June 2011 Newsletter
Special Edition for 2010/2011 Financial Year
2011 TAX PLANING STRATEGIES
▪
The end of the 2010/2011 financial year is
almost there, so now’s the time to review
what strategies you can use to minimise your
tax.
2. Deferral of Income
Tax Strategies for Business Owners
As a business owner, you may be able to
take advantage of the following tax planning
strategies:
Active asset roll-over (minimum 2 year
deferral)
If cash flow and business reality allows,
defer the derivation or receipt of income until
the next financial year. If on a cash basis,
consider trying to defer the receipt of cash.
For taxpayers on a non-cash basis, this will
mean not issuing invoices until after 30 June
where possible.
1. Small Business Rules
Small
Business
Entities
(Aggregated
turnover less than $2 Million) can access
concessional rules which make calculating
tax simpler. In addition to the small business
CGT rules (below), small business entities
can choose simpler depreciation rules
(including an immediate write-off of assets
costing under $1,000) and trading stock
rules, can deduct prepaid expenses
immediately and have simpler GST and FBT
rules.
In addition, if you have made a capital gain
in relation to an asset used in your small
business, various CGT concessions may be
available.
They are available for small
business entities and business taxpayers
with net assets of <$6M. If available, the
taxpayer may be able to access:
▪ 15 year exemption (no tax payable)
▪ 50% active asset discount
▪ Retirement exemption (up to $500,000
tax free)
3. Bring Forward Expenses
Purchase consumable items BEFORE 30
June 2011. These include stationery,
printing, office and computer supplies.
4. Prepayment of expenses
For Small Business Entities (SBE’s):

Can claim a full tax deduction in the year
of payment where the expense covers a
period of no more than 12 months.
Accordingly,
"Small
Business"
entities can make prepayments (up to 12
months) on expenses BEFORE 30 June
2011 and obtain a full tax deduction in
the 2011
financial
year.
Subject to
cash flow
requireme
nts,
the
most common expenses that an SBE
taxpayer should consider prepaying by
30 June 2011 include lease payments,
interest,
rent,
business
travel,
insurances, business subscriptions, etc.
For Non SBE. This is where business
annual turnover is more than $2 million.


Can claim a tax deduction for the
prepayment relating to the period up to
30 June 2011; or
Directors’ Fees. Where a company is
definitively committed to the payment of
a director’s fee as at 30 June 2011 (i.e.
the appropriate resolution to approve the
payment has been passed), it can be
claimed as a tax deduction. The director
is not required to include the fees in their
taxation return until the 2011 year when
the amount is actually received.
Repairs and Maintenance. A deduction
can be claimed for repairs undertaken
and billed by 30 June 2011 but not paid
until the next income year.
Businesses can also claim back the GST
paid on debts that have been written off as
bad, or where not written off as bad, the debt
has been outstanding for 12 months or more.
Business taxpayers (both non SBE’s and
SBE’s) which are not on the cash basis, are
entitled to a deduction for expenses incurred
as at 30 June 2011, even if they have not yet
been paid. The following expenses may be
accrued:


Review your Trade Debtors listing prior to 30
June 2011 to identify and write off any bad
debts BEFORE 30 June 2011. Prepare a
minute of a Director’s meeting, listing each
Bad Debt as evidence that these amounts
were actually written off before year-end.
5. Accrued expenditure
Salary or wages and bonuses. The
accrued expense for the days that
employees have worked but have not
been paid as at 30 June 2011. Staff
bonuses must be quantified and
documented prior to year end to enable a
deduction to be claimed.
Interest. Any accrued interest
outstanding on a business loan that has
not been paid as at 30 June 2011.
6. Write-off Bad Debts
In addition, can claim a full tax deduction
for a prepayment where it is under
$1,000 and it covers a period post 30
June 2011.


7. Superannuation Payments
At
law,
employee’s
superannuation
entitlements must be paid to the
superannuation fund by the 28th day of the
month following each quarter to avoid
Superannuation Guarantee Charge (SGC)
implications including penalties and loss of
deductions. Note that it is not sufficient to
simply post a cheque on the 28th so allow
time for postage and processing by the
receiving fund.
However, if you want the tax deduction in
your
business
this
financial
year,
contributions must be physically paid to and
received by the superannuation fund by 30
June 2011.
We recommend that you send contributions
cheques to large funds at least a week
before 30 June. If they are not received,
processed and banked by the large fund by
30 June, they may not be deductible to your
business in this financial year.
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9. Timing of purchasing your next
work vehicle
The maximum concessional (tax deductible)
contribution for individuals is $25,000, or
$50,000 for people aged 50 or more at 30
June. This is a per person cap, not a per
employer cap. You must consider all
contributions by all employers and to all
funds in this single cap amount, including the
9% SGC; e.g. consider any 9% SGC on
yearend bonuses that may be paid between
now and 30 June 2011 that may cause you
to exceed your concessional cap.
As announced in the budget, small
businesses can claim an immediate $5,000
tax write-off for vehicles bought from July
2012. There is the possibility that this may
convince some businesses to postpone
buying their next utility or car.
Review any salary sacrifice arrangements
you may have in place. If the amount to be
sacrificed to superannuation between now
and 30 June 2011 when added to 9% SGC
exceeds your concessional cap, you may be
able to amend your salary sacrifice
arrangement in June.
Employers can claim tax deductions for
contributions
above
these
amounts.
However, this may result in tax of up to 93%
to the individual fund member.
10. Year End Stock Take / Work in
Progress
Contact us if you are unsure of your
contribution caps or what counts towards
your limit.
If applicable, you need to prepare a detailed
Stock Take and/or Work in Progress listing
as at 30 June 2010.
8. Private Company Loans
11. PAYG Instalments
Business owners who have borrowed funds
from their company must ensure that the
appropriate
principal
and
interest
repayments are made by 30 June 2011.
PAYG instalment obligations should be
reviewed and consideration given to varying
the instalment for the June 2011 quarter
where the estimate of business income tax
payable for the year is less than the
instalments raised by the ATO.
Where the loans do not comply with the strict
ATO rules (including having a loan
agreement), the entire amounts may be
deemed to be an
unfranked
dividend
paid to the relevant
shareholders under
Division 7A of the Tax
Act and taxed at
marginal rates.
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the 2012 year to take advantage of the
arbitrage in tax rates.
Tax Strategies for Individuals
and Families
1. Superannuation Contributions
Individuals may be able to make taxdeductible
personal
contributions
to
superannuation to reduce their taxable
income.
In addition to the above business planning
ideas, further ideas may be available for
individuals and families with business or non
business income
The advantage of this strategy is that
superannuation contributions are taxed at
15% compared to personal income tax rates
of between 31.5% and 46.5%.
Personal resident tax rates 2010/2011
and 2011/2012
Taxable Income
$ p.a
Nil to 6000
6001 - 37 000
37 001 - 80 000
Tax Payable$
Nil
Superannuation contributions are limited to
$25,000 per year for a person under age 50,
and $50,000 for a person aged 50 and over.
Any contributions in excess of these limits
can be potentially taxed at a rate of 93% (or
even higher if a TFN is not quoted on a
member’s superannuation account).
Nil + 15% excess over $6,000
$4,650 + 30% excess over 37,000
80 001 -180 000 $17,550 + 37% excess over 80,000
180 001 plus
$54,550 + 45% excess over 180,000
‘Flood’ Levy
While there are no tax rate changes planned
for the 2011/12 financial year, a one-year
only ‘flood levy’ has been introduced from
01/07/2011.
To be eligible to claim a personal
superannuation contribution as a tax
deduction, you need to satisfy the 10% test,
meaning that the amount you earn as an
employee must be less than 10% of your
For those taxpayers who were not able to
obtain any Government assistance in
relation to Australia’s natural disasters and
with income above $50,000, an additional
‘levy’ is applied to taxable income as follows:
Taxable Income $
$0 - $50,000
$50,000 - $100,000
$100,000 +
Levy Payable$
Nil
nil + 0.5% excess over
50,000
250 + 1% excess over 100,000
combined assessable income and reportable
fringe benefits for the year.
With this flood levy payable, taxpayers may
wish to consider bringing income forward to
the 2011 year, or deferring expenses until
2. Split Income within Your Family
Often, this tax-cutting strategy typically
involves
holding
non-super
investments
either jointly with a lower-earning spouse or
in the name of that spouse.
Another popular method is for a discretionary
trust to direct investment income and capital
to lower-earning family members.
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Significantly for income-splitting strategies,
times over by
the tax savings
in the first year
of
property
ownership. We
can arrange an
expert Quantity
Surveyor to prepare this report for you.
the Federal budget announced that children
under 18 will no longer be eligible from July
2011 for the low income tax offset on their
so-called
unearned
income
(such
as
dividends, interest and rent). This means
that unearned income paid to children –
perhaps through family trusts – will be
4. Sacrifice Your Salary to Super
subject to the full penalty rates applying to
minors.
Where your marginal tax rate is more than
15%, salary sacrifice can be a great way to
boost your superannuation and pay less tax.
By putting pre-tax salary into super rather
than having it taxed as normal income at
your marginal rate you may save tax. A valid
salary sacrifice arrangement must be
entered into with your employer prior to 30
June 2011.
Under existing law, the offset enables
children to receive the first $3,333 in
unearned income without paying tax. But
from July, children can receive only $416
without paying tax.
Therefore, a family trust still has time this
financial year to make a distribution to
5. Prepaid Interest Expenses
minors who are likely to receive the low
Tax-effective schemes are getting thinner on
the ground each year. However, the lure of a
potential up –front tax deduction associated
with an investment is still very much alive.
income tax offset.
If you have borrowed to invest using a
margin loan or home equity loan, you may
be able to claim a tax deduction for the
interest payments. In most cases this
deduction applies during the financial year
you make the interest payment, even if you
are paying now for interest that is due next
financial year. The rules allow you claim an
immediate tax deduction where up to 12
months of future interest is paid in advance.
3.
Property
Depreciation
This prepayment strategy can work
particularly well if you have a usually high
taxable income in this financial year.
Report
Where you own an investment property, a
Property Depreciation Report (prepared by a
Quantity Surveyor) will allow you to claim
depreciation and capital allowances on
capital items within the property. The cost of
this report is generally recouped several
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6. Non-Commercial Losses
▪
Losses of a business carried on by an
individual or partnership may be required to
be quarantined until future years against
income of that or of a similar / related
business. The exceptions are:
▪
▪
▪
▪
▪
▪
Your contribution must be paid to a
superannuation fund before 30 Jun 2011.
You must be under age 71 on 30 June
2011
8. Miscellaneous Rebates
Consider whether you may be able to access
various rebates such as the Education Tax
Offset (for providing education supplies &
equipment for children); Medical Expenses
Rebate (for total medical expenses above
$2,000 pa) etc.
If there is assessable income from the
business of >$20,000
Profit in 3 out of the last 5 years
Real property of $500,000 or more is
used in the business;
Other assets of $100,000 or more are
used in the business;
Commissioner’s discretion is exercised in
relation to that business.
In addition to the above, taxpayers with
adjusted taxable incomes above $250,000
have additional loss quarantining rules even
where the above conditions are satisfied.
Contact our office TODAY by replying to this
e-mail or by telephone on (02) 8908 4688
before the 30 June deadline for assistance to
legally minimise your tax!
7. Superannuation Co-Contribution
Where eligible persons make a nondeductible contribution to a superannuation
fund, the Government will make a matching
co-contribution to your fund of up to a
maximum of $1,000.
To qualify for the Co-contribution:
▪ 10 % or more of your total income must
be from either employment or carrying on
a business; (retired or non-working
persons are not eligible)
▪ You receive a full matching contribution
where your total income* is less than
$31,921.
▪ You can receive a partial co-contribution
where your total income* is no more than
$61,920
We look forward to meeting with you soon!
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