With less than two weeks until the end of the financial year and after a federal budget designed to take away a bigger share of income than in previous years, there is no better time to put some effort into year-end planning.
To help you with this we have summarised some things that need to be done before year-end and some other useful ideas that may assist with reducing the tax payable when tax returns are lodged.
Trust distribution minutes
Similar to last year if you operate a trust, it is crucial that prior to 30 June 2013, the trust has resolved how it will distribute the income of the trust. Your adviser is aware of the importance of this issue and is currently in the process of preparing the required minutes. If the required resolution is not completed on time it can result in some unfavourable implications.
Don’t forget also that this year 30 June falls on Sunday. Therefore the target date for completing these resolutions needs to be Friday, 28 June. If you don’t hear from you adviser by 25 June please take steps to contact them.
Trust distributions to companies
Following on from the above distributing net income to a company can be an effective strategy to reduce tax.
While this will have the effect of capping the tax at 30%, consideration will need to be given to what is done with these funds once they are in the company.
In such a case our firm has designed some investment structures that you may find appealing. Please consult your adviser if you wish to find out more.
Loss carry-back rules
A new measure that is currently before the Senate and likely to be passsed soon, provides tax relief to companies by allowing them to carry-back tax losses so they receive a refund against tax previously paid.
These rules are new this year and will allow a one-year loss carry-back in the current financial year. These rules allow tax losses incurred to be carried back and offset against tax paid in the 2012 financial year.
For 2013/14 and later years, tax losses can be carried back and offset against tax paid up to two years earlier.
Loss carry-back will:
- be available to companies and entities taxed like companies who elect to carry-back losses
- be capped at $1 million of losses per year
- apply to revenue losses only
- be limited to the company’s franking account balance.
Are you thinking about buying a car?
If you operate a small business then there have been some changes from last year that mean that if you have purchased a new car since 1 July 2012, you can claim an instant tax write-off of the first $5,000.
The balance over $5,000 is depreciated as per usual.
Therefore if the business is in the process of buying a new car it is likely to be worthwhile ensuring the purchase happens before 30 June. This could combine with the year end run out sales to produce real benefit.
Purchase of depreciating business assets
In a similar vein to the previous point, the changes implemented from 1 July 2012 also mean that an eligible small business can claim an immediate deduction for depreciating assets costing less than $6,500.
If your business is therefore in need of any new equipment, such as computers or printers, then it might make sense to make those purchases before 30 June.
Superannuation contributions for the year ending 30 June 2013
Just like prior years don’t forget to lock some money away. While superannuation has taken a few punches from the government and the media during the year
it is still the most tax effective environment for saving for the future.
It’s therefore critical that contributions are paid before 30 June. It is also critical that care is taken to not exceed the contribution limits.
The maximum concessional contributions for the year ending 30 June 2013 are $25,000. This limit applies on a per person basis and includes concessional contributions from all sources.
The concessional cap will increase to $35,000 for individuals over the age of 60 from 1 July 2013.
At this point it is also useful to note another widely publicised change to the super rules. This change will increase the contributions tax from 15% to 30% for individuals who have income of more than $300,000. It is proposed that this change will apply from 1 July 2012. These changes however are not yet law as their application depends on the passage of the law through parliament.
If you have a spouse, parent or child on a low income then consideration should also be given to paying a non-concessional contribution for them.
Non-concessional contributions up to $1,000 will be matched by a government co-contribution of $500 for people earning less than $31,920. Transitional rules apply for incomes up to $46,920.
To be eligible the person must be employed or self-employed.
While on the topic of superannuation it is also necessary to note non-concessional contributions. These contributions are broadly contributions you make to super from after tax dollars. This is typically used to get additional money into the low taxed super environment
The non-concessional contribution limits are $150,000 per member per year, or $450,000 per three-year period.
As penalties can apply to excess non-concessional contributions, please discuss this with your adviser before making a large non-concessional contributions.
If your superannuation fund is in pension phase then an important thing to remember is to make the minimum pension payments from your SMSF before 30 June.
While the table below provides further details, we recommend that you discuss this with your adviser before making the payment to ensure the correct amount is paid and to also ensure an appropriate buffer.
|65 to 74||3.75%|
|75 to 79||4.5%|
|80 to 84||5.25%|
|85 to 89||6.75%|
|90 to 94||8.25%|
|95 to whenever!||10.5%|
Are you over age 60?If you are over age 60 and have not started a superannuation pension then you need to call your adviser ASAP, because you are missing out. The taxation benefits of starting a pension mean that there is no tax in the hands of the fund and no tax on the pension income in your hands. Medical expenses claimFor the current financial year the net medical expenses rebate, which currently allows you to claim a 20% tax offset on out-of-pocket medical expenses above $2,120 (this includes medical costs for all family members), is means tested. The test applies to people with adjusted taxable incomes in excess of $84,000 and in excess of $168,000 for couples. For people in this income category, the offset will only be available for out of pocket expenses above $5,000 allowing a claim of 10% only.However the more important point this year is that the net medical expenses tax offset is being phased out from 1 July 2013. This basically means that you need to claim it this year to be able to claim it next year. Therefore if you are close to the line it may be worthwhile bringing forward the payment of some medical expenses to protect access to this concession next year.
Tax rates for 2012/13 and 2013/14
As previously advised new tax rates apply from 1 July 2012. These new rates broadly mean that individuals earning less than $80,000 will pay less tax than in previous years. If your trust distributes to multiple family members then this will be to your advantage.
The tax rates for 2012/13 and 2013/14 are shown below:
|Taxable income||Tax on this income|
|0 to $18,200||Nil|
|$18,201 to $37,000||19 cents for every dollar over $18,200|
|$37,001 to $80,000||$3,572 plus 32.5 cents for every dollar over $37,000|
|$80,001 to $180,000||$17,547 plus 37 cents for every dollar over $80,000|
|$180,001 and more||$54,547 plus 45 cents for every dollar over $180,000|
While there are various other year-end tax planning items that can be considered, it is impossible to provide a comprehensive list in an article such as this, please therefore discuss this with your adviser if there are other items you wish to consider.
This could include prepaying expenses, other issues that affect the timing of deductions, other issues that affect the timing of income receipts, or managing the sale of different assets to either delay a tax payment or offset other capital gains.
Please note that our comments above are general in nature, and should not be relied upon without seeking further advice from your adviser.