The 2012 Financial Year Is Coming To An End

This special Business Plus+ newsletter contains commentary on many of the items that you may encounter as part of your end of financial year deliberations. Please contact us for a copy of our End of Year Tax Planning paper and checklist. Both will assist you in identifying items that you might like to discuss with us.

• A reduction in the higher cap for superannuation contributions for people aged over 50 with under $500,000 invested in superannuation in 2012/13. The government had originally announced that persons aged over 50, with less than $500,000 invested in superannuation, could contribute $50,000 per annum instead of the normal contribution limit of $25,000 per annum in 2012/13. If you're in this category, then consideration could be given to maximising the contribution, up to $50,000, in the year ending 30th June 2012.

• The government also announced that taxation on superannuation contributions for persons with pre-tax incomes of $300,000 and over, will double from 15% to 30% from 1st July 2012. If you're in this category, perhaps consideration should be given to maximising your contributions to either $25,000 or $50,000 whichever is applicable, prior to 30th June 2012.

• The government has announced the introduction of means testing to the medical expense rebate. The rebate is currently 20% of expenditure over $2,000 per annum. The changes are that, for singles with an income of $84,000 or more and families on $168,000 or more, the claim threshold would increase from $2,000 to $5,000 with the reimbursement reducing from 20% to 10%. This all relates to expenditure incurred after 1st July 2012. If you're in these categories and you have major medical expenses to be incurred, perhaps you should be giving consideration as to whether you should be making the payments prior to 30th June 2012. 

• If you're operating your business as a "small business" with turnover under $2M, payments of capital expenditure costing under $6,500, will be eligible as a 100% deduction in 2012/13. This could be a good reason to defer capital expenditure until after the 1st July 2012. The government has also announced an accelerated write-off of $5,000 for the purchase of cars and utilities used in a business, operational from the 1st July 2012. Whilst the cashflow benefit from this initiative and the write-off of assets up to $6,500 will not accrue to taxpayers until 2013/14, there are sound reasons for deferring the purchase of a new motor vehicle or utility until after 1st July 2012.

• If you're likely to receive a "golden handshake" in the near future and your total income exceeds $180,000, there are benefits for receiving the "golden handshake" prior to the 30th June 2012, when the "golden handshake" payment will be taxed at 15%, because after the 30th June 2012, a "golden handshake" payment to a person who's taxable income exceeds $180,000, will increase to 30%.



• Medicare Surcharge - the government has announced changes to Private Health Insurance Rebate and Medicare Levy Surcharge which will be income tested against three income tier thresholds. The income thresholds that apply to the 2012/13 financial year are:

• Fringe Benefits Tax Payment (Accruals Basis) - if a Fringe Benefit Tax instalment is due on 21st July 2012, it can be accrued and claimed as a tax deduction in the year ending 30th June 2012.
• Commissions Owing (Accruals Basis) - where employees or another business are owed commission by your business for services rendered up to 30th June 2012, the accrued amount can be claimed as a tax deduction at 30th June 2012.
• Bad Debts (On An Accruals Basis) - actually write-off any bad debts prior to 30th June and prepare minutes authorising the write-off.
• Interest (Accruals Basis) - any accrued interest outstanding on a business loan that has not been paid at 30th June 2012 can be claimed as a tax deduction at 30th June 2012.
• Salaries And Wages (Accruals Basis) - the accrued expense for the days that employees have worked, but not paid at 30th June 2012, can be claimed as a tax deduction at 30th June 2012.
• Commercial Bills (Accruals Basis) - where the term of a Commercial Bill expires beyond the 30th June 2012, the discount applicable to the period up to 30th June 2012 can be claimed as a tax deduction.
• Rent (Accruals Basis) - if rent is in arrears, the part that is owed up to 30th June 2012 can be claimed as a tax deduction.

• Stock On Hand - review stocktake list as at 31st May, 2012. Determine whether to conduct "sales" prior to 30th June 2012. Conduct stocktake as at 30th June 2012. If you are conducting regular "rolling" stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30th June 2012. Stocktaking may not be necessary if you are a small business entity. 
• Value Of Stock - stock can be valued at different individual methods for each item of stock:
•  Cost;
•  Sales Value; or
•  Lower of Market Value or Replacement Cost.
• Obsolete Stock - identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.

• Fixed Assets - determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30 June 2012.

• Payment Summaries - payment summaries have to be prepared and forwarded to all employees by 14th July each year.
• PAYG Withholding Tax - annual summary due 14th August to Australian Taxation Office.
• Payroll Tax (if you are liable) - you have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconcile this with the remittances that you have forwarded on a monthly basis.
• Work Cover - a Work Cover Declaration is due by 31st August certifying wages paid for year ending 30th June.

• Contributions to superannuation funds are taxed at 15% of the contribution.
• Earnings made in a superannuation fund are taxed at 15% and paid by the superannuation fund.
• For people 60 years or over and who have started drawing a pension, payments from the superannuation fund are, in the majority of cases, tax-free.
• Generally, moneys invested in superannuation funds cannot be accessed until 55 years of age.

• Bad Debts Recovered (on an accruals basis) - if a debtor, who had been written off as a bad debt and claimed as a tax deduction for the amount of the bad debt, subsequently pays any part of the amount owing, you have to bring the amount paid to account as assessable income in the year of recovery.
• Deferring Livestock And Produce Sales - farmers can defer livestock and produce sales until after 30th June. However, if you are a farmer you need to assess whether you will suffer price reductions because of the decision to defer sales. 
• Income Splitting - income splitting can be highly tax effective, especially if investments have been placed in the name of a lower income earner. This can be applicable where a spouse is not working and the income in the spouse's hands would therefore be taxed at a lower rate.
• Interest Earned - declare interest earned on bank accounts, loans, etc.
• Employee Share Schemes - if you are a member of an employee share scheme you should ensure that any income that has been earned is included in your income tax return.
• Qualifying Employee Share Schemes - scheme formed before 1st July 2009 - Any discount on the shares is subject to taxation. If the scheme qualifies under the Employee Share Scheme Rules, the employee can choose when they include the discount in their assessable income. If the employee elects to include the discount benefit in their tax return for the year of receipt of the benefit they are eligible for an exemption of the first $1,000 of the discount.
• Scheme Formed After 1st July 2009 - the discounts on Employee Share Schemes are taxed either upfront or on a deferred basis. For 'qualifying' schemes, if the employee is earning less than $180,000 taxable income plus reportable fringe benefits, reportable superannuation contributions and total investment losses, then the employee can claim a $1,000 exemption from the inclusion of the assessable discount.
• Government Grants - if your business has received a grant from a government department, it is most likely paid to you on the basis that it is taxable income and therefore you need to disclose in your tax return the receipt of the government grant. If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all of the government grant funds have been expended on tax-deductible items prior to 30th June (if possible).

• Franking Account - a company's dividend payments and franking profile should be reviewed before year-end to ensure sufficient franking credits are available. 
• Company Loans - the law requires that the loan to the shareholder is properly documented. If there is no security offered, the term of the loan should not exceed 7 years. If security is offered, the loan should not exceed 25 years. Interest rate to be charged during 2011/12 is a minimum of 7.8%. If loans have been made to shareholders that have not been supported by properly documented loan agreements, then the Taxation Office can treat these payments as being dividends that are assessable to the shareholder.
• Personal Service Income - taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole-trader or through a company, trust or partnership; these are known as the Personal Services Income (PSI) measures. A taxpayer who meets certain specified tests will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. If you are operating a personal service business you need to be aware of the Australian Taxation Office's strict approach to income retention and income splitting.
• Non-Commercial Losses - for a business to be commercial under the "non-commercial losses tests", the business needs to meet certain prescribed tests. If the tests are not met, any losses arising from the activities have to be carried forward and offset in a later year against future income from the same type of source.

• Matching Capital Losses and Capital Gains - capital losses are not directly deductible. Capital losses have to be offset against any capital gains generated during that financial year.
• 50% Capital Gains Tax Discount - you should check your eligibility for the general 50% capital gains tax discount for individuals. If you are a small business operator and are able to meet the $6M net value asset or have turnover of less than $2M, you might be entitled to further capital gains tax concessions.
• "Wash Sales" - the ATO has issued a ruling that relates to "wash sales". This is a situation where shares, in companies listed on the Stock Exchange, are sold to crystallise the capital loss and then shortly thereafter the taxpayer, or an associate of the taxpayer, purchases shares in that corporation on the Australian Stock Exchange

• Zone Offset - record the number of days that you spend in Zone A or B, especially if you live in Zone B but spend some time in Zone A during the year.
• Personal Insurance Payments - premiums for Sickness and Accident Cover are tax deductible. Payments can be made by the employer without incurring Fringe Benefits Tax. 
• Home Office Expenses - if you use an area in your home, you can claim the expenses of a home-office. 
• Utilising Tax Free Threshold - every adult taxpayer has a tax-free threshold of $6,000. If a taxpayer is verging on losses, consideration should be given to the decision being made in relation to the valuation of stock, bringing forward or delay of sales etc., to utilise the tax-free threshold otherwise it will be lost forever.
• Tax Offsets - there are a number of tax offsets available within the income tax legislation.
• Work-Related Expenses - items such as travel, uniforms, laundry of clothes, subscriptions, union fees and self-education.
• Dividends, Interest, Managed Funds Distributions etc. - the ATO matches information provided in tax returns with information received from external sources, such as public companies, banks, managed funds etc. 
• End of Year Tax Schemes - the ATO produces product rulings on various investment products that are marketed particularly around 30th June each year. To avoid confrontation with the ATO, it is best to consider investing in products that have obtained a product ruling. These product rulings are not a guarantee or government endorsement on the likely success, or profitability, of the investment.
• Salary Packaging - salary packaging can also assist in the minimisation of income tax, particularly in the areas of voluntary superannuation contributions and acquisition of assets that are not subject to fringe benefit tax such as supply of a motor vehicle. Your employer is required to report the value of fringe benefits on your payment summary. That may have an effect on other government payments you receive.
• Superannuation Contributions - special concessions are available to low income or non-working spouses relative to superannuation contributions.
• Medical Expenses - if your medical expenses exceed $2,000, you can claim a tax rebate calculated at 20% of the excess of $2,000.
• Wage/Salary Earners - wage/salary earners should review all of the items under Personal Planning and in addition give consideration to property income and expenses if the tax payer has a rental property. All income from a rental property should be declared. General expenses can include real estate agents fees; building allowance (can be written off at 2.5% or 4% depending on date of construction); depreciation of fixtures, fittings, plant and equipment; share of depreciation of common property in a strata titled property; repairs and maintenance; pest control; interest on monies borrowed for investment in the property; bank charges on the property bank account; cleaning; electricity; rates; land tax; insurance and travel for inspection trips by the owner apportioned for partly private travel.
• Work-Related Motor Vehicle Expenses - under 5,000 kilometres calculated at the rate advised by the Australian Taxation Office for the type of vehicle used. 
• Work-Related Expenses - in particular note the total of work related expenses included in the return, as compared to the amount the Australian Taxation Office is going to allow for persons who do not wish to prepare income tax returns ($500 in 2011/12).
• Managed Investment Schemes - it is recommended that you have a meeting with your professional accountant prior to committing to a Managed Investment Scheme (MIS) investment. 

• Trust Distributions - The Australian Taxation Office have withdrawn an administrative ruling given some years ago that trustees had until the end of August each year to decide on trust distributions. The Taxation Office has indicated that it will be enforcing the full meaning of the law which is that trust distributions have to be made by the 30th June each year. The Australian Taxation Office has indicated that they will be doing spot checks to ensure that distribution minutes have been prepared and signed prior to the 30th June 2012 setting out the distribution of the income of the trust. If you have any questions relative to this please contact us at your earliest opportunity so that a decision can be made on the trust distribution so that a meeting of the trustees can be held and a minute prepared confirming the decision of the trustees relative to the trust distributions.Changes from 1st of July 2012.
• Building and construction industry – if you're in the building and construction industry you have to be able to prepare a reportable payments report to submit to the Australian Taxation Office showing the payments that you have made to each contractor for the year ended 30th June 2013. You may need to have some changes made to your accounting system software to capture the new reportable payments requirement required by the Australian Taxation Office.
• Notification of superannuation payments – the government requires you to advice employees on their payslip when you have paid their superannuation contributions to their superannuation fund from 1st July 2012.
• Carbon tax –the carbon tax commences on the 1st July 2012. If you have not already done so now is the time to calculate what you think the cost impost will be from the introduction of the carbon tax and to calculate adjustments to your selling prices. The ACCC (Australian Competition and Consumer Commission) is warning that is will take action against businesses that unnecessarily blame price increases on the carbon tax. When calculating price increases only attribute price increases to the carbon tax if you have records to substantiate the claims that you are making. If you would like us to assist you on the review of your prices and notification to your customers of the reasons for the price increase please contact us.

Article provided by Acclipse Business Advisor and ESS BIZTOOLS Pty Ltd.

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