How to reduce your Tax Bill

With the financial year finished, now's the time to implement strategies to reduce this year's taxation bills. If you are a business owner then there are few obligations and deadlines you need to meet.

As last Minute Tax Minimisation Tips and few final reminders about ways to reduce your tax for 2016:

• Write-off Bad Debts;
• Write-off any trading stock that is damaged or obsolete;
• Review your Asset Register and scrap any obsolete plant and equipment;
• Pay for repairs, consumables, office stationery, and donations before 30 June 2016;
• Ensure employee superannuation contributions are made (and received by your employees superannuation fund) by 30 June 2016 to allow a tax deduction this financial year;
• Realise any capital losses you have before 30 June 2016 to offset against any capital gains you may have made.

You need to provide 2016 PAYG Payment Summaries to your employees and other workers by 14 July 2016.  These must then be submitted to the ATO by 14 August 2016 or penalties will apply.

Changes in Tax effective 1 July 2016

Below changes are subject to new government continuing with those changes. They include:

Turnover threshold for small businesses

Small Business Entity (SBE) threshold turnover increased to $10 million. This will benefit lot of small businesses to access tax concessions to improve cash flow, simplify reporting, and bring forward tax deductions.

SBE Company Tax Rate reduced to 27.5%

Effective 1 July 2016, the company tax rate for Small Business Entities reduces by 1% from 28.5% to 27.5% with aggregate turnover less than $10 million.  

$20,000 Immediate Deduction

From 7:30pm on 12 May 2015, small business entities (SBEs) will be able to claim an immediate deduction for depreciating assets costing less than $20,000.

Any assets costing more than $20,000 will be allocated to the SBE’s general small business pool and will depreciate at a rate of 15% in the income year in which the assets are first used or installed ready for use. The assets will then be depreciated as part of that pool at 30% in subsequent income years.

If the balance of the general small business pool is less than $20,000 at the end of the income year, this balance is also written off.

FBT Exemption increased

FBT has been abolished on all portable electronic devices used for work, such as mobile phones, laptops and tablets. Currently the exemption applies only to devices that perform substantially different functions restricting employees to one device. The change takes effect at the start of the 2017 FBT year which, commenced 1 April 2016.

Start-ups Costs

Professional costs incurred in starting new business will now be immediately deductible. These costs had to be apportioned over five year period in previous years.

Stocktake

Small Business Entities (with an aggregated turnover below $2 million) have access to a range of tax concessions.  One of these concessions is the simplified trading stock rules.  Under these rules, you can choose not to conduct a stocktake for tax purposes if there is a difference of less than $5,000 between the opening value of your trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year.  You will need to record how you determined the value of trading stock on hand.

Trust Distributions - Timing of Resolutions

Trustees (or directors of a trustee company) need to consider and decide on the distributions they plan to make by 30 June 2016 at the latest (the trust deed may actually require this to be done earlier).  Decisions made by the trustees should be documented in writing by 30 June 2016.

If valid resolutions are not in place by 30 June 2016, the risk is that the taxable income of the trust will be assessed in the hands of a default beneficiary (if the trust deed provides for this) or the trustee (in which case the highest marginal rate of tax would normally apply).

Building and Construction Industry Reporting

From 1 July 2012, new tax reporting rules apply for businesses in the building and construction industry. Businesses will have to lodge an annual report with the ATO setting out details of payments made to contractors. This will assist the ATO to reduce the “cash economy” by ensuring tax is paid on all income including “cash” payments.

You will need to record the following details of all payments made to contractors for building and construction services:

• The ABN of the contractor
• The name and address of the contractor
• The gross amount paid for the financial year, including GST
• The total GST included in the gross amount paid

If you use computerised accounting software, your system should be able to track this information for you and prepare the required Taxable Payments Annual Report.

Payroll Tax

Payroll tax applies to all entities that have an Australian payroll that exceeds state-based limits.

You should note that in addition to normal salaries and wages, the following items are generally also included in payroll expenses if payroll tax applies:

• Fringe benefits based on the grossed-up taxable value of fringe benefits;
• All employer contributions to superannuation on behalf of employees; and
• Some contractor or sub-contractor fees.

WorkCover / WorkSafe

Your WorkCover/WorkSafe insurer sends an annual reconciliation to all registered employers at the end of the financial year.

In completing your annual reconciliation, you will need to include the following items in addition to normal salaries and wages:

• fringe benefits based on the taxable value of fringe benefits (do not gross-up);
• all employer contributions to superannuation on behalf of employees; and
• some contractor or sub-contractor fees.

For more detailed information about what items to include in the reconciliation statement, please contact our office.

Once the reconciliation is received and processed by your WorkCover/WorkSafe insurer, you will be issued with a final assessment or a refund depending on the instalments you have paid during the year.

Goods and Services Tax (GST)

A reconciliation of GST should be performed as at 30 June 2016 to determine if there has been an under or over-payment of GST in the 2016 tax year. If a discrepancy has arisen, then it is possible to adjust a subsequent Business Activity Statement (BAS) to rectify the error, however there are limits imposed on adjustments that can be made in this way.

Income declared on your BAS should be reconciled to income declared on your income tax returns.

Also, please note that you are required by law to substantiate all Input Tax Credit claims with a complying Tax Invoice, and you need to retain these documents for a minimum of 5 years.

ATO Audit Activity

Please note that the ATO and State Revenue Office are constantly increasing their audit activities. In particular, there has been an increase in audit activity for PAYG Withholding, Payroll Tax, WorkCover, GST, Division 7A loan accounts from companies, and Trust distributions from Discretionary Trusts.