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Looking to kick start the 2013/14 financial year? In the lead up to the new tax season, we’ve pulled together some proactive tax strategies that will help you ensure you’re paying the correct amount of tax, whilst getting positive tax outcomes and staying in the good books of the Australian Taxation Office. Whether you’re an individual or business, we’ve got some tips that will help you ensure your money is working as hard for you, as you do for it.
Tax Tips for Business
- Keep your records in good order to reduce compliance fees from your accountant and ensure you’re accessing reliable data. If you’re doing your own bookkeeping, there’s no beating cloud-based, user-friendly accounting software giant Xero. Their flexible, flat-rate packages help you maintain your books, produce real-time reporting, enable timely and accurate decision making and let you pre-empt any issues that may arise with Australian Taxation Office’s (ATO) data-matching enquiries.
- Ensure that your business structure is correct from the get go and see that structural considerations guide your ongoing business decisions. Seek out trusted professional advice regarding the structural arrangement that is right for your business – it could save you thousands and may affect your access to certain tax concession.
- Consider, for example, the differences in the Capital Gains Tax (CGT) rollover relief provisions for companies and trusts. A sole trader who wishes to incorporate and transfer their business assets to a company faces no capital gains tax on the transaction. Conversely, no such relief from CGT would be possible if the same sole trader were to transfer their assets to a trust structure.
- A basic tax planning tip is to utilise/leverage the tax free thresholds of low-income earning family members over the age of 18.
- Trust structures are ideal for distributing income in a tax-effective way, however, not all businesses should operate through a trust and compliance risk has increased significantly for trustees.
- Alternatively, you may wish to review your investments and debt facilities with a trusted financial planner. Are they held in the correct name? Could they be structured differently to produce better tax outcomes?
- For businesses with depreciable assets, from the 2012/2013 year onwards you can claim an immediate 100% deduction for capital assets that cost less than $6,500. For motor vehicles, the immediate deduction is $5,000 plus 15% of the balance in the first year.
- Speak to your accountant about ATO benchmarking. If you are operating outside the normal revenue, expense and profit benchmarks for you industry, ask yourself why. It makes you more likely to be the target of a costly audit and, from a management perspective, it is a basic external measure of performance/commerciality.
Tax Tips for Individuals + Employees
- Consider purchasing private health insurance to avoid the 1% Medicare levy surcharge in 2012/13. This applies to individuals whose taxable income is > $84,000 or families with a combined taxable income > $168,000.
- If you have high assessable income and otherwise minimal deductions, an excellent way to claim back Pay As You Go Withholding Tax paid throughout the year is by investing in negatively geared assets. The high interest repayments on such investments will drastically reduce your tax liability. The key is to pick the right underlying asset, one whose return on investment and capital growth exceeds the cost of the tax-deductible debt, thereby enhancing your overall wealth.
- If you own a rental property, invest in a professional depreciation report. The report costs around $700 and is fully tax deductible. It almost always pays for itself in the first year with the deductions it generates and will be a source of added value year after year.
Tax Tips for Your Super
There are a range of tax incentives when it comes to contributing to superannuation. So, if you can spare the cash in the short term or you are at, or close to, retirement age you may wish to consider the following:
- Making a personal superannuation contribution if you are a high-earning, primarily self-employed individual. As long as 90% or more of your income is from self-employment, you are able to deduct personal super contributions against your other assessable income. The contribution you make will be taxed in the superfund at 15%. Note: This strategy will only be successful if your marginal tax rate is greater than the superannuation tax rate on concessional contributions, currently a flat 15%.
- Salary sacrificing into your superannuation fund. If you are an employee in a high tax bracket this option is a very attractive tax strategy if it is available to you. As in the previous point, this measure is a simple way to reduce your effective tax rate while increasing your retirement savings. Note: To avoid being hit with excess concessional contributions tax, make sure your employer Superannuation Guarantee (SG) payments do not push you outside the $25,000 cap. Be particularly wary about the timing of the June SG payment and the possibility of ending up with 13 SG payments in one year, instead of 12. Note that case law has made it clear that the onus is on the employee to ensure contribution caps are not breached, even in the case of genuine mistakes. Speak to your employer to avoid such uncertainties or errors.
- If you are 55-60 years old and still working, you may wish to consider setting up a Transition to Retirement Income Stream (TRIS) pension. This will reduce the proportion of earnings in your superfund that are subject to tax, and, depending on your pension composition, will enable you to withdraw some tax free amounts from superannuation. Speak to an advisor about how the combination of TRIS and salary sacrifice strategies can provide tax relief and supplement your pre-retirement lifestyle.
Want More Information?
Wondering what to do next? We always recommend speaking with a trusted financial adviser to determine if advice is right for you. In addition to helping you identify the options that are best suited to your unique needs, a skilled accountant will also stay abreast of legislative changes, be on the lookout for new ways to improve your overarching financial situation and provide access to an extended network of like-minded professionals.
Written by Amini Ali, Accountant
B.Commerce, Accounting & Finance (Melb)
Amini Ali joined the Kearney Group in January 2012. She is a strategic thinker with an interest in developing long-term client reliationships, compliance & tax planning.