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 2019/20 compared
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 2018/19:
- 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 2018/19, or substantially higher income in 2019/20 compared to 2018/19.
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 2018/19. Conversely, consider realising capital gains if you have un-recouped capital losses, or you expect substantially higher income in 2019/20 compared to 2018/19.
If you expect lower income in 2019/20 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 2019/20 compared to 2018/19. 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.
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
For the 2018/19 year, the aggregated turnover threshold is $50m 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
From 2 April 2019: increase of asset write-off threshold to $30,000. Expanding access to medium sized businesses with an annual turnover of less than $50 million (previously $10 million).
The balance of the general small business pool is also immediately deducted if the balance is less than $30,000 at 30 June.
Income Tax Changes for Individuals
|$0 – $18,200
|$18,201 – $37,000
||19c for each $1 over $18,200
|$37,001 – $90,000
||$3,572 plus 32.5% of amounts over $37,000
|$90,001 – $180,000
||$20,797 plus 37% of amounts over $90,000
|$180,000 and over
||$54,097 plus 45% of amounts over $180,000
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.
Travel expenses relating to inspecting, maintaining or collecting rent for residential investment properties are not deductible, unless you are 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 ATO is cracking down on rental property deductions and will be doubling audits.
The concessional contributions cap for the 2018/19 is $25,000 for all up to 74 years old.
The the non-concessional contributions cap is $100,000 for members aged between 65-74.
Members under 65 years of age will have the option of contributing up to $300,000 over a three-year period for members depending on their total superannuation balance.
Retirees or Those Approaching Retirement
Earnings of a transition to retirement pension are 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 2018/19 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
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 12.5% of the sale price, unless the vendor has a clearance certificate from the ATO.
Non-Resident CGT Main Residence Exemption
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.
General Advice Disclaimer:
The information in this presentation is of a general nature only and is not intended to be, and is not a complete or definitive statement of the matters described in it. It has been prepared without taking into account your personal objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice