Year end planning guide: for business

Some quick wins are possible in managing an expected taxable position for the 2019 tax year. 

Points to consider include:

Capital gain related exposures

Time disposals to defer payment of CGT for as long as possible.  That is, deferral of a disposal to 1 July 2019 or later allows associated CGT to be paid as late as May 2021.

Aim to realise capital losses where capital gains have been derived.

Work-in-progress/ Invoicing

Do not issue customer invoices earlier than necessary.

Asset write-offs

Note the different write off thresholds that apply in relation to assets purchased during the year.  These apply for both new and second-hand purchases.  The date at which the write off becomes available is the date that the asset is first used (or the date it is installed and ready for use).  For those assets that are intended to be claimed as a deduction in the year ended 30 June 2019, please note the following cost limits:

For assets first used (or installed and ready for use)…	A write-off is available where the cost is…
from 1 July 2018 - 28 January 2019	less than $20,000 each
from 29 January 2019 – 7.30pm (AEDT) 2 April 2019	less than $25,000 each
from 7.30pm (AEDT) 2 April 2019 – 30 June 2019	less than $30,000 each

Please note that any private use may alter availability of the deduction.

Consider the availability of capital allowances roll-over relief.

Bad debts

A bad debt should be confirmed in writing before 30 June.

Prepayments

For all businesses, prepaid expenses are deductible outright if they are for amounts:

• less than $1,000,

• incurred under a court order or by law, or

• that represent payments of salaries or wages.

For small business (turnover less than $10m), in addition to the above, prepayments are deductible upfront where the expenditure is made for a period of 12 months or less, ending no later than 30 June 2020.

Superannuation contributions

Take care to ensure that superannuation contributions are received by employees’ funds prior to 30 June 2019 in order to claim a deduction for the year ended 30 June 2019.  Special attention is needed to ensure that clearing house cut-offs are met (which are likely to be well before 30 June.)  

Trading stock

Undertake a stocktake and work out which valuation method gives the best tax result (cost, market selling value or replacement value).

Obsolete stock should be recorded at scrap value and other components, spares and consumables may not be considered as part of trading stock for tax purposes.

For owners

Ensure that salaries paid are in line with any duties of employment/officeholding of the individuals, associated superannuation guarantee obligations and any salary sacrificed superannuation contributions have been met.

For trusts

Seek specialist help in reviewing trust distribution flows and preparing trust distribution minutes.  A careful reading of the trust deed is required to best ensure that no income is unintentionally taxed within the trust (47.5% tax rate applies).  Special attention is needed in relation to distribution of capital gains and franked amounts.

Shareholder loans from companies (Division 7A)

Be sure that the required minimum loan repayments have been met.  This may occur through either physical cash repayment or by offset of a dividend paid by a company. 

Consider whether repayments can be made on 1 July 2020 (i.e. the first day of the new financial year, instead of the last day) to minimise interest expense. This is a useful technique where repayments are met by offset of dividends payable by the company.

Other reminders

Company tax rate

Note that the company tax rate for businesses with turnover under $25m is 27.5% (30% otherwise).  There may be good reason if your group’s overall effective rate of tax is above the applicable corporate rate, however it serves as a useful benchmark of the tax efficiency of your group. 

Pay as you go (PAYG) instalments

Activity statements (and/or instalment notices) will soon be issued by the ATO.  If your business profitability has significantly changed and/or it is expected that the taxable position of your entity has decreased (due, for instance due to asset write-offs) then it is an opportune time to vary the June 2019 PAYG instalment. 

 A word of caution: a penalty may be applied if variation of the instalment result in tax being short paid by more than 15%.

Does your business have employees? Read on….

For businesses already within the single touch payroll regime – an adjustment event may be required to record 2019 reportable fringe benefit amounts (if any) following preparation of 2019 FBT returns. 

Employees should be reminded that they can access their income statement (formerly known as the payment summary) via MyGov, the government’s online services portal.  No physical payment summary will be issued.  The ATO has published a helpful brochure that may be provided to employees to explain the change.

For those not yet up and running in single touch payroll, the major cloud accounting software providers already have a solution that with a few initial steps, may just need to be “switched on”. 

Otherwise, other no-cost and low-cost solutions are available for micro employers (1 – 4 employees) and a register of providers has been made available. 

Payments to contractors

 Taxable payments annual reports (TPAR)

This year, the reporting obligation extends to cleaning services and courier services as well as the building and construction services industry.  The report is due by 28 August 2019. 

It’s important to note that if your business has been the recipient of government funding, certain government entities also have reporting obligations under this regime.

TPAR are not required to be distributed to payees, but it may be sensible for payers to distribute them (and when in receipt of such payments, follow them up from payers).  Mistakes happen and discrepancies may be corrected at this point. 

As from 1 July 2019 the regime extends to road freight services and information technology (IT) services.    

The ATO will be using this information for data matching purposes. 

Payments to contractors from 1 July 2019

Effective from 1 July 2019, a business can no longer claim deductions for payments where PAYG withholding requirements have not been met. Payments to workers (employees or contractors) must be carefully managed to ensure that:

• tax is withheld at the appropriate rate; and

• it is reported to the ATO.

Sometimes the distinction between a worker being an employee or contractor is a grey one.  A decision tool is available on the ATO website.  It is important to note that accepting an ABN from a person who might otherwise be treated as an employee for tax and super purposes does not absolve the payer from risk in this area.    

How can Virtue Private Advisory help?

Here are some ways that Virtue Private Advisory can help:

• Reviewing tax structure and efficiency of your business/ investment asset holdings;

• Strategic tax planning: incorporating the interrelation between the business and its owners;

• Providing tax advice in relation to a particular transaction;

• Managing your group’s compliance obligations (income tax returns, activity statements, compilation of financial statements) and forecasting associated tax cash flows.

DISCLAIMER

While this information has been carefully compiled, it is general information and does not substitute specific advice. We disclaim all responsibility from any act in reliance on this information. 

Liability limited by a scheme approved under Professional Standards Legislation.

© Virtue Private Advisory Pty Ltd ACN 630 600 538 ABN 90 630 600 538

Registered Tax Agent 25964105