Tax Planning Newsletter 2019
General Year-End tax Planning Strategies
Income Tax Changes for 2018/19
Very few changes this year due to the election but we have a brief summary on what we thought was important.
There may be some advantages in acting on some of these items before 30 June.
If you think any of these changes may affect you, please contact us for more details.
Ph: 8364 5555
Business Income and Expenses
Subject to cash flow requirements, consider deferring income (by not raising invoices) until after 30 June, especially if you expect lower income for 2019/20 compared to 2018/19.
Most businesses are taxed on income when it is invoiced. Some small businesses may be taxed only when income is received. Income from construction contracts is generally taxed when progress payments are invoiced or received.
Ensure that you have complied with the requirements to claim deductions in 2018/19:
▪ Bad debts must be written off in your accounts before 30 June
▪ Employer and/or self-employed superannuation contributions must be paid to, and received by, the super fund before 30 June and must be within the contributions cap
($25,000 for individuals)
▪ Depreciation can be claimed for assets first used, or installed ready for use, before 30 June
▪ Small businesses (turnover less than$2 million) can claim up to $30,000.
▪ For larger businesses, this is generally limited to expenses below $1,000
▪ Wages paid to your spouse or family members must be reasonable for the work performed
Small businesses planning major purchases or replacements of capital equipment should contact us for advice.
Review valuations of trading stock in the lead up to 30 June. Best practice is generally to value stock at the lower of cost or market selling value. This may change if you expect a tax loss for
2018/19, or substantially higher income in 2019/20 compared to 2018/19.
Other Tax Planning Considerations
Contact us for advice if you have moved to or from Australia for an extended period. You may need to review your residency status for tax purposes. There are important tax consequences if you change residency.
Do you have control of a foreign entity or own property/assets over $10,00 in a foreign country, we need to know to prepare your tax return correctly.
Personal Income, Deductions and Tax Offsets
Subject to cash flow requirements, set term deposits to mature after 1 July, rather than before 30 June.
Consider realising capital losses if you have already realised capital gains on other assets during 2018/19. Conversely, consider realising capital gains if you have un-recouped capital losses, or you expect substantially higher income in 2019/20 compared to 2018/19.
If you expect lower income in 2019/20 due to retirement or any other reason, consider deferring income until after 1 July, when you will be in a lower tax bracket. If you are a primary producer and you expect a permanent reduction in income, consider withdrawing from the income averaging system or consider purchasing a Farming Bond to defer (NOTE if you stop farming within 90 days this deferment will lapse).
Access to the Net Medical Expenses Tax Offset has (phased out) compared to previous tax years, but the tax offset is still available if you are Taxable and in Aged Care. If unsure, contact us for advice.
Arrange for donations to be grouped in the higher income earners name.
If you plan to purchase income-producing assets, consider acquiring assets that will generate positive cash flow in the name of the lower income earner. Conversely, consider acquiring negatively geared assets in the name of the higher income earner.
NOTE that if you have a rental property or considering purchasing one, you need to get the depreciation of assets RIGHT. Seek advice before purchasing or if now purchased organise a Deprecation Schedule with a quality surveyor to maximise your deductions.
Trustees of trusts should ensure that all necessary documentation is completed before 30 June.
Family discretionary trusts may need to make a family trust election if the trust has un-recouped losses or has beneficiaries whose total franking credits for the year may exceed $5,000.
Small Business changes
STP = Single touch payroll starts 1/7/19 for most small businesses
For small business entities (turnover less than $2m) start reporting through their cloud software or the tax/BAS agent from 1/7/19.
Contact us to find out which category you fit in to as to when you report, per pay period, quarterly or can you start from 1/7/20?
STP will eliminate the need for employers to issue PAYG payment summaries and employees can rely on the reports through their MYGOV account for access to the details.
The superannuation guarantee percentage is maintained at 9.5% on earnings* and not to change until the 2021/22 year to 10%.
*this definition changes regularly, get advice first.
SG Superannuation Surcharge
SG super on your employees’ wages must be paid 28 days after the quarter end (or monthly if you are not a small business). So, with the introduction of STP and data matching the ATO can determine when an employer is meeting that obligation.
There are new penalties that were introduced a few months ago, that state directors will become personally liable for SG super guarantee contributions, interest and the administration fees if they do not comply.
Taxable Payments Reporting System (TPRS)
Currently applies to a supplier who is primarily operating a business in the building & construction Industry.
From 1/7/18 they added Courier & Cleaning Industries who make payments to contractors who have a business ABN.
From 1/7/19 the Security, I.T. and Road Freight industries will need your attention to identify if a TPRS is required.
NOTE Once identified, your cloud software can do all the hard work for you. Contact us to find out how.
Income Tax Changes – Individuals
Do you have a HELP Debt?
If you earn less than $51,957pa you do not have to repay this debt, but from 1/7/19 the threshold & rates change to $45,881 – $52,973 (there is a new repayment rate introduced at 1%).
So, if you currently have a HELP debt, you might notice that your employer will take more funds out after 1/7/19 if you fall into this category.
The concessional (deductible) contributions cap for 2018/19 is $25,000 and there is no discussion of increasing this yet.
Non-Concessional contributions caps are still a flat $100,000, again no noise around this increasing.
Transition to retirement
Changes took effect from 1 July 2017 for TTR pensions paid – taxing earnings on the TTR at 15%.
New transfer balance cap for retirement phase accounts
No changes from 01/07/17 and the limit on how much of your super you can transfer from your accumulation super account(s) to tax-free “RETIREMENT PHASE” accounts to receive your pension income. The good news is that if your 1.6M pension grows over time to more money, you won’t be affected.
Low income super contributions (LISC) is now replaced with Low Income Super Tax offset (LISTO) from 1/7/17.
No change here so, low income earners
(adjusted taxable income below $37,000) will continue to benefit from a government tax offset on superannuation contributions tax up to $500 year. The LISC is 15% of the concessional (before tax) super contributions you or your employer pays into your super fund.
If you’re a low or middle income earner and make a personal after-tax contribution to your super, the government also makes a contribution up to a maximum amount of
How much you get depends on your taxable income and the amount you contribute. CONTACT US TO FIND OUT HOW MUCH YOU WILL GET.
Spouse Superannuation tax offset
Spousal adjustable taxable income of $13,800 (2016/17). Then it will increase to $37,000 and phased out at $40,000 from 1/7/17. To receive the $540 tax rebate, a contribution of $3,000 is required.
First Home Superannuation Saver Scheme
To allow voluntary contributions to superannuation to be made by 1st home buyers from 1 July 2017 to be drawn down for a 1st home deposit, with associated deemed earnings
Non-Concessional Contributions from sale of home
From 1/7/18, a person aged 65 or over will be able to make a non-concessional contribution of up to $300K from proceeds of selling their home they have owned for at least 10 years.
Contribute into super yourself
You don’t need to salary sacrifice anymore to put tax deductible amounts into super. This preserves your superannuation in the event your employer goes bust! CONTACT US TO FIND OUT MORE
We have been told that because of the Election, a budget was presented to Australians to encourage them to vote with their hip pocket. PLUS, a lot of legislation was cast aside as it lapsed due to the election taking priority, these bills may come back over time.
Therefore, this tax planning year, there isn’t much to comment on
(other than points above). Greven & Co are increasing our processes to incorporate
• STP and SG super Guarantee charge
• Substantiation around deductions
• Sighting actual invoices/documents for individual tax returns, to support taxpayers claims to improve audit outcomes for clients.
Make sure you ALL have audit insurance either in your general business policy OR via Greven & Co Audit Insurance (clients will have received their annual invoice by now). I can advise that an audit takes us 3-5 hours for an individual return or $660-$1,100.
Substantiation required by ATO
Things the ATO are looking at now that their software system is data matching with not only your employer but with every other type of person who is in the same industry. They can add in options to see if there are anomalies with your claim, which may vary wildly with all the others in the same profession.
Our software allows us to pre-position your claim in that we have sighted the invoice and able to substantiate the claim.
This year we are asking for clients to bring in their receipts (which you usually do) so we can scan and maintain them in the event of an audit.
We are also giving you tools to be able to comply with
these substantiation requests.
The ATO will be looking at:
• Motor Vehicle Claims
• Travel Claims
• Self-Education Claims
• Home Office Claims
• Internet & Mobile Claims
a. Keep a log book for 12 weeks (this can be done through a book you buy from your newsagent or Officeworks or get them from us OR you can download apps on your phone or see us about getting your car fitted for 12 weeks with a computerised log book to you cars computer). We want to sight this and keep a record of it. This Motor Vehicle logbook lasts 5 years BUT you must give us your odometer readings every year to support this logbook. It is not dependent on the car/s but on the kilometers traveled.
b. Travel claims. If you travel less than 5 days for business, you just need to keep your receipts/invoices.
If your travel is more than 5 days and or if you travel is business/pleasure you need to keep a diary of your entire trip. Again, you can get these diaries from your newsagent, Officeworks or write up a word or excel document, explaining your travel itinerary and provide more explanation about each item.
c. Self-Education claims, the first $250 is your expense. Those expenses must relate to your current occupation that you are earning money from now (NOT a potential employment, you have to have received at the time of your education, income from that same employment you are either improving your skills or enabling you to get a higher position within the same field of occupation).
The education body must be a registered training organisation like a university, college or TAFE to claim here.
d. Other types of education like a 2-day course or an online program are NOT self-education but work related expenses and are still claimable but not a self-education item on the tax return.
d. Home office/Internet, either if you bring work home or your business is run from home. You need to keep a 4 week diary of your activities that supports you working from home and or using/needing Internet access.
e. Mobile Claims you also need a 4 week Diary to substantiate your claim.
You need to write down your activities, calls taken, mobile data used to look things up, send emails, text messages to other staff or your boss or the client etc. Receiving and filing data for the business and your pay slips.
If you are not sure, give us a call but KEEP EVERYTHING and bring in everything to your tax appointment for us to discuss and help you substantiate.