Year End Tax Planning 2019
As we approach 30 June, we thought it was timely to give our clients a refresher on some common EOFY tax planning tips, and also point out the key changes for the 2019 tax year that may impact you and/or your business.
If you have any questions at all regarding any of the below as you prepare for 30 June, please do not hesitate to contact your Account Manager at Keeping Company.
Revenue Recognition – You may be able to defer revenue from the 2019 year to the 2020 year if income has been received in advance. You may also be able to bring forward sales into the 2019 year where work had been completed but not invoiced until the 2020 financial year.
Deferral of Revenue – You may be able to defer sales from the 2019 year to the 2020 year under certain circumstances, again where it can be demonstrated the work has not yet been completed in full in the 2019 year.
Company Tax Rate – Small Business Entities now include companies with turnover of under $50 Million and will be taxed at 27.5%. All other companies with turnover in excess of $50 Million will continue to be taxed at 30%. If you are part of a group and the combined revenue is greater than $50 Million, you will need to determine whether you can access the 27.5%.
Construction Contracts – The ATO allows construction contract revenue to be recognized under various methods and may impact when the revenue is taxable. The application of the different methods must be consistently applied.
Interest and Dividends – Interest 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) or Personal Services Business (PSB) – If you provide personal services yourself through a company or trust it is possible that you have derived PSI or PSB and any profits may be required to be attributed to you personally or you may be limited to the type of tax deductions you can claim.
Deductibility – You should check whether any expenses incurred during the year may not be deductible such as personal, legal or expenses of a capital nature etc.
Capital – SBE’s with a turnover of up to $10 Million are entitled to an immediate deduction of all assets purchased and first used or installed and ready for use, up to the following thresholds:
- $30,000 from 7.30pm on 2 April 2019 to 30 June 2020
- $25,000 from 29 January 2019 to 7.30pm on 2 April 2019
- $20,000 before 29 January 2019
Any assets over the above thresholds will be depreciated in a pool at 15% for the 1st year and 30% for each year after. A pool balance of less than the above thresholds at the specific dates 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 as any subsequent collections will be considered taxable income.
Trading Stock – You should perform a stock take to ensure the correct gross profit is being recorded and taxed. As an SBE, if your inventory movements are under $5,000 each year you are not required to perform a stock take. 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 – As an SBE, prepayments that have a period prepaid of 12 months or less are entitled to an immediate deduction.
Motor Vehicle – If you are planning on claiming motor vehicle expenses you will need to ensure you have your log book completed for 12 weeks with the appropriate business/personal use percentages noted. If your log book is more than 5 years old or your pattern of travel has changed materially, you will need to update the logbook.
Single Touch Payroll [STP] – From 1 July 2019 all entities will be required to report all wages and superannuation payments to the ATO each pay cycle under the Single Touch Payroll regulations. Rest assured, all of our clients have received a detailed email about the process and we will provide assistance to all clients to have them ready by the deadline.
The Commissioner has also confirmed that employers will not be penalised if they commence reporting by 30 September 2019. STP will mean there will no longer be a requirement to lodge PAYG Payment Summaries.
Super Payments – Make sure all super payments are made and received by the Super Fund before 30 June to ensure the contribution is tax deductible in the 2019 financial year.
Maximise Deductible Super Contributions – The concessional cap for the 2019 year is $25,000 for persons of all ages. Remember that your 9.5% SGC also contributes towards this cap.
Division 7A Loans – You should review loans before year end to ensure you don’t accidentally trigger a debt forgiveness, deemed dividend etc and arrange a complying loan agreement with the entity.
Payment of Dividends – If you plan to pay a dividend or have paid a dividend you need to ensure the payment is allowable as well as documenting it via a Minute.
Trustee Resolutions – You should prepare a resolution or distribution plan before 30 June 2019 (or earlier) in accordance with your Trust Deed, accounting for all income types such as dividends, other income and capital gains. This will help to ensure income is not taxed unnecessarily at 47%.
Download a copy of the Sample Discretionary Trust Minute regarding the 2019 Distribution’s from the Resources section of our website. 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 available CGT concessions.
CGT Discount – Where assets are held for more than 1 year they may be entitled to a 50% discount on any CGT payable.
Work Related Deductions – In order to claim a deduction, you need to have incurred the expenditure yourself and not been reimbursed by your employer or business. The expense must be directly related to earning your income and you must keep copies of tax invoices or receipts to substantiate the claims.
The ATO is also paying close attention to taxpayers claiming the $300 work related deduction and $150 work related clothing deductions [under which no substantiation is required] without proper explanation or diary evidence. Claims without a sufficient evidence may be denied.
Working from Home – If you don’t have a designated work area but you do some work on the dining room table or couch, you can claim some work related expenses such as the work related portion of your phone, home internet and decline in value of your computer. If you do have a designated work area you can also claim some of the running costs of your home such as electricity based on the number of hours worked. If your home is your principal place of business, you might be able to claim a portion of your home set aside to run the business.
The ATO will be looking for a separate, identifiable area of the home used for business. You need to consider any Capital Gains Tax implications of claiming a business use of operating your business from home.
Cryptocurrency – The ATO has set up a special task force to deal with Cryptocurrency and is gathering data from multiple platforms in order to check for taxpayers undeclared income or capital gains so you need to be careful and have appropriate records in place to determine whether a gain or loss has been made.
Depending on your activity you may even be treated as a trader and any buys/sells can be treated as profit or loss and therefore not subject to any CGT discounts.
Rental Property – You can no longer claim the costs of travelling to and inspecting your property as well as depreciation for 2nd hand plant and equipment. The ATO plans to carry out over 4,000 audits this year with the focus on over claimed interest, capital works claimed as repairs, incorrect apportionment of holiday home usage as well as omitted income from accommodation sharing such as Airbnb.
Income from Sharing Economy – The ATO has data matching technology for income earned from Uber, Airbnb, Airtasker etc and will be closely looking at omitted income from these sources.
You may also be able to claim a deduction for the proportion of expenses used to earn the income, such as car, property and tools. All Uber drivers should be registered for GST.
Keeping Company 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.
The information provided here is general for Australians and should not be your only source of information. We recommend consulting an experienced Chartered Accountant or Registered Tax Agent as each business’s circumstance will vary.
For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.