|
THE
IMPORTANCE OF TAX PLANNING
It is extremely
important for all businesses to do tax planning in the 3 months
leading up to 30 June 2005. This will ensure that income tax payable
is minimized and money is kept in your business rather than in the
ATO’s hands.
The tax
planning process involves:
·
reviewing the financial results for the year to date,
·
projecting the tax position for the 2005 financial year, and
·
exploring ways of minimizing the tax burden.
Feedback from
clients who undertook tax planning before 30 June 2004 was extremely
positive. In this article we detail some of the areas where savings
were made and highlight the consequences of ignoring year end tax
planning.
Superannuation Fund Contributions
Most taxpayers
are aware of the importance of the timing of contributions into
Superannuation Funds. If paid by 30 June, contributions are
deductible in that year. In our review we reminded clients of the
deadline dates and also discussed making extra superannuation
contributions.
A business
owner with projected taxable profits may choose to make additional
superannuation contributions i.e. in excess of the compulsory 9%
Superannuation Guarantee amounts. If paid by
30 June 2005
the contributions will be tax deductible to the business in the 2005
year and taxed in the Superannuation Fund at 15%. (Deductibility is
limited to aged base limits)
Had the taxable
income been left in the business and distributed to the owner it
could have been taxed at up to 48.5%, being the top marginal rate.
This is
definitely a strategy worth considering if there are profits
available in excess of “lifestyle requirements”.
Simplified
Tax System (“STS”)
One needs to
consider prior to the end of the year whether the business is
eligible to enter the STS system and if so whether it will be
worthwhile making the election. These considerations may affect
decisions and transactions that one enters into prior to
the 30th June 2005
cut off.
The STS system
allows immediate tax write-offs for any fixed assets which cost less
than $1,000. It also allows an accelerated depreciation of fixed
assets in most cases.
Examples:
·
A
motor vehicle can be written off at 30% p.a. under the STS system
but only 18.75% under the standard depreciation tables.
· Office
equipment purchased on 30th June could be depreciated at
15% in the first year and 30% every year thereafter – note that
there is no requirement to apportion the depreciation on the basis
of the number of days usage during the year, under the STS system.
Capital
Gains/Losses
If a taxable
capital gain has been realised during the year it would be included
in assessable income at the end of the year. If the taxpayer had
realised any capital losses during the same year they would be off
set against the gains before calculating the tax payable.
Where gains
have been realised, we encourage clients to review their portfolios
prior to the end of the year to identify any capital losses that may
be realisable in the same year.
Exempt
Fringe Benefits
Any business
where there is an employer/employee relationship, (not sole
traders), can take advantage of exempt fringe benefits. An example
of an exempt fringe benefit is the purchase of a laptop which is
“gifted” to the employee. The business gets a full deduction for the
expense and the employee can also depreciate the laptop according to
business usage - a win win situation all round especially if the
business was looking for more deductions to minimize its tax bill!
Clients with
projected taxable profits were encouraged to take advantage of
exempt fringe benefits to minimise their tax bills.
Other
planning strategies
Last year our
clients benefited from many other year end planning strategies
including accelerating deductions, deferring income, and income
splitting.
We encourage all business taxpayers
to make use of a tax planning service as the tax benefits are
worthwhile – A small investment in a tax planning service can result
in tax savings that are well in excess of the return on any other investment.
|
