Small businesses with an aggregated annual turnover of less than $10 million can still get an immediate tax deduction for nearly all individual assets purchased by 30 June 2018 that cost less than $20,000. Such assets must be used by the business for an income-producing purpose and they must be installed ready for use by 30 June 2018.
For businesses registered for GST, the $20,000 threshold is calculated on a GS Texclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.
A depreciating asset that is not immediately deductible (an asset costing $20,000 or more) will be automatically depreciated at a flat rate of 15 per cent in the financial year of purchase to the extent the asset is used for incomeproducing purposes and is used or installed ready for use by 30 June 2018. The adjustable value of such an asset can be depreciated, on that basis, at 30 per cent in
subsequent years. It is important to note that it is proposed that this measure is extended until 30 June 2019. Make sure you pay the correct company tax rate Most companies with an aggregated annual turnover of less than $25 million will pay tax at 27.5 per cent in 2017-18.
However, some companies with a turnover below $25 million will continue to pay tax at 30 per cent, especially companies that earn nearly all their income from passive investments such as rental income or interest income. Companies that pay tax at 27.5 per cent can only frank dividends up to that rate.
As the law currently stands, to qualify for the lower tax rate in 2017-18, a company
must have a turnover of less than $25 million and be “carrying on a business”.
However, there is a proposal before Parliament to replace the ”carrying on a
business” test with a test that will mean that companies below the $25 million
thresholds must earn no more than 80 per cent of that turnover from passive income
such as rent, interest and net capital gains to qualify for the lower company tax rate
company. This proposed change may lead to different tax outcomes from the current
law for certain companies.
Make trust resolutions by 30 June 2
As always, trustees of discretionary trusts are required to make and document
resolutions on how trust income should be distributed to beneficiaries for the 2017-18
financial year by 30 June.
If a valid resolution is not executed by 30 June, any default beneficiaries under the
deed will become presently entitled to trust income and subject to tax (even where
they do not receive any cash distribution), or the trustee will be assessed at the
highest marginal tax rate on any taxable income derived but not distributed by the
trust.
A trustee must be able to show how an effective resolution was made through
minutes, file notes or an exchange of correspondence documented before year end.
However, the trust’s accounts do not need to be prepared by 30 June.
As a corporate trustee may need time to notify its directors that a meeting must be
convened to pass and record a resolution, such a notice should be sent out well
before the 30 June deadline.
Seek professional advice when starting a business
Professional expenses associated with starting a new business, such as legal and
accounting fees, are deductible in the financial year those expenses are incurred
rather than deductible over a five-year period as was the case previously.
Consider whether your legal structure is right for your business
Small businesses are able to change their legal structure without incurring any
income tax liability when active assets are transferred from one entity to another.
This rollover applies to active assets that are CGT assets, trading stock, revenue
assets and depreciating assets used, or held ready for use, in the course of carrying
on a business.
Document the streaming of trust capital gains and franked dividends to
beneficiaries
Broadly, trustees of discretionary trusts can stream capital gains and franked
dividends to different beneficiaries if the trust deed allows the trustee to make a
beneficiary “specifically entitled” to those amounts. The trustee must document
this resolution before 30 June and the beneficiary receives or is entitled to receive an
amount equal to the net financial benefit of that gain or dividend.
Review your private company loans
The income tax laws can potentially treat the following as an unfranked deemed
dividend for a taxpayer unless an exemption applies:
a payment or a loan from a private company to a shareholder or an associate
(like a family member);
the forgiveness of a shareholder’s or associate’s debt;
the use of a company asset by a shareholder or their associate; or
the transfer of a company asset to a shareholder or their associate.
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The most common exemption is to enter into a written loan agreement requiring
minimum interest and principal repayments over a specified loan term, which may be
seven or 25 years depending on whether or not the loan is secured.
There are various things a private company can do before its 2017-18 income tax
return needs to be lodged to minimise the risk of a shareholder or an associate
deriving a deemed dividend.
Depending on the circumstances, these strategies may include repaying a loan,
declaring a dividend or entering a complying loan agreement.
Prevent deemed dividends in respect of unpaid trust distributions
An unpaid distribution owed by a trust to a related private company beneficiary that
arises on or after 1 July 2016 will be treated as a loan by the company if the trustee
and the company are controlled by the same family group. In these circumstances,
the associated trust may be taken to have derived a deemed dividend for the amount
of the unpaid trust distribution in 2017-18. However, a deemed dividend may be
prevented if the unpaid distribution is paid out, or a complying loan agreement is
entered into before the company’s 2017-18 income tax return needs to be lodged.
Alternatively, a deemed dividend will not arise if the amount is held in an eligible subtrust
arrangement for the sole benefit of the private company, and other conditions
are satisfied.
Write-off bad debts
Businesses can only obtain income tax deductions for bad debts when various
conditions are met.
A deduction will only be available if the debt still exists at the time it is written off.
Thus, if the debt is forgiven or compromised before it is written off as bad in the
accounts, no deduction will be available. The debt must also be effectively
unrecoverable and written off in the accounts as bad in the year the deduction is
claimed. The bad debt must have been previously brought to account as assessable
income or lent in the ordinary course of carrying on a money-lending business.
Certain additional requirements must be met where the creditor is either a company
or trust.
Paying employee bonuses
If you pay staff bonuses and you want to bring expenses into the 2017-18 year,
ensure they are quantified and documented in a properly authorised resolution (e.g.
Board minute) prior to year-end to enable a deduction to be incurred for employee
bonuses where such amounts are not paid or credited until the subsequent year.
Pay any outstanding superannuation entitlements
The Australian Government has announced a 12-month amnesty from 24 May 2018
for employers to pay any outstanding Superannuation Guarantee (SG) contributions
for periods prior to 1 April 2018. Employers who voluntarily disclose and pay
previously undeclared SG shortfalls during the Amnesty and before an SG audit will
not be liable for the administrative penalties and will be able to claim a tax deduction
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for payments made during the 12-month period. The announcement is subject to
approval by the Parliament.