Where individuals or partners in a partnership incur losses from business activities, the non-commercial loss rules should be considered as such losses may not be eligible for offset against other assessable income during the year unless certain conditions are satisfied.
Businesses need to ensure that they have kept proper records to substantiate expenses claimed in their tax returns, including a new car log book every 5 years, plus annual odometer records, travel diaries in appropriate situations, loan agreements and tax invoices.
Businesses need to continually review their operating structure to ensure that it is still appropriate taking into account issues such as asset protection, changes in marginal tax rates, and on-going changes to the small business capital gains tax concessions.
Deductible Superannuation Contributions
[vc_row][vc_column][vc_column_text disable_pattern=”true” align=”left” margin_bottom=”0″]The maximum superannuation contributions that can be claimed by employers on behalf of employees is:
| YEAR | AMOUNT |
| 2014-15 | $30,000 |
| 2013–14 | $25,000 |
The above contribution limits apply equally to self-employed taxpayers who can claim a 100% deduction where less than 10% of the taxpayer’s total assessable income and reportable fringe benefits is from any employment income.
Note that employer and self-employed superannuation contributions need to be made before the person reaches the age of 75.
In order to obtain a deduction in the 2014 financial year, the contribution must to be received by the superannuation fund by 30 June 2014.[/vc_column_text][/vc_column][/vc_row]
Writing off Bad Debts
Where a taxpayer accounts for income on a non-cash basis and has previously included the amount in assessable income, a deduction for a bad debt can be claimed in 2009/10 so long as the debt is declared bad by 30 June 2010.
The business will need to show that it has made a genuine attempt to recover the debt by year- end to prove that the debt is bad. It’s preferable that this decision is made in writing (e.g. a board minute).
Businesses can also claim back the GST paid on debts that have been written off as bad, or where not written off as bad, the debt has been outstanding for 12 months or more.
Claiming Deductions for Expenses Not Paid at Year End
Both SBE and non-SBE taxpayers are entitled to an immediate deduction for certain expenses that have been “incurred” but not been paid by 30 June 2014 including:
Salary and Wages. A tax deduction can be claimed for the number of days that employees have worked but have not been paid until after 30 June 2014.
Directors Fees. A company can claim a tax deduction for directors fees it is “definitely committed” to at 30 June 2014 and has passed an appropriate resolution to approve the payment. The director is not required to include the fees in their taxation return until the 2014 year when the amount is actually received.
Staff Bonuses and Commissions. A business can claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June 2014 where it is “definitely committed” to the expense.
Repairs and Maintenance. A deduction can be claimed for repairs undertaken and billed by 30 June 2014 but not paid until the next income year.
Maximising Depreciation Claims for Non-SBE Taxpayers
An immediate deduction can be claimed for assets costing less than $100 GST inclusive (e.g. minor tools).
A tax deduction can be claimed for depreciable assets that are scrapped or sold for less than their written down value.
Assets costing less than $1,000 GST exclusive can be allocated to a “low value pool” and depreciation claimed of 18.75% for 2010 (37.5% thereafter) regardless of when the assets were acquired during the income year
Valuing Trading Stock
Both SBE and non-SBE taxpayers have the option of valuing trading stock on 30 June 2010 at the lower of actual cost, replacement cost, or market selling value. Furthermore, this valuation can be applied to each item of trading stock.
For example, where the market selling price of stock items at year-end is below the actual cost price, the taxpayer can generate a tax deduction by simply valuing the stock at market selling value for tax purposes.
In situations where stock has become obsolete at year-end, the taxpayer may elect to adopt a lower value than actual cost, replacement cost, or market selling value.
Deferring Income & Capital Gains
Businesses that return income on a cash basis are assessed on income as it is received. A simple end of year tax planning strategy is to delay “receipt” of the income until after 30 June 2014.
Businesses that return income on a non-cash basis are generally assessed on income as it is derived or invoiced. Income may be deferred in some circumstances by delaying the “issuing of invoices” until after 30 June 2014.
Realising a capital gain after 30 June 2010 will defer tax on the gain by 12 months and can also be an effective strategy to access the 50% general discount which requires the asset to be held for at least 12 months. The date of the contract is the realisation date for capital gains tax purposes.
Prepayment of Expenses
Certain prepayments are not subject to the above 12 month rule and therefore both SBE and non-SBE taxpayers may be able to claim deductions for expenditure that is:
less than $1,000 GST exclusive; or
incurred under a law of the Commonwealth, State, or Territory. Common examples are motor vehicle registration and compulsory third party insurance and Workcover premiums and statutory licences; or
paid under a contract of service (e.g. prepayments of salary and wages, bonuses and commissions).
Small Business Entity (SBE) Tax Concessions
The “small business entity” (SBE) tax rules provide access to a range of concessions that businesses can apply without the need to make a formal election in the tax return. A business can choose which one or all of the concessions to apply.
In order to be an SBE, the turnover of the business, including connected entities and affiliates, has to be less than $2 million GST exclusive.
The major tax planning concessions that are available under the SBE rules are:
The choice to continue to use the “cash accounting method” for recording income and expenses in the tax return where the business has continually used this method both prior to and after 1 July 2005;
The choice to adopt the simplified depreciation rules whereby an immediate deduction can be claimed for assets costing less than $1,000 GST exclusive. Depreciable assets costing $1,000 or more GST exclusive are included in an asset pool. A full depreciation deduction of 15% (30% thereafter) can be claimed for 2010 where the asset has an effective life of less than 25 years regardless of when the asset was acquired during the income year.
Choosing whether or not to do an end-of-year stock take if the value of trading stock has not increased or decreased by more than $5,000 over the income year.
Claiming an immediate deduction for certain prepaid business expenses where the payment covers a period of 12 months or less that ends in the next income year. Subject to cash flow requirements, the most common expenses that an SBE taxpayer should consider prepaying by 30 June 2014 include lease payments, interest, rent, business travel, insurances, business subscriptions, etc;
The ability to apply the small business capital gains tax concessions without the need to satisfy the $6M net asset
Small Business Tax
Tax Planning Considerations for Businesses
Business owners should now be talking to their accountant about ways to legitimately reduce the tax bill for 2014.
Some tax planning techniques differ depending on whether the business is a “small business entity” and there are common strategies that should be considered prior to 30 June