Have you got your tax planning in order?
The 30th of June is rapidly approaching! The ATO acknowledges that you have the right to arrange your financial affairs to keep your tax to a minimum. We call it “tax planning” and it is typically done just before the end of the financial year.
What is tax planning?
There are two “types” of tax planning.
End of financial year tax planning
The remainder of this article is focused on what you can do between now and the 30th June to optimise your taxation position for this financial year.
2. General SBE Pool write-off if less than $20,000. If you are a small business entity (turnover of less than $10 million) the balance of your general depreciation pool can be written off in the year it reduces to less than $20,000;
3. Fencing. New fencing is entitled to an immediate write-off;
5. Fodder Storage Facilities. Fodder storage facilities are written off over three consecutive financial years ie “a third, third, third” regardless of what time of year they are acquired. Be aware that the ATO has made it very clear on what a “hay shed” is vs a “machinery shed”!
6. Farm Management Deposits. Primary producers can make deposits into Farm Management Deposits and not pay any tax on the deposits until withdrawn. Farm Management Deposits are limited to $800,000 per person at any one time and can only be made if your non-primary production income is less than $100,000 in the year you make the deposit. When making Farm Management Deposits consider whether or not you are likely to have lower income years in the future to cash them in tax effectively. FMDs are a very effective risk management tool.
8. Double wool clips. Tax relief is available in relation to the proceeds of the sale of two wool clips arising in an income year because of an early shearing caused by drought, fire or flood;
9. Converting Primary Production income into Non-Primary Production income. Be careful when paying family members wages as you are effectively converting primary production income into
10. Superannuation. Consider what you can contribute
11. Trading Stock. Consider if there are any opportunities on what value you use for
12. Trust distribution minutes. By law, trust distribution minutes must be prepared and signed before 30th June. Detailed estimates and careful planning are essential. Remember to check your trust deed to make sure you know who can be beneficiaries;
13. Distributing from trusts to “bucket companies”. The company tax rate has been reduced from 30% to 27.5% for most small businesses. Advice should be sort as to whether or not this is appropriate to your situation;
14. Prepaying of expenses. I don’t believe in giving your money to someone before you have to! There is also a very real risk that the supplier may go broke before you collect what you have paid for so be careful. Having said that, sometimes prepaying of upcoming expenses can be a worthwhile strategy;
15. Prepaying Interest. As above!
16. Financing equipment – lease verses chattel mortgages. With the turnover test for small businesses being increased to $10 million, depreciation rates are very generous. As such, leasing may not be as tax effective as it may have previously been. Lease payments can, however, be prepaid up for up to twelve months which may be a suitable strategy;
17. Income splitting. Based on your taxation structures, consider what income splitting opportunities may be available;