - You should also review expenses that are dated in July, August or September 2018 and if any of these relate to the 2018 financial year you may be able to accrue for them and obtain a deduction in 2018
Wages Paid in July 2018 - If wages are paid in early July 2018 and relate to June 2018 you may be able to accrue a deduction for the number of days that relate to the 2018 financial year
Single Touch Payroll - Entities with 20 or more employees are required to report the following information to the ATO from 1 July 2018:
withholding amounts and associated withholding payments, on or before the day by which the amount is required to be withheld
salary or wages and ordinary time earnings information on or before the day on which the amount is paid, and
superannuation contribution information on or before the day on which the contribution is paid.
For the first 12 months, reporting entities will not be subject to administrative penalties, unless first notified by the ATO.
Super Payments - Make sure all super payments are made and received by the Super Fund before 30 June 2018 to ensure deductible in the 2018 financial year. If you are making super contributions outside of the 9.5% and intend to claim a tax deduction you will need to obtain a Notice of Intention to Claim a Tax Deduction form from your Super Fund
Maximise Deductible Super Contributions - The concessional cap for the 2018 year is $25,000 for all persons. This has changed from the limits allowed in the 2017 year. Remember that your 9.5% is counted toward these caps
Division 7A Loans - You should review loans before year-end to ensure you don’t accidentally trigger a debt forgiveness, or deemed dividend and arrange a loan agreement between yourself and the company
Payment of Dividends - If you plan to pay a dividend or have paid a dividend you need to ensure the payment is allowed as well as documenting it via a Director Minute
GST on Low Value Goods - The GST and customs duty exemption for imported low value goods less than $1,000 ends on 30 June 2018.
Trustee Resolutions - You should prepare a resolution or distribution plan before 30 June 2018 or earlier depending on your Trust Deed considering all types of income such as dividends, other income, capital gains. This will help to ensure income is not taxed at 47%.
Download a copy of the Discretionary Trust Minute re Distribution 2018 here. This template should be used as a guide only.
Meaning of Income - You should consider the definition of Income as per your Trust Deed to ensure your resolutions are effective in the distributions
Trust to Company Distributions - If these exist you need to consider Division 7A and whether all payments have actually been made to avoid any Unpaid Present Entitlements (UPE)
Family Trust Elections - You should review FTE requirements to ensure that franking credits can flow through and protect bad debts and carry forward losses
Trust Deed - Consider reviewing your Deed to ensure it is appropriate for the proposed distributions
Timing of CGT Events - You should consider the timing of a capital gains tax event in respect to which financial year the event falls into noting that contract dates and not settlement dates are generally when the event occurs
Small Business CGT - Consider your ability to reduce any capital gains by applying the concessions
CGT Discount - Where assets are held for more than 1 year they may be entitled to a 50% discount on any CGT payable
Keeping Co. is a team of experts; Cloud Accountants, Business Advisors, Finance Specialists working together to provide a complete solution for the Australian Small to Medium Business owner. Contact us for assistance with services including;
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For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.