Tax Planning 2018
Shane's rundown on tax planning for everyone to look through! Including notes on superannuation, individual tax and areas of focus for the
We know it's a pretty intense and jargon-heavy list, however grab a cup of coffee and persevere, because it's always important to know what's coming up this "tax season".
Want a printable version of this guide to read later? Download a PDF copy here.
General Year End Strategies
Business Income and Expenses
Subject to cash flow requirements, consider deferring income until after 30 June, especially if you expect lower income for 2018/19
compared to 2017/18.
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 2017/18:
- 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 all individuals regardless of age).
- Depreciation can be claimed for assets first used, or installed ready for use, before 30 June.
- Small business (turnover less than $10 million), can claim expenses prepaid up to 12 months in advance. For larger businesses, this is generally limited to expenses below $1000.
- Wages paid to your spouse or family members must be reasonable for the work performed.
Small businesses planning major purchases or replacement of capital equipment should contact us for advice. Careful timing of those transactions can result in substantial tax savings.
Scrap any obsolete item in the asset register before 30 June. Consider delaying sale of assets that will realise a profit on sale and bring forward if it will be a loss.
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 2017/18, or substantially higher income in 2018/19 compared to 2017/18.
Personal Income, Deductions & 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 2017/18. Conversely, consider realising capital gains if you have un-recouped capital losses, or you expect substantially higher income in 2018/19 compared to 2017/18.
If you expect lower income in 2018/19 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.
Arrange for deductible donations to be grouped in the higher income year, if you expect substantially higher or lower income in 2018/19 compared to 2017/18. Make all donations in the name of the higher income earner.
Access to the Net Medical Expenses Tax Offset has been phased out and restricted to medical expenses relating to disability aids, attendant care or aged care until 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.
Trustees of trusts should ensure that all necessary documentation is completed before 30 June, where you intend to stream capital gains or franked distributions to specific beneficiaries.
Family discretionary trusts may need to make a family trust election if the trust has unrecouped losses, or has beneficiaries whose total franking credits for the year may exceed $5,000.
Be sceptical of year-end tax shelter schemes. You should not enter a scheme without advice regarding both its tax consequences and commercial viability.
Income Tax Changes for Small Business
The government has proposed to limit the entities subject to lower corporate tax rate to base rate entities with no more than 80% passive income from 2017/18. At the time of writing, this law has not yet passed.
For the 2017/18 year, the aggregated turnover threshold is $25m and the base rate entity tax rate is 27.5%.
The small business income tax offset remains the same, which is 8% discount of the income tax payable on the business income received from a
small business entity (other than a company) with aggregated turnover of less than $5m, up to a maximum of $1,000 a year.
An immediate deduction is still available for an asset costing less than $20,000 acquired and first used or installed ready for use on or before 30 June 2018.
The balance of the general small business pool is also immediately deducted if the balance is less than $20,000 at 30 June.
Income Tax Changes for Individuals
Personal Superannuation Contributions
Deductions for personal superannuation contributions are now allowed for all individuals under the age of 75 (including those aged 65 to 74 who meet the work test). Previously, a deduction was only available to individuals whose employment income was less than 10% of their total income. If you would like to receive further information, please contact us to discuss.
“All individuals under 75 years old (including those aged 65 to 74 who meet the work test) are eligible to claim a deduction to personal super contributions made to an eligible super fund.”
From the 2017/18 tax year, travxpenses relating to inspecting, maintaining or collecting rent for residential investment properties are not deductible, unless y ar carrying on a business of property investing.
Deductions for depreciation will be limited to costs that the taxpayer actually incurred to purchase the plant and equipment in the current year, not to successive investors in the property.
The concessional contributions cap for the 2017/18 has been reduced to $25,000 for all individuals regardless of age. The non-concessional contributions cap for the 2017/18 has been reduced to $100,000. Individuals with total superannuation balance of more than $1.6 million are not eligible to make non-concessional contributions. The full co-contribution rate applies for income up to $36,813 and the partial co-contribution applies for income up to $51,813 for the 2017/18 tax year.
Retirees or Those Approaching Retirement
From 1 July 2017, the earnings of a transition to retirement pension will be taxed at up to 15%, the same as they are in a super accumulation account. The earnings of ordinary retirement pensions are still tax free.
The transfer balance cap was introduced on how much super can be transferred to a tax-free account based pension. Excess transfer balance tax is payable for exceeding the cap.
The transfer balance cap for the 2017/18 tax year is $1.6 million and will be indexed by CPI, rounded down to nearest $100,000.
Low Income Earners
The spouse contributions tax offset will be available for individuals contributing to the superannuation account of a spouse whose income is up to $37,000. This will fade out completely when the spouse’s income reaches $40,000.
The low income superannuation contribution scheme has been replaced by the low income superannuation tax offset. Individuals with an adjusted taxable income up to $37,000 will receive a refund into their superannuation account of the tax paid on their concessional superannuation contributions, to a cap of $500.
High Income Earners
The maximum super contributions base for high income earners is $211,040 per annum for the 2017/18 tax year.
High income earners become liable to pay Division 293 tax when their income for surcharge purposes reaches $250,000 (previously $300,000).
Capital Gains Tax
Foreign Resident CGT Withholding
When a foreign resident (vendor) disposes a taxable Australian property with a market value of $750,000 or more, the purchaser is required to withhold 12% of the sale price, unless the vendor has a clearance certificate from the ATO.
Non-Resident CGT Main Residence Exemption
From 9 May 2017, the main residence exemption is no longer available to foreign and temporary tax residents. Properties held prior to this date will be grandfathered until 30 June 2019.
Fringe Benefits Tax
The FBT rate for the year ending 31 March 2018 is 47%.
Make sure you are using a correct logbook for any vehicle that is registered under your company name!
If you have any questions or concerns about your taxes, feel free to get in touch.