Monthly Archives: June 2015
The following is a listing of assorted tax saving opportunities.
- Buying items such as stationery, printer cartridges, stamps, etc by Tuesday 30th June. Those of you who entered the Simplified Tax System (STS) by 30th June 2005 (and are therefore automatically assessed on a cash basis) may wish to pay any bills not due until July like your phone bill, rent, insurance etc. Paying your accounting fees is also recommended!
- Superannuation is of course a major deduction provided it is paid by 30th June. Contributions into super are taxed at only 15% whereas your marginal tax rate may be much higher at 19%, 32.5%, 37% or 47% – as well as Medicare Levy at 2%. As we have highlighted in previous correspondence, be careful with the 30th falling on a Tuesday. A June contribution that doesn’t clear until July will be not be deductible in 2014/15 and will count against next year’s contribution limit. It is now too late to make payment by B-Pay. And beware of making EFT payments after your bank’s night time cut off.
- Whilst there are minimum levels of super to be paid by employers on behalf of employees under SGC provisions, your own business conducted through a company or trust can claim a deduction up to $30,000 ($35,000 if you were 49 on 1st July 2014 – i.e. those who now 50 or older).
- For those who are self employed, the same limits apply.
- STS taxpayers are now known as Small Business Taxpayers (SBTs). SBTs also include taxpayers with an annual turnover under $2,000,000. As we have previously highlighted, SBTs can claim a full deduction for any assets acquired costing less than $1,000 (meaning $1,100 including GST). That limit is $20,000 (excluding GST) for assets bought after 12th May.
- Furthermore, SBT taxpayers can claim half a year’s depreciation on acquired assets that cost more the above limits – even if the asset is purchased on the last day of the year.
- SBT taxpayers can also claim a full deduction for payments such as insurances, rent and the like which cost more than $1,000 even though the service period runs past 30th June and into the next financial year.
- For those of you who receive this e-mail that are employees or rental property owners, you can claim a complete write off for assets costing less than $300.
- If a property is jointly owned, then you can claim the full cost of assets costing less than $600 (meaning you claim less than the $300 limit each).
- Investors can claim prepayments in full. An investor with a property or share loan can claim a deduction for 12 months prepaid interest. Please note that the ATO requires that for the prepayment to be claimed, one must benefit through a lower interest rate (for which you need to keep proof).
- For those who have already generated a large capital gain, consideration should be given to selling other investments that have an unrealised capital loss. Those with no or minimal employer SGC support should consider making a deductible contribution into superannuation to offset the tax on the capital gain (but speak to us first).
- From 1st July 2004, persons under 65 no longer need to be working or have ceased employment within the last two years in order to make a deductible super contribution. Consequently, those with large incomes can greatly reduce their tax burden by putting monies into superannuation. With super pensions paid to those older than 60 now being tax free, the tax savings are greater than ever before.
- Please note that those over 65 but under 75 can only contribute into super only after they have satisfied a work test.
- If you are about to sell an asset which will generate a capital gain, consideration should be given to selling it after 30th June. This will defer the payment of any capital gains tax liability until after 30th June 2016.
We have considered these matters when undertaking your pre year end business reviews with our clients. However, do not hesitate to contact us should you wish to clarify any matter.
We take this opportunity to remind all employers to attend our HR Myths and Secrets seminar. There is much that most employers don’t know – sometimes at great cost when an employee or contractor makes a claim for unpaid entitlements (arguments which employers never win). I strongly encourage all employers to attend so that they can ensure that they are compliant and not an accident waiting to happen.
The tax bill tax which included the provisions for small businesses to be able to claim a full tax deduction for assets costing less than $20,000 was passed by the Senate on Monday 15th June.
So if your business does need a small asset, now is the perfect time to buy it.
But before doing so, please note 5 critical factors and considerations:-
- Only buy an asset you need. So if a company buys and asset for $11,000, it will get back $1,000 of GST and will have a tax deduction of $10,000. It will pay $3,000 less company income tax. It will still be $7,000 out of pocket.
- You need to elect or have previously elected to use the small business general pooling depreciation method. If not, the $20,000 provisions do not apply.
- Your small business must own the asset. It either needs to pay for it or finance it by a loan, hire purchase or by way of a chattel mortgage contract. Leased assets do not qualify for the write-off as one does not own the asset until the final payment is made or the lease contract is paid out early.
- If you trade-in an asset, it is the cost of the new asset that qualifies. So if your business buys a car for $30,000 and trades in an old car for $12,000, there is no entitlement as the cost of the new asset exceeds $20,000.
- The $20,000 refers to the GST exclusive price. If however, a business is not registered for GST, it is the cost of the asset including GST.
Please contact us if you have any questions.
At MRS, we will spend today planning for your success tomorrow.
It’s still not law.
That said, the Labour Party has given their consent to it and the bill passed the Lower House of Parliament at the end of last week. Hopefully the Senate will see fit to pass it.
I therefore now take this opportunity before year end to set out our understanding of how this will work.
What is it
- A small business buying an asset to use in its business will be able to claim the full cost of that asset as a tax deduction provided the asset itself costs less than $20,000.
It appears to be available to
- Small businesses only.
- It appears that a small businesses will be defined as one with turnover under $2,000,000 (excluding GST) in either the current or preceding year. Under this definition, it doesn’t matter if the current year’s turnover is $5,000,000 provided the previous year’s turnover was under $2,000,000. Please note that this is the expected definition of a small business being the core definition – there are other definitions of a small business within the Tax Act for different provisions therein.
- The turnover of related entities will be taken into account for the purposes of the $2,000,000 turnover threshold.
- Assets costing less than $20,000 (excluding GST).
- If your business is not registered for GST then the cost limit appears to be $20,000 including GST.
- It appears not to matter whether the asset is new or second hand.
Things to watch out for and to take advantage of
- The cost of the asset must be under $20,000 (excluding GST). So, if one buys a new car for $25,000 ex GST and gets a trade-in of $6,000 for an old vehicle, then one will not be entitled to claim the full cost of the deduction – one’s entitlement is measured solely against the cost of the acquired asset itself.
- If an asset is used partly for business and partly for private purposes (like a passenger car or laptop computer) then only the business portion can be claimed as a deduction.
- The benefit is the cost of the asset which can be claimed as an expense. So, for a company, the saving on the purchase of a $10,000 asset (excluding GST) is $3,000 of tax that would otherwise be paid.
- If an entity has current year and/or carried forward losses in excess of the cost of the asset(s) acquired then there will be no tax benefit in the current year.
- The asset must be acquired and installed ready to use by the end of the year for a tax deduction to be claimed in this financial year. A simple order cannot be deducted nor can an asset that has yet to be installed ready and available for use.
- Please consider whether you really need the asset. In the case of an asset costing $10,000, the best result is that a company saves $3,000 in tax; it is still $7,000 out of pocket.
- If you really need to buy an asset costing less than $20,000 (excluding GST) now is the time to do so.
- Be careful not to spend too much to the detriment to your cash flow. It may be best to consider finance.
- Don’t lease an asset though. A lease is a rental contract. As such, one is not the owner of a leased asset until the last payment is made or the contract is paid out early. Under hire purchase or chattel mortgage contracts though, one is the owner of the asset from day one.
- The $20,000 limit applies to each individual asset; like or similar items need not be grouped. A small business can claim a $40,000 deduction should it see fit to buy 20 $2,000 lap-tops.
Thinking of buying a new car? Click on the following link to an article in last week’s Age which listed cars under $20,000.
So, if you really need an asset for your business, now is the time to buy it if you are a small business. Even if these laws aren’t passed, a small business under current laws will be able to claim 15% deprecation in this financial year even if an asset is bought in the last week of June with a further 30% deduction of the residual balance in 2015/16. On the other hand, an asset bought in July 2015 will only result in a 15% deduction for the whole of the 2015/16 year.
Please call us should you wish to discuss your situation at greater length.
At MRS, we will spend today planning for your future success.
Do you have any overseas trips planned?
If so, please take note of the following tips to make sure your trip doesn’t cost you more than it need to.
Some clients decide to cancel their private health insurance for the period they are overseas. This might save some premium but it can cost much more with the imposition of the Medicare Levy Surcharge (which is charged proportionally on the number of days for which private health insurance is not held at rates from 1% to 1.5% depending one’s level of income). This is subject to an income threshold of $90,000 for singles and $180,000 for couples (add $1,500 for every child after the first child).
Senior Health Concession Card holders also need to be aware that they will have their card cancelled when they are overseas for more than six weeks. This happens automatically as the Passport Control pass on their data to Centrelink.
Or perhaps your kids are going off to explore the world for a year. The trip could cost them less of they go at the right time. If they left in July and returned in June, then they would have a year with no income and waste the tax free threshold of $18,200. If they leave in January and return in December, they will be able to use two tax free thresholds and not leave the first tax bracket in either year. If your child is earning $50,000, leaving in January rather July will save them almost $7,000.