Things you need to consider BEFORE 30th June
No matter whether you are in business, employed or an investor, there are some opportunities and housekeeping that you should attend to prior to that date of 30th June!
1) People who get paid a salary
When your employer takes out tax from your pay and makes superannuation contributions on your behalf, then there isn’t much you can do about how much overall tax you pay. But there are some things you CAN do to reduce your tax and possibly get that BIG refund from the Tax Office that will put a smile on your dial!
- i) Buy a diary, briefcase, or anything else that you might be able to claim a work related deduction for. As long as you need it, you will get a quick discount (by way of tax refund) on that item. So a $100 case might really end up costing you only $65.
- ii) Donate Now! If you were going to donate anyway, then you might as well gift now. As long as it is to a “Deductible Gift Recipient”, and not your brother, you can claim a deduction. So feel good AND get a tax deduction. BUT remember if you get a benefit from the donation, such as a dinner or even a raffle ticket (no matter the odds), you won’t be entitled to the deduction, so make sure it’s genuinely “No Strings Attached”.
iii) Prepay any interest. If you borrowed to finance an income producing asset, such as shares or property, you might be able to prepay interest for the next 12 months. Interest is deductible when you pay it therefore if you pay before the 30th June, you will get a deduction in this year. Beware though. This is really a one off tactic as you only ever get one year that you claim both year’s interest. So once you start prepaying, you need to keep it up!
- iv) Salary Sacrifice some Super. If you didn’t get the full $30,000 in your 9.25% Super that your employer paid, you might be able to sacrifice some of your salary in June (pre-tax) to take you up to that limit. It won’t eliminate the tax, as it will be taxed at 15% in your super fund, and you won’t have access to the tax saving until you retire, but it still might make sense. WARNING, you have to get your employer to agree and do it before you get paid. THEN your employer has to be received by your fund BEFORE 30th June. Lot’s of moving parts, but you might be able to pull it off.
- v) Educate yourself. If you were planning on doing that course that will enhance your current employment, and the institution allows you to pay in advance, then if you do it before 30th June, you get the deduction this year. Pay now, learn later!! But beware here too, if the course is not related to your current employment, then you may get a much more limited deduction as a “Self Education Expense”.
2) People who earn income through working in or on their own business
When you control the purse strings of the business you work for (or the business that works for you) there is a lot of scope to plan out your income and expenditure to get a better tax result.
- i) Consider the tax cuts starting 1st July. If your business turns over less than $2M, then congratulations, you meet the government’s definition of a small business and that means that you’re the flavour of the month! From 1st July 2015 the tax rate falls by 1.5% to 28.5% if you’re a company. If you’re a Sole Trader, Trust or Partnership you still get a 5% (capped at $1,000) tax offset. SO all that might mean that if you can defer tax until next year, you might pay less.
- ii) Buy some assets up to $20k each. The big budget item is the raising of the small business immediate write off from $1,000 to $20,000 for the next couple of years. Effectively this means that if the asset you were going to buy is less than $20,000 you can buy it now and write it off in one big hit. So if you are planning on a large purchase or purchases (It’s per asset, not in total) and you have profit to write off against, you could buy it before June 30. Note that it has to be delivered and ready for use by 30th June to get the deduction. Of course it doesn’t matter if you buy it after 30th June, as you will still be able to to write off this asset up until 30th June 2017.
iii) Value your trading stock. Preferably at the 30th June, but a few days before / after is OK, as long as you can work back to the value on the 30th June. If the value of stock is going to vary from 1st June value by less than $5,000 you don’t need to do a stocktake, but I would recommend it anyway.
- iv) Know where you are at re profit. If you use a system like Xero, you can tell on a daily basis where your profitability is sitting. This is important so that you can see whether you need to top up on expenses to bring the profit down, or let it ride for another year and save on the cash flow. See your accountant if you don’t quite know where you are at. Back of the envelope figures are often better than a full blown set of accounts though so don’t go overboard!
- v) Superannuation. Your limit for Super contributions is probably $30k for the year (you need to check though with your accountant or the ATO though). If you have the cash to do it, this is a good way to bring up your deductions for small business owners. Note that the Super has to HIT your Super account by 30th June for you to get a deduction so don’t delay on this. And of course you need to have the cash flow and not mind your money is locked up until retirement.
- vi) Superannuation for Employees. You only get a deduction for Super paid on behalf of employees IF you make it by 28th day of the month following the quarter AND when you actually pay it. So if you want a deduction for Super that is deducted from employees accounts in the period April to June, you should pay this by around the 20th June to get the deduction this year. Of course you still have until the 28th July to pay, but you will get the deduction NEXT year if you pay it between 1st July and 28th July. Again cashflow dependent but can be a good way to reduce tax this year if necessary.
vii) Bring forward purchases such as stationery, fuel, and other consumables. If you have to get rid of profits, and you need the consumables to run your business, you can buy up to 12 months worth of supplies before 30th June and still get a deduction this year. Be warned of cash flow, stability of product and storage though. It’s one thing to get a year’s supply of toilet paper and quite another to store it and keep it dry for 12 months!
3) People who earn income through investments
If you are a Self Funded Retiree, or just supplement your income via investments such as property, shares or managed funds there are some things that could be looked at.
- i) Offset your Losses or Gains. If you have made capital gains during the year and have an asset that might be valued at a capital loss, you could sell the loss asset to offset the gain. Or visa versa, if you have capital losses, you could make a capital gain before 30th June to offset. Of course you can carry forward capital losses, but it might be worth using them this year. See your financial advisor for the best way to handle this.
- ii) Start getting paperwork together. If you are the trustee of a Self Managed Super Fund, ESPECIALLY if you’re in pension mode and have franking credits to claim, make sure your administrator / accountant has everything they need to get your fund accounting and tax return done early. If you can start putting together any Buy /Sell contracts, bank statements etc. and then lock in a time NOW to see your advisor so that you can get that refund as quickly as possible. Better in your hand than in the tax office!
iii) Pay your minimum pensions. If you do run a Self Managed Super fund and you are in Pension mode, then make sure you have paid your minimum pension payments BEFORE 30th June. If in any doubt, contact your administrator / accountant to confirm what these are and how to pay (note that one annual payment may not be sufficient).
If you have any queries in relation to the above, please don’t hesitate to contact us. We’re for you!