Tax planning is a year round process but with the end of the financial year just around the corner, now is the time to look at what else you can do to maximise your tax benefits and your wealth building strategies as well as generally getting organised for the next financial year.
Here are our top 10 tips that may benefit you:
1. Maximise Your Super Contributions
Review your contribution types and amounts to ensure that you have maximised your super contributions without exceeding the limits. Contribution caps for the 2015-2016 financial year are:
- $30,000 or $35,000 for members who were aged 49 or over on 30 June 2015
- $180,000 or $540,000 for individuals under age 65 on 1 July 2015 using the bring-forward provisions
Technically, the above non-concessional cap still applies. However, in the 2016 Federal Budget it has been proposed that a $500,000 non-concessional lifetime cap be introduced from 7:30pm on 3 May 2016. This proposed change will apply to all non-concessional contributions made from 1 July 2007 onwards. It will not be implemented until after the 2 July 2016 Federal election and is subject to the legislation being passed.
This proposed cap must be considered before making further superannuation contributions.
2. Government Co-Contribution
By making a non-concessional contribution to superannuation you may be eligible for a Government co-contribution of up to $500. This co-contribution is paid to an eligible member whose total income for the 2015-2016 financial year does not exceed $50,454, is less than 71 years of age at 30 June 2015 and that a minimum of 10% of income is from eligible employment.
The amount a member contributes will count towards their non-concessional contributions cap however, the amount of the Government co-contribution does not.
3. Pay Your Super Guarantee
To claim a tax deduction in this financial year, employers must ensure that the super guarantee and salary sacrifice amounts are paid before 30 June.
Whilst the June quarter super guarantee payments are not due until 28 July 2016, if you choose to pay this quarter after 30 June, then the deduction will not be available until the 2016-2017 financial year.
4. Contribution Splitting
This is an effective strategy to re-distribute super money to a spouse who has a lower super balance. A member can split up to 85% of their last year’s concessional contribution, up to the concessional cap, with their spouse. This is generally only done in the year following the one in which a contribution was made. Non-concessional contributions cannot be split.
5. Keep Your Receipts
If you don’t keep receipts then you are not able to take advantage of tax deductions. You need to keep receipts for big ticket items but you don’t always need a receipt for incidentals like stationery and books.
If the total amount you are claiming for work related expenses is $300 or less, you must be able to show how you worked out your claims. However, you do not need written evidence to substantiate these claims.
6. Pre-Payment of Tax Deductible Expenses
If you pre-pay tax deductible expenses before 30 June, you may be able to include these expenses in your 2015-2016 income tax return. Some examples of tax deductible expenses include:
- premiums for income protection insurance that is held outside of super
- interest payments on investment loans
- expenses incurred for the maintenance and repair to investment properties
There are special rules as to who may be able to take advantage of pre-paying expenses. If you are not sure if you are eligible then please call us.
7. Write Off Bad Debts
This is not a position any business wants to be in but sometimes we just have to accept when we can’t recover an outstanding debt. On the plus side, if you do have to write off a bad debt you can claim a tax deduction for the amount written off. An outstanding debt that is deemed a bad debt is an allowable deduction provided it was included as assessable income in the current or a previous income year.
Now is the perfect time to review your debtors list to see if there are any outstanding debts that you believe can’t or won’t be paid by 30 June. This will enable you to claim a tax deduction in this financial year. You must also keep a written record to prove that the debt has been written off.
8. $20,000 Instant Asset Write Off
A year after it was introduced, one of the best tax breaks for small business is still the $20,000 instant asset write off on purchases of equipment or machinery for use in the business. These items include motor vehicles, office furniture or technology devices. You do need to keep all receipts for any purchases made.
The following key points outline eligibility to the instant asset write off:
- Only a small business, that is a business with an aggregate annual turnover of less than $2 million, can claim the deduction.
- Only assets valued at $20,000 or less, excluding GST, can qualify for the instant deduction. If the asset is valued at more than $20,000 it will be depreciated over a number of years.
- The deduction applies to assets that are new or second hand.
- If multiple items are purchased and each item costs less than $20,000, then the whole cost of each item can be instantly written off.
Eligible purchases can be made until 30 June 2017 however, for a tax deduction in this financial year, you will need to complete your purchases by 30 June 2016.
The 2016 Federal Budget introduced proposed changes to expand this write off for larger businesses. These changes will not be implemented until after the 2 July 2016 Federal election and are subject to the legislation being passed.
9. Review Your Cash Flow
Now is a good time to review your cash flow to ensure that you have accounted for all the big ticket items. This includes, but is not limited to, your last quarterly BAS, your last quarterly superannuation obligations, employee bonuses, equipment purchases and projected income tax payable on your profits. This will hopefully eliminate any surprises for you as we head towards 30 June and beyond.
10. Trading Stock Valuation
For the purposes of taxation, trading stock can be valued using different methods such as at cost, market value or replacement value.
If you choose to change your valuation method, the only requirement is that the closing stock value at the end of one tax year must be the opening stock value for the next year. Changing the valuation method at year end for tax purposes can affect the amount of taxable income, so it pays to look closely at your chosen valuation method.
Keep accurate records of your stock and conduct a stock take prior to 30 June. Damaged and obsolete stock can be written off or written down and a tax deduction claimed.
Whilst these tips provide you with a snapshot of some of the tax benefits available to you, if you are unsure about anything relating to your end of financial year tax planning then please give us a call.