Client Bulletin - June 2017
Business Tax Planning for Financial Year End
- If you pay superannuation for your employees, consider making a payment prior to 30 June 2017 in order to be able to claim it as a tax deduction in your 2017 tax return;
- Review your aged debtors and determine whether any debts are bad debts and need to be written off in the 2017 financial year. In order to be classified as a bad debt, it must be considered unrecoverable;
- Ensure that any repairs & maintenance work is completed prior to 30 June 2017 to be able to claim a tax deduction in your 2017 tax return;
- If you wish to pay any bonuses to your staff, ensure that you draw the cheque and deduct Pay As You Go Withholding prior to 30 June 2017;
- If you are a small business (turnover under $10m), you can prepay certain deductible expenses in the 2017 financial year and claim a deduction in the 2017 tax return. This includes expenses for services that will be wholly provided within 12 months of payment such as office supplies, consumables, insurance, interest, rent, lease payments, advertising or maintenance contracts. You will however need to consider the effect of prepaying such expenses on your cash flow in the short term;
- If your turnover is over $10m, only prepayments of expenses that are required by law or are under $1,000 are deductible in the year of payment.
- An immediate deduction in the 2017 income tax return will be available to small businesses (turnover under $10m) for assets costing less than $20,000 which are acquired and installed ready for use by 30 June 2017. It was announced in the 2017 Federal Budget that this measure would be extended to also apply for the 2018 financial year.
- Small Businesses will also benefit from the aquisition of capital assets costing greater than $20,000 as they will be allowed 6 months depreciation on assets purchased during the year, even if only owned for one day, where they utilise small business asset pooling.
Reduction in the company tax rate for companies that carry on a business
For the 2017 financial year companies which qualify as small businesses (business turnover under $10 million) are eligible for a reduced income tax rate of 27.5%. This is a drop from the 28.5% rate applicable for qualifying companies in the 2016 financial year with further future reductions to come for companies which carry on a business:
DO YOU EMPLOY STAFF?
Reminder: PAYG Payment Summaries must be issued to employees by 14 July 2017 and lodged with the ATO by 14 August 2017, and must disclose Reportable Employer Superannuation Contributions!
What are Reportable Employer Superannuation Contributions (RESCs)?
Broadly, salary sacrificed and other additional contributions over and above the Superannuation Guarantee amount (currently 9.5% of ordinary time earnings) will need to be disclosed on the PAYG Payment Summary.
Maximum super contribution base & high income salary packages
The maximum superannuation contribution base is used to determine the maximum Superannuation Guarantee contributions that an employer is required to make under the super laws. The maximum contribution base for the 2017/2018 year is $52,760 per quarter, or the equivalent of $211,040 annually. For employees on salaries higher than $211,040, the employer is only required by the superannuation guarantee laws to make super contributions of $20,048 for the year. Note that you must still comply with any applicable employment and industrial agreements.
Where an employee’s remuneration package is determined inclusive of superannuation payments, adjustments to the employee’s salary component may be required. Please also note that the concessional contribution cap will drop to $25,000 p.a. from 1 July 2017, reducing the amount that can be salary sacrificed.
Superannuation – year end issues
- For superannuation funds paying one or more superannuation pensions - it is a mandatory requirement that a minimum payment be made at least annually, which is determined by the pension recipient’s ageand the value of the account balance at 1 July each year. Please contact your Ruddicks adviser immediately if you are unsure what your minimum or maximum amounts are and how much you should have withdrawn during the 2017 financial year.
- From 1 July 2017, concessional (deductible) contribution caps will decrease from the current $35,000 or $30,000 (depending on age) to $25,000 p.a. for all. If you salary sacrifice into superannuation, please ensure you update your arrangements and notify your employer by 1 July 2017 so that you do not breach the lower 2017 contribution cap.
- From 1 July 2017, non-concessional contribution caps will decrease from the current $180,000 p.a. to $100,000 p.a. Individuals who have $1.6m or more in superannuation will no longer be able to make non-concessional contributions from 1 July. Please speak to your Ruddicks adviser immediately if you are unsure if you will be affected by this change.
As explained in more detail in our December 2016 newsletter, the significant and complex superannuation changes will come into effect from 1 July 2017. This will require some planning and action to be taken prior to 30 June 2017 by those who will be affected. Briefly, the changes are as follows:
- Transition to retirement pensions (‘TRIS’) will no longer enjoy a tax exemption in respect of the earnings in those pension accounts from 1 July 2017. The earnings will be taxed at 15% in the fund, however TRISs can continue to be paid if desired.
- Account based pension accounts will be limited to $1.6m per person from 1 July 2017 (indexed in $100,000 increments). Your superannuation monies in excess of that amount may remain in the accumulation phase of superannuation, however earnings on those will be taxed at 15%, versus the tax free status of earnings in respect of the $1.6m pension accounts.
- Capital Gains Tax (‘CGT’) Relief is available to lock in the tax free status of capital gains accrued up to 30 June 2017, for those affected by the above two measures. The CGT Relief rules are quite complex and we recommend that you discuss your eligibility for the relief with your Ruddicks adviser if you think you will be affected by the new regime.
- Those super fund members with more than $1.6m in superannuation in total (whether in pension or accumulation or a combination of both) will be unable to make further non-concessional contributions after 30 June 2017. If your balance is close to $1.6m, you can only make non-concessional contributions to bring the total balance up to $1.6m.
- There is no change to how TRIS pensions and account based pensions are taxed in the hands of recipients.
- There will be a requirement for Self Managed Super Funds (‘SMSFs’) to report to the ATO throughout the year upon the happening of certain events. In order to allow us to do this for funds that Ruddicks administers, we will be processing transactions and querying details where necessary on a more contemporaneous basis.
The new rules significantly change the taxation of superannuation and there is a need for increased vigilance when making any significant decisions and transactions relating to superannuation.
The changes also mean that the 2017 financial year may be the last opportunity to take advantage of the current rules and we encourage our clients to contact their Ruddicks advisers to discuss the issues raised in this bulletin.
The information and opinions in this article were prepared by Ruddicks Chartered Accountants (“Ruddicks”) for general information purposes only.
Taxation is only one of the matters that must be considered when making a decision on a financial product. The taxation considerations discussed in this article are based on the continuation of the present laws and their interpretation. The tax consequences of any investment will depend on individual circumstances.
In preparing this article Ruddicks have not taken into account the investment objectives, financial situation and particular needs of any particular investor. The information contained herein does not constitute advice nor the promotion of any particular course of action or strategy and you should not rely on any material in this article to make (or refrain from making) any decision or take (or refrain from taking) any action.
Ruddicks are not licensed to give financial product advice under the Corporations Law. You should consider taking advice from an Australian Financial Services Licensee before making a decision on a financial product such as superannuation.
Opinions, estimates and projections in this article constitute judgement of Ruddicks as of the date of this publication and are subject to change without notice. Ruddicks have no obligation to update, modify or amend this article or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast, estimate set forth herein, changes or subsequently becomes inaccurate.
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