Getting ready for the end of financial year – getting it right

Here we are in the last couple of months of another financial year. This is the best time of year to look at tax forecasting, strategic planning and tax minimisation strategies. It may even lead to happiness!

A review of your year-to-date income is the starting point. Once you know where you are, book a visit to our tax adviser to discuss tax planning and strategy. This will ensure you are getting the best tax outcome for the business, you and your family. Ideally, tax planning will lead to implementing some strategies to take advantage of the tax rules; there are always changes! Tax planning will assist with estimating your upcoming tax payments, including PAYG instalments, so you can budget for them in your cash flow.

For business, cash flow is king, so you don’t want to have to deal with unexpected tax payments when they could have been planned for.

It’s difficult to write an article about the most applicable strategies for every business and every person is so different. So instead, read on to learn about some changes that are coming to an end or about to commence (based on the date of publication).

LAST CHANCE! Immediate deductibility for the purchase of small business assets.
Also, review benchmarking standards for your industry. As a starting point, the Australian Taxation Office has on its website small business benchmarks. Your accountant may also have access to industry benchmarks. Get the facts.

Small businesses can immediately deduct the business portion of most assets if they cost less than $20,000 and were purchased between 7.30pm on 12th May 2015, and 30th June 2018.
This deduction is used for each asset that costs less than $20,000 ie $19,999, whether new or second-hand, in the year the asset was first used or installed ready for use. Assets purchased prior to 30th June 2018, still qualify for the immediate deduction.

STP is an electronic method for providing the ATO with real-time payroll data at the time employees are paid.

All employers who have 20 or more employees on 1st April 2018, will need to start reporting through STP from 1st July 2018. Businesses with 19 or fewer employees can choose to report through STP from 1st July 2018 but this will not be mandatory until 1st July 2019.

Ensure that your payroll service provider offers STP; you may need to update existing software or obtain an additional service. If you have not embraced clouding accounting, now is the time!

This year the ATO will be paying close attention to work-related expenses or WRE. The ATO has advised that people are claiming too many deductions based on industry standards; for the 2015 financial year that resulted in a whopping $1.1 billion in income tax.

Unsurprisingly, the ATO has now flagged its concerns about inappropriate deductions. While the ATO is always looking at unusually high claims of WRE, this year car expenses, clothing, laundry expenses and other deductions (union fees, home office, mobile phone and internet, overtime meals, tools and equipment) are the categories which will receive the most scrutiny.

In line with this year’s spotlight item, the ATO has released the ‘three golden rules’ of work-related deductions. The Assistant Commissioner stated, “Firstly, you must have paid for it and not been reimbursed; secondly, it must be directly related to earning your income and not a private expense, and thirdly, you must have a record to prove it.”

Effective from 1st July 2017, the concessional contributions cap was reduced to $25,000 for everyone (regardless of age) and is set to stay at this amount for the foreseeable future. However, from 1st July 2018, the 10 percent salary rule has been abolished. This means that even if you are employed, you can make personal deductible contributions to your super fund. This is great news for those working for international companies or who only supplement personal income with casual or part-time work.

BUT BEWARE, always contact your super fund directly to ensure you are completing the correct forms and ticking the right boxes before depositing any funds. Otherwise, you may end up contributing funds in a manner unfavourable to your situation and it can be very tricky to make back-dated changes in the modern world of real-time reporting!

Have you thought about the tax implications of your dabbling? Is the sale of Bitcoin ordinary income or subject to the Capital Gains Tax (CGT) rules? The ATO has stated that Bitcoin is not money, but ‘property’ for tax purposes and must be declared. The Commissioner’s view is that, in most cases, Bitcoin trading will generally be ordinary income where the taxpayer’s intention or purpose of entering into a commercial transaction was to make a profit or gain (for example, if you are a trader).

Renting a room out of your existing property does create some income and tax perks. You can claim expenses and depreciation for the percentage of the area of your house that was available for rent.
But the downside is, if you rent out your family home (or a part of it), even just a room on Airbnb, suddenly your family home is viewed differently by the ATO; when you sell it, you may face an ATO tax bill for CGT.

The income you make from Airbnb will usually outweigh the later effect of CGT, but not always. It’s something you need to consider carefully.

As always remember, when it comes to the end of the financial year, it’s better to get organised now, think positively about the changes you wish to make and let 2019 be the best year to date for your business. Bring on the happiness!

STOP PRESS – As announced in the 2018 Budget this week,this tax option has been extended another year.

Need help and want to know more? Call Holmans for assistance on (07) 5430 7600 or send us an email.

DISCLAIMER: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.