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Tax Planning Tips & Strategies

Effective tax planning is an important part of any wealth creation or business strategy. Without it you could be paying more tax than you need.

Simply put, tax planning is the arrangement of a taxpayer’s affairs so as to comply with the tax law at the lowest possible cost. This involves objectively assessing and actively managing tax risk. A summary of the most common tax planning techniques is set out below.

Please note that these suggestions are general in nature and we recommend that you contact us to assist you with your own specific tax planning requirements.

Deferring income

Income received in advance of services to be provided will generally not be assessable until the services are provided.
Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June to defer the income.
A taxpayer is required to calculate the balancing adjustment amount resulting from the disposal of a depreciating asset. If the disposal of an asset will result in assessable income, a taxpayer may want to consider postponing the disposal to the following income year.

Maximising deductions

Business taxpayers

Debtors should be reviewed prior to 30 June so that any bad debts can be identified and written-off.
A deduction may be available on the disposal of a depreciating asset if a taxpayer stops using it and expects never to use it again. Therefore, asset registers may need to be reviewed for any assets that fit this category.
Review trading stock for obsolete stock for which a deduction is available.

Non-business taxpayers

Consider prepaying deductible expenses for the next 12 months prior to 30 June 2013. As an example this can be applied to expenses such as interest on loans for investments, professional fees, and income protection insurance premiums.
Outgoings incurred for managed investment schemes may be deductible.
Assets costing $300 or less may qualify for an immediate deduction, subject to certain conditions.
A deduction for personal superannuation contributions is available where the 10% rule is satisfied.

Capital gains tax

A taxpayer may consider crystallising any unrealised capital gains and losses in order to improve his or her overall tax position for an income year.
Eligible small business entities can access a range of concessions for a capital gain made on a CGT asset that has been used in a business, provided certain conditions are met.

Small business entities

Consider whether the requirements to be classified as a small business entity are satisfied to access various tax concessions, such as the simpler depreciation rules and the simpler trading stock rules.
From 1 July 2013, the small business instant asset write-off threshold has been increased to $6,500 from $1,000. This means any depreciable assets you purchase between now and 30 June 2013 that have a GST inclusive price of $6,500 or less can be written off 100% in the 2013 financial year.
A small business entity will also be allowed an instant tax write-off for the first $5,000 of the cost of any motor vehicle purchased in 2012–2013 or a later income year that is used for a business purpose. The balance of the purchase cost will be written off using normal depreciation rates. Note that if the vehicle costs less than $6,500, it will be treated as a "low-cost asset" and will be depreciated immediately under the instant asset write-off rules discussed above
Eligible small business entities can access a range of concessions for a capital gain made on a CGT asset that has been used in a business, provided certain conditions are met.

Companies

Companies should ensure that all dividends paid to shareholders during the relevant franking period (generally the income year) are franked to the same extent to avoid breaching the benchmark rule.
Loans, payments and debt forgiven by private companies to their shareholders or associates may give rise to unfranked dividends that are assessable to the shareholders or associates. Shareholders and entities should consider repaying loans and payments on time or have appropriate loan agreements in place.
Companies should consider whether they have undertaken eligible research and development (R&D) activities that may be eligible for the R&D tax incentive.
Companies may want to consider consolidating for tax purposes prior to year end to reduce compliance costs and take advantage of tax opportunities available as a result of the consolidated group being treated as a single entity for tax purposes.
Companies should carefully consider whether any deductions are available for any carry forward tax losses, including analysing the continuity of ownership and same business tests.

Trusts

Trustees must determine and record in writing which beneficiaries are to receive a distribution of income for the year prior to 30 June 2013. This may be very difficult to comply with without having determined what income the trust has for the year. We recommend that seek our assistance if you are unsure of your trust’s income position for the year.
Taxpayers should review trust deeds to determine how trust income is defined. This may have an impact on the trustee’s tax planning.
Avoid retaining income in a trust because the income may be taxed at 46.5%.
If a trust has an unpaid present entitlement to a corporate beneficiary, consideration should be given to paying out the entitlement by the earlier of the due date for the lodgement of the trust’s income tax return for the year or the actual lodgement date to avoid possible tax implications.
Trustees should consider whether a family trust election (FTE) is required to ensure any losses or bad debts incurred by the company will be deductible and to ensure that franking credits will be available to beneficiaries.

Personal services income

Individuals operating personal services businesses should ensure that they satisfy the relevant test to be excluded from the Personal Services Income regime or seek a determination from the Commissioner.

FBT

The Government has proposed amending the FBT law to remove the concessional FBT treatment for in-house fringe benefits accessed by way of salary-packaging arrangements.
The living-away-from-home (LAFH) rules have been significantly overhauled. While the rules remain in the FBT regime, there is an increased requirement to ensure LAFH payments are properly tracked, categorised and substantiated.
The four rates used in the statutory formula method for determining the taxable value of car fringe benefits are being replaced with a single statutory rate of 20% for fringe benefits provided after 10 May 2011. Taxpayers should review contracts for changes to a “pre-existing commitment”.

Superannuation

The ATO has reminded taxpayers to consider the superannuation contributions caps and the timing of when contributions are made when planning tax affairs to avoid excess contributions tax.
Eligible individuals who breach the concessional contributions cap by up to $10,000 will be given a once-only option for the excess contributions to be refunded without penalty.
A tax offset of up to $540 is available for a resident taxpayer in respect of eligible contributions made by the taxpayer to a complying superannuation fund or a retirement savings account for the purpose of providing superannuation benefits for the taxpayer’s low-income or non-working resident spouse (including a de facto spouse).
Current position is that the government will match up to $1,000 of after tax personal contributions where taxable income is $31,920 or less. This is pro-rated up to the upper income limit of $61,920. There is a proposal to reduce the amount to $500 and increase the lower income threshold to $46,920 but this has not yet been passed as law.
A member of an accumulation fund (or a member whose benefits include an accumulation interest in a defined benefit fund) may be able to split superannuation contributions with his or her spouse.
If your taxable income is $37,000 or less the government will pay an amount equal to 15% of contributions made for you by an employer (i.e. tax deductible contributions) up to a maximum of $500 & a minimum of $20. This is based on 9% of $37,000 income giving super contributions of $3,330 and 15% equals approx. $500.

Individuals

If you are actively investing in the share market you may want to give consideration to whether you would qualify as being in the business of “share trading”. This will enable deductions to be claimed for losses on shares that are yet to be sold by virtue of the trading stock valuation rules.
Consideration should be given to whether improvements made to rental properties can be classified as “repairs & maintenance” and deducted in the year incurred rather than depreciated over a number of years.
Individuals whose main source of taxable income is from investments rather than salary or wages may be eligible to claim a deduction for personal contributions made to a complying superannuation fund.
For 2012–13 and later income years, the dependent spouse tax offset will only be available to those born on or before 1 July 1952.
The Government has introduced legislation to extend the Paid Parental Leave scheme by introducing a two-week “dad and partner pay”.

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