Tax Planning

When it comes time to pay your tax bill, you don’t want to feel like the ATO has gone all Stewie Griffin on you.

Instead, a pre-30 June tax planning meeting with your accountant at the corner of

could be very helpful.  Aside from wanting to catch up with your accountant for their good looks and funny jokes, there are several reasons as to why you should meet up prior to the end of the financial year.  

It is an opportunity to review and analyse your results in real time, rather than waiting until after the end of financial year when it can be too late to have any impact.  Modern accounting software can be very helpful, but it is a great idea to sit down with a professional and analyse things like:

o   Results vs budget

o   Spending patterns such as staff costs vs revenue

o   Profitability of various cost centres

o   Revenue issues

o   Cash flow issues

o   Required expansion and capital expenditure

o   Debtors

Next, it is time to do what Liam Neeson would do and use your (or your accountant’s) very particular set of skills to take any action required to ensure compliance and legally minimise your tax.  This might include:

o   Completing required trust resolutions.

o   Completing annual stock-take at 30 June.

o   Ensuring deductible expenses are paid prior to 30 June (e.g. income protection insurance premiums).

o   Ensuring vehicle log books are completed, if required.

o   Ensuring your staff superannuation is paid prior to 30 June to allow the tax deduction in this financial year.

o   Acquiring any required new assets especially if you are eligible for the small business write-off of up to $20,000.

o   It is also an opportune time to consider your business structure, especially considering the changes to the company tax rate and the small business restructure rollover.  This rollover can allow small businesses to restructure into another entity from 1 July 2016 without incurring a capital gains tax liability.

If your interest in all things super piqued when Dean Cain wore his undies on the outside then listen up because this is also the ideal time to review your personal superannuation.

o   The proposed changes in the 2016 budget mean that the concessional contribution cap is scheduled to be reduced to $25,000 for everyone from 1 July 2017.  With the cap currently $30,000 (or $35,000 for those aged over 50), the next two years might be the last opportunity to utilise the higher contribution caps.

o   Any additional contributions you choose to make should always be made in consideration of your overall financial position and any other upcoming liabilities.  You should also be mindful of not breaching your contribution cap limit.  Be sure you consider contributions from all sources, including salary sacrifice amounts and contributions for insurance policies held in a superannuation environment.

o   Depending on your adjusted taxable income, there may also be additional tax on your contributions including Superannuation Guarantee Contributions made by your employer.  Division 293 Tax results in additional 15% tax on all contributions if your adjusted taxable income is in excess of $300,000.  This cap is proposed to be reduced to $250,000 from 1 July 2017.

Being aware of all of these considerations allows you to accurately plan for upcoming tax liabilities.

Although in many cases your tax liability for 2016 may not be due until May 2017, it is much better to identify any liability sooner rather than later so that you can put aside cash as required.

It is also a good time to map out all of your tax liabilities for the next 12 months, including calculating future PAYG instalments.  These are calculated by the ATO based on your last lodged return and where taxable income varies there can be sudden and dramatic changes in your quarterly instalment.  Setting the

expected liabilities out in a calendar format can be very helpful.

Understanding your results and likely tax position also allows you the opportunity to vary your PAYG instalments.  After all, if you haven’t made as much money as last year you’re much better off varying your instalment down to avoid paying any more than necessary to the ATO.

If you’d like to discuss any of these issues please contact any of the friendly team at Vivid Chartered Accountants.

Federal Budget 2016-17

Last night, the staff here at Vivid Chartered Accountants had their (pretty/handsome) faces pressed to their TV screens while they listened to Scott Morrison deliver his budget speech.

No doubt you have all been bombarded with information on the budget, so we have summarised the key announcements, with further details regarding the tax changes following:

Small Business

• The government has changed the definition of a small business by increasing the turnover threshold (gross sales excluding GST) from $2 million to $10 million.
• Small businesses will continue to have access to the $20,000 instant asset write-off until 30 June 2017
• The company tax rate for small business entities will be reduced (28.5% in 2016) to 27.5%. The rate is set to reduce further to 27% in 2024-25 and then by 1 percent per year until it reaches 25% in 2026-27

• Unincorporated businesses (sole traders and partnerships) will receive an increase in the tax discount (5% in 2016) to 8% on 1 July 2016. The maximum value of the discount is capped at $1,000

Individual Tax Payers

• The 37% personal income tax threshold will be increased from $80,000 to $87,000 from 1 July 2016 to address bracket creep. The new tax rates will be as follows:

• Foreign residents will also receive the threshold increase from $80,000 to $87,000
• The cap for Division 293 (the additional 15% contributions tax) has come down by $50,000 to $250,000. If your taxable income plus investment losses, fringe benefits, and superannuation contributions exceed $250,000, your super contributions will be hit with an additional 15% tax, taking the tax on your contributions to 30%.
• The temporary budget repair levy of 2% that was payable on an individual’s taxable income above $180,000 will finish as scheduled on 30 June 2017.

Superannuation

• The concessional contributions cap will be lowered to $25,000 from 1 July 2017 (concessional contributions are contributions for which you can claim a tax deduction. For example, the 9.5% super guarantee, salary sacrifice super). The table below outlines of the current and future concessional contribution caps:

Income year	Age and applicable Cap amount
2015-16	<49: $30,000	49+: $35,000
2016-17	<49: $30,000	49+: $35,000
2017-18	All Ages: $25,000

•  If you have less than $500,000 in superannuation, from 1 July 2017 the government will allow additional concessional contributions (see definition above) for “unused cap amounts” from previous years. For example, if you only use $15,000 of your cap in 2017-18, you can contribute $35,000 ($25,000 + $10,000) in 2018-19. Unused cap amounts will be carried forward on a rolling 5-year basis, starting with unused amounts accrued from 1 July 2017.
• From 1 July 2017, superannuation funds will be limited to a cap of $1.6 million in tax-free pension accounts, with balances above this amount returned to accumulation accounts and earnings taxed a 15%. The $1.6 million cap will be indexed in $100,000 increments in line with CPI. Subsequent earnings in the pension accounts will not be considered when calculating caps. Members already in retirement phase with balances in excess of the cap on 1 July 2017 will need to either transfer excess amounts back into accumulation accounts, or withdraw the excess amount from the superannuation fund.
• The tax exemption on earnings on transition to retirement pensions will be removed as of 1 July 2017. Under the changes, the earnings will be taxed as at 15%.
• The government will introduction a lifetime cap of non-concessional contributions cap of $500,000 from budget night (3 May 2016). (Non-concessional contributions are personal contributions that you make after tax) The cap will take into account all non-concessional contributions made after 1 July 2007. Contributions made before last night cannot cause you to breach the cap, however you will no longer be able to make any future non-concessional contributions.
• From 1 July 2017, Government will allow all individuals up to the age of 75 to claim a tax deduction for personal superannuation contributions. Previously, only self-employed individuals under the age of 65 (or 74 if you passed the working test) could claim tax deductions for personal contributions. This change will remove the work test for those aged between 65 and 74.

If you would like any further information, please do not hesitate to contact our office.

We have included a link to the Budget and the Chartered Accountants breakdown, should you wish to read it.

Budget

Chartered Accountants Tax Bulletin

To GST or Not to GST

That is the big question! If Shakespeare were alive today, he would probably be charging you GST on his theatre ticket sales.

“SO WHAT EXACTLY IS THIS GST?! I ONLY KNOW I HAVE TO PAY IT ON EVERYTHING I BUY! LIKE SHAKESPEARE’S TICKETS!”

Relax! Shakespeare is dead. Simply speaking, Goods & Services Tax (GST) is a tax imposed on most of the products/services sold in Australia. If you are running a business, you will probably be required to register for GST at some point.

Don’t worry, it is not as daunting as it seems. The team at Vivid Chartered Accountants is here to help!

We specialise in getting small businesses up and running, and we understand the whole process can be VERY overwhelming. One of the more commonly asked question by new start-ups is, “Should I register for GST?”

“I AM JUST A SMALL BUSINESS… DO I REALLY HAVE TO REGISTER FOR GST?”

The ATO doesn’t force everyone to register for GST. If your annual sales are over $75,000 ($150,000 for non-profit organisations), you are required by the ATO to register. However if you are below this threshold, you can elect to register if you wish to do so.

If you have a new business or expect your business activity to be relatively slow in the first few years, you can choose not to register for GST until you have crossed the threshold.

“OK, BUT HOW DO I REGISTER THEN? DO I CALL THE TAX OFFICE?”

If we helped you set up your business, we will always go through the GST discussion with you. If you do decide to go ahead with the registration or have crossed the threshold, let us know and we will organise the registration for you. We can even backdate it, if needed.

If you would like to register for GST yourself, there are two ways to go about it:

1. Phoning the ATO on 13 28 66 (be prepared for a long wait in the queue)

2. Online via the Business Portal.

“I AM A NEW BUSINESS AND CAN’T AFFORD ANOTHER TAX LIABILITY TO THE ATO!”

Don’t worry, GST really isn't that bad! Registering for GST simply means:

1. You collect GST from your customers and pay it to the ATO, so really you are just a middle man collecting tax for the ATO.

2. When you pay GST on your business purchases, you can claim the 10% GST back from the ATO. This means most of your expenses are effectively 10% cheaper!

So GST should never actually become an expense to your business unless you charge a fixed amount, in which case you might lose 10%.

“SEEMS LIKE A LOT OF WORK KEEPING A RECORD OF ALL THAT GST! HOW DO I MAINTAIN RECORDS THAT ARE ACCEPTED BY THE ATO?”

Easy! With the help of decent accounting software, you can maintain all your GST and financial records without any hassle! Combining cloud-based software like Xero & Receipt Bank, not only can you save HOURS of your precious time, it can also help maintain your records online and have all the information available at your fingertips! And it is ATO-compliant. No more fading receipts or stacks of paperwork. We also provide training to new businesses who need training with any of this software.

In short:

“WHAT IF I AM REGISTERED FOR GST AND WANT OUT?”

No worries! Cancelling your registration is easy. If you are below the ATO thresholds and had previously registered for GST, you can always opt out. Just give us a call and we can sort it out for you!

“AND HOW OFTEN DO I HAVE TO REPORT GST?”

GST reporting is usually done on a quarterly basis for small business, unless you elect to do so on a monthly or annual basis (usually available for businesses that are NOT required to be registered).

BASs are due to be lodged and paid within 28 days following the end of the quarter (or 21 days following the end of a month). The one exception to this is the December quarter BAS, which has an extended deadline (due to the Christmas holidays), of the 28th of February. The ATO does have a heart after all!

Watch out though! It is very easy to spend all your sales revenue on business and other expenses, and then not have the cash to pay for the GST liability. If you are registering for GST and charging clients/customers GST, it is good practice to set aside 10% of your sales revenue so you don’t end up with a cashflow shortage. Your GST liability can accumulate into a massive tax debt quickly, so setting aside money and keeping up-to-date with your quarterly GST lodgements is vital.

Speak to us about starting a GST and Tax Quarantine Plan so that you don’t get trapped by nasty ATO surprises ever again.

So if you are thinking of setting up a new business and need help with the start-up, give us a call or flick through an email and we will be in touch!

Until then….

Changes to work-related motor vehicle deductions

 

There was a subtle, but important, change to the way you can claim your motor vehicle expenses as a tax deduction from 1st July 2015.

What are the changes?

Previously, individuals had the option to use one of four methods to determine their work-related car expenses:

• Cents-per-kilometre
• Logbook method
• The 12% of original value method, and
• One-third of actual expenses incurred.

Commencing 1 July 2015, the changes are:

• The 12% of original value will not be available to use

• The one-third of actual expenses incurred will not be available to use, and
• The three existing rates for cents-per-kilometre, determined by engine size, will be replaced with one rate of 66c per kilometre.

This means you will be able to use either the cents per kilometre method or the logbook method.

Let us simplify the remaining methods for you:

The cents-per-kilometre method

• Your tax deduction is based on the number of business kilometres travelled for the year
• These business kilometres are multiplied by 66c to work out your tax deduction. For example the tax deduction on 3,000 business kilometres would be $1,980.00 (3,000 x 0.66)
• The maximum business kilometres you can claim is 5,000, or $3,300.00.

Since the cents-per-kilometre method has changed to 66c per business kilometre, it is a good time to consider using the logbook method. That is, if you think the deduction you could claim under the logbook method would be higher than the maximum $3,300.00 under the cents-per-kilometre method.

Logbook method

• The deduction under the logbook method is based on the actual running costs of your car
• The actual running costs are then multiplied by your business use percentage to calculate your tax deduction
• To work out your business use percentage you must keep a logbook of the vehicle usage for a minimum of 12 weeks
• Unless your circumstances change, you only need to do a logbook once every 5 years

How easy is that?!

There’s just one catch: you need to complete the logbook in the same year as you are claiming the tax deduction. Therefore if you haven’t kept a logbook in the past you need to start one now!

If you have any questions in relation to these changes, or want our logbook template, please do not hesitate to contact us.

Our office will be closed for the Easter break – we wish you a happy and safe long weekend.