Tax planning involves arranging affairs in order to comply with the income tax legislation resulting in the lowest legal taxation liability. As such, tax planning is contrasted from tax avoidance, which is the entering into a scheme in order to obtain a tax benefit and can result in significant penalties.
As 30 June approaches taxpayers should seriously consider tax planning as many strategies require action prior to 30 June in order to be effective.
The following list is by no means exhaustive but provides a number of items for consideration:
Personal Tax Rates
The table below shows personal tax rates for the current year and next two years. As tax rates reduce, a good strategy is to consider the possibility of deferral of income into the next financial year and the bringing forward of tax deductible expenditure into the current year.
- Debtor ledgers should be reviewed prior to 30 June with amounts considered bad written off. Only debts that are bad can be claimed, a provision for doubtful debts is not deductible.
- Similarly, stock should be reviewed and obsolete items written off.
- Cashflow permitting, consider prepaying expenditure where an immediate income tax deduction is available (only available in limited circumstances).
- Ensure that any income received in advance is identified as this and may not be assessable until the services are provided.
- Superannuation Guarantee Levy amounts should be paid by 30 June. Only contributions received by the relevant superannuation fund by 30 June are tax deductible in that year.
- Consider eligibility to the proposed temporary investment allowance.
- Review asset registers to identify any low cost assets eligible for immediate write off, opportunities to pool assets achieving accelerated depreciation and assets no longer held which should be written off.
Capital Gains Tax
Consider the timing of asset disposals before or after 30 June in terms of applicable tax rates, realised capital gains and losses and the availability of any capital gains tax concessions such as the 50% discount.
- Cashflow permitting, consider prepaying interest on loans where a deduction is available.
- Consider making superannuation contributions where a deduction is available, or alternatively in order to access the government superannuation co-contribution or the tax offset for spouse contributions.
- Ensure that assets costing $300 or less are identifiable for immediate write off.
- Ensure that records are available for claiming the Education Tax Refund where eligible.
Fringe Benefits Tax Compliance
The Australian Taxation Office has identified significant compliance issues in relation to Fringe Benefits Tax (FBT) obligations. A tax office provided checklist, in the form of a number of questions, can assist businesses to determine if they have an FBT obligation.
A business may have an FBT obligation if it answers yes to any of the following questions:
- Are cars or other vehicles owned or leased by the business made available to employees for private use?
- Are employees provided with loans at reduced interest rates?
- Has an employee been released from a debt owed to the business?
- Has the business paid or reimbursed a non-business expense of the employee?
- Does the business provide houses or units of accommodation to employees?
- Are living-away-from-home allowances provided to employees?
- Are employees provided with entertainment by way of food, drink or recreation?
- Has the business provided property, either free or at a discount, to employees?
- Do any employees have a salary sacrifice arrangement in place?