Preparing for a Financial Year End
Preparing for year end should start in July - the first month of the financial year. Yes, if you prepare gradually the year end will be better and more thorough! It also gives us more data to assist you, especially if a review is completed before 30 June.
Year End
This is a year end primer for both business and personal matters. Each section can be considered so as to give you ideas for your tax planning for business or for personal work related expense (WRE) deductions or packaging with an employer. Many ideas mentioned should be looked at before 30 June for a better tax result. We suggest you review the whole article and discuss with us any points that are not clear or too summary. It is long, but so are our tax laws and being prepared allows you the opportunity to be well planned! Note, as the article is non technical discuss any points you may want to look at for any technicalities not included. Anyone who thinks tax in Australia is simple is very misinformed.
Planning point: - Immediate Car Deduction of $20,000 in 2015 (from May) and 2016 years.
Small businesses can claim up to $20,000 as an immediate deduction for motor vehicles, with effect for vehicles acquired from the 2015 income year. (There was a lower claim of $5,000 in 2012-13 income year.) If the car is over $20,000 then it must be depreciated under normal rules.
Short answers - None! Anyone who says 'simple' and 'tax' in one sentence has no real idea about the Australian tax. We will attempt to be brief so you can get an idea, and if need be talk to us. We have limited 'pure' technical material, but included practical information to assist.
Be aware that the ATO is now well versed in now only setting deadlines but extracting extra revenue for missing them.
In this article, we cover (in general terms):
Business
- FBT with Wages comments
- RFB - Reportable Fringe Benefits (that is put on a PAYGPS)
- Year End Matters including:
= WCI Workers Compensation Insurance
= PAYGPS Pay As You Go Payment Summary (Group Certificate) [who thinks of these names?]
= PAYGPSS Pay As You Go Payment Summary Statement (Annual Reconciliation of PAYGS)
Personal
- Negative Gearing
- WRE Personal Work Related Expense Comments
- Motor vehicles
- Rental properties
Introduction
We suggest you set aside time to read and discuss matters with us. Even if it is to give us feedback. Given that tax has very complex sets of rules, the rules can have a dramatic affect on your finances year to year and your wealth in the longer term.
When we review your affairs to meet tax/fbt/gst/wre requirements and the host of other rules we also try to correlate all the financial and all the tax areas to each other of your personal or business financial matters. That way a better result is achieved rather than 'dumb 'compliance.. We think of it as a chessboard and suggest you lay all the pieces out so with care so you not only "comply" with what the ATO thinks is the law but by working with us we get what YOU want (or as much of it as we can!)... We call this leveraged compliance..
FBT
Fringe Benefits and FBT declarations/records and returns: The FBT year ends 31 March each year. Please ensure records are up to date and organised so FBT is nil (or will be) by Employee Contribution. For clients we have measures in place that set this in motion each year. We issue this as a reminder at year end to focus the FBT work with year end. This is a general outline so please discuss any specific concerns with me. ALSO, please use the FBT Car Declaration for 31 March and for 30 June for any non company cars so you have a record for year end work! Please note your car odometers readings now (right now!!).
A good way to keep an eye on odometer readings is to write the kilometre readings on the petrol/gas/diesel Tax Invoice each time you fill up. It only takes an extra second when paying for the petrol/gas/diesel. Helps when doing car logs as well...
Odometer Readings: I suggest you take odometer readings of all vehicles, (even if not owned or used by your entity/company, also include 'trucks', 4WD etc) "as at" 31 March to allow FBT or other calculations. You might also update them (in the notes section) for readings at 30 June. If you are a client please email the reading to me. NOW!
FBT QUESTIONS: If you have any questions on any matter above please let me know before 20 July. We have 2 FBT declaration formats available so please request them by email. They are in pdf format. If this presents any problems please contact me. Please send the completed enclosed declarations to us as soon as convenient, ready for FBT and year end as it will assist with any contributions to be calculated for accounts and GST purposes.
For Car Fringe Benefits the Statutory percentages have changed - please discuss as they are progressively being flattened to 20%. That means the operating cost method needs to be looked at for higher business use cars. The % change from now on until 2014. See https://www.ato.gov.au/Rates/FBT/
SALARY & WAGES
This should be reviewed regularly - at least quarterly - to allow a smooth year end. Look at PAYGW and its links to FBT and WCI Reconciliations (Pay As You Go Withholding, FBT and Workers Compensation Insurance).
PAYG Payment Summaries (PAYGPS) and Annual Reports (PAYGPSS): Note, as indicated above, Car Fringe Benefits that are paid to the ATO on the basis of an FBT Return are subject, generally, to "RFB" (Reportable Fringe Benefit [RFB] amount). Car Fringe Benefits are, (of course!), calculated slightly differently for PAYGW Annual Summary (PAYGPS) purposes to the actual amount of Fringe Benefits paid. Our approach is to suggest that any benefit be paid out as salary and contributed by the employee as there is generally a financial advantage to do so given the maximum marginal tax starts at $180,000 so paying FBT sentences you to the highest marginal rate of tax when your employee may be in a much lower bracket.
ATO Paperwork (PAYGPS, PAYGPSS - "Group Certificates"): (PAYGPS) if we assist you in preparing employee and annual payment summary (PAYGPS, PAYGPSS) please forward the group certificates to us . Alternatively scan and email to us the Annual Summary blank (PAYGPSS). Note the PAYGW Annual Summaries (PAYGPS) have to be issued to employees by mid July and reported to the ATO by 14 August.
For "closely held" companies (those where the owner/s is/are the employee/s) the ATO will allow an extension to 30 September but the ATO generally does not do a good job documenting closely held companies.
Superannuation (9.5% of Ordinary Time Earnings OTE) : Please check your superannuation calculations for Salary & Wages now. Ensure they are paid by 30 June or no deduction can be claimed! Pay it after 28 July and it becomes NOT deductible, along with a whole lot of form filling!
If your entity's Workers Compensation (WCI) falls in this period please prepare for this as well! Note, WCI includes Superannuation. Get your WCI estimate to your insurer soon or the Insurer will automatically renew you with a 30% increase which cannot be changed until the end of the next WCI year!
Please forward WCI/PAYGW summary work to us as necessary for review as soon as possible.
FBT - RFB: Employee Reimbursements: Ensure all reimbursements have been signed off with a declaration stating that the entity/company has agreed to reimburse, or they were 'otherwise deductible' as the case requires. If there are reimbursements and declarations that were not obtained then we suggest a 'total' declaration be made for the year in lieu of the reimbursement by reimbursement declaration. We do suggest that these type of declarations be incorporated into internal entity/company documents so no special declarations are needed at FBT year end. The ATO just loves these declarations to be not on file as it means FBT can be levied on reimbursements.
This can cover overseas travel by incorporating a diary format into expense claims to be completed (over 5 night must be completed or FBT applied), as well as providing evidence for any daily travel allowances or "per diem's" to be calculated. As you are aware by paying a (full) daily allowance if the employee doesn't spend it then it is tax free money to the employee. They cannot also claim for the expenses covered by the meals and incidentals allowance! This can simplify claims to the entity/company and reduce administrative workloads.
Note: this also has GST implications under the reimbursement provisions of the GST Acts where there has to be some from of 'transfer' of a Tax Invoice from the person who incurred the expense to the employer who ultimately claims the GST in the Tax Invoice. You must have a reimbursement process or the GST credit is NOT transferred to the entity/company.
Other Non Car Fringe Benefits : For Other Benefits if the following 'key' exists then please contact us: [Note, many are subject to "RFB" as well.]
1. Car Parking Fringe Benefit: Key - Commercial Car Park within 1 kilometre, and daily fee more than $7.00,
2. Loan Benefits: - Key - Loans to employees and directors (note also the new Div 7A rules for companies), with interest rates less than Benchmark. (Note Benchmark for FBT is not the same as Div 7A). Please note that Div 7A acts to automatically create a Div7A loan account with obligations attached. A debit loan account should be addressed now for year end. - Div 7A loans... Div 7A Loans: The Income Tax Legislation has been modified from 2005, but the basic thrust is that an agreement must be in place. We will calculate Div 7A loan interest as it falls on 1 July each year.
3. Debt Waiver Benefits: Key - Loan Fringe Benefit forgiven,
4. Expense Payment Benefit: Key - Expenses paid for employee/Associate, and they are not expenses that would be considered 'Otherwise deductible'. Note, this is where Car Fringe Benefits will go for valuation if the vehicle is not owned by the employer (or leased). It thus is not a concessionally taxed benefit, and can be expensive if not documented properly.
5. Property Benefit: Key - Providing 'property' (eg a lap top PC) to an employee/associate, But note this can be a planning opportunity for the employee. Special rules apply.
6. Entertainment Benefit: Key - Providing Entertainment to employees/associates (but not morning teas, lunches on site without alcohol). Note also provisions of (exempt) or miscellaneous irregular benefits under $300 don't always work well with this Entertainment. Just because entertainment is good for business doesn't mean the tax law lets you have a deduction!
7. Housing Benefits/ LAFHA/ Board Fringe Benefits: Key - Provision of a house, flat, mobile home, to an employee/associate or rent received was less than market,
8. Other Residual Benefits: Key - Generally a 'Benefit' not covered above where an employee/Associate receives something from the employer that is not 'Otherwise deductible', nor exempted, nor a declared reimbursement; but is some kind of property or service paid for by the employer.
Financial Year End Considerations
Superannuation can be one of the most tax efficient planning points. While most people can't afford $35,000 if they are over 50 and the limit falls to $30,000 under 50.
Other matters to consider:
1. Bring forward expenses in this year and delay income into the following income year. (No surprises here!)
2. Watch prepayments of expenses - cannot exceed 13 months - try to obtain commercial benefit in doing so..
3. PAYGW Planning (Group Tax) - if you have made an estimate of the potential profit in your entity, has enough group tax (PAYGW) been paid to cover payment of the profit to you and/or family members? Discuss this with us as need be and review if superannuation has been paid to cover your eventual 'salary'?
4. Tax sensitive accounts - check these accounts for the following issues:-
- Advertising paid including expenses you might consider donations, but need to be here - see next,
- Donations (if not paid to a "registered" [DGR] organisation, reclassify as advertising - what benefit did you get for your advertising?). Check whose name the donation is made out to at first instance,
- Fines, ensure only the part of any payment made that was specifically referred to as a penalty is included in this expense,
- Legal Fees - please keep copies of solicitors' Fee Notes for review as this can be contentious area with the ATO,
- Software is now ONLY depreciable [subject to Decline in Value], not deductible outright,
- Entertainment - ensure staff amenities (or any overtime, light meals) are not included, nor meals paid for whilst travelling; check with us the types of entertainment that are going to be deductible (and probably subject to FBT) or not deductible (and probably not subject to FBT),
- Superannuation PAID - ensure it is paid, up to date, at 9% of (OTE) Ordinary Time earnings of employees and your own potential salary. You can always pay more for yourself, "just in case", as the only limit is the age based limit ($25,000 or $50,000 this year). Note super must be paid and cleared by 30 June to get a deduction in that year. If you normally pay $30,000 or less into super you are ok. If you pay more talk to us.
- Travel - if interstate and/or overseas - ensure a Travel Diary was kept. Both for FBT purposes (prevent trip from being classified as a benefit because no business purpose is documented) and for another opportunity - [employee] travel allowances, (see above),
- Travel allowance - If the company/entity pays for airfare and accommodation then the entity can pay you a daily allowance for meals and incidentals. The ATO has allowances for every major destination in Australia and the world and rules for any other place. As an employee, if you calculate the allowance on a daily amount supplied by the ATO (and even get the entity to pay into your loan account), If you do not spend all the allowance then the unspent part of the allowance essentially becomes tax free to you even though the ATO says that it needs to be 'fully expended'; however the point of a travel allowance is so you don't need to keep all the receipts and chits when travelling which largely are not provided in any event,
- Motor Vehicles - please record kilometre readings as at 31/3/ and 30 June,
- Log Books
- - If you own the car then consider if a car log is required this year - if it has been 3 years since the last log book or the car was changed this year - please ensure a new one has been kept; do you transport bulky, heavy, expensive material wherever you go or at times?, if so you may be able to increase your business percentage, especially between home and work,
- - If your entity/company owns the vehicle then we recommend a log book and a review of total kms for year be done. A new log book may be required (see above). Carefully consider what the business use has been, do you transport bulky, heavy, expensive material where you go?
- Stock - start to count stock (if you have any) held for resale.Check that it is able to be sold, otherwise "scrap" it so as not to include in the stocktake,
- Subscriptions - note all payments can be identified to appropriate subscriptions,
- Fixed Asset purchases. Consider, do want to expense directly to the Profit & Loss any purchase less than $300 or post it to Fixed Assets so it can be recorded into the Fixed Asset register and depreciated 100% this year, but be listed so you have a more comprehensive list for insurance purposes.
5. Records - ensure you have all banks statements for all accounts to date, all EFT and any cheque butts can be identified and any Bank deposit books or other depsit records. If you run a merchant facility then statements should be held. Check all Internet Bank Transactions are also documented.
6. Accounts - All Bank accounts/Credit Cards should be/ have been regularly reconciled and copies are on file.
7. Reimbursements - Expenses paid on behalf of entity/company - start to accumulate and dissect these expenses. Consider any from previous years you may have remembered or found - include these! If you do not have a form for this we have a pro forma - please let us know. The reimbursement can then be credited to your loan account or paid to you.
8. Do you have the latest version of your software? MYOB for example is up to ver 19 for a local app and is in the cloud in various 'models'. If you want to upgrade please let me know to discuss.
9. Filing - Please check your files of payments. Do you keep them by cheque payment number (thus using the cheque number as the index), or do you file alphabetically? How do you keep EFT transactions? Either way, check for completeness. Are you making many transactions electronically? Are they filed separately? Are you filing by date, transaction verification number or by some alternate method? Deposits - ensure you have separated out any money you put in this year. (loan funds). Note that newer special rules apply to all loans in made to your entity after February 1998 and another body of new rules apply to loan taken after 4 December 1997. Do you store records ALL as pdf or in a database. Can you access them easily?
10. Loan accounts. If you owe money to your entity or if your entity owes money to you, check balance and think about what could be done about it. If the balance is small, pay it out or pay it in? Or, if larger - make a payment to ensure any longer term agreement appears to be satisfied or Div 7A satisfied.
11. Consider prepaying expenses if you will get a commercial benefit.
12. Fixed Assets - copy your last 3 years depreciation/pooling schedules and confirm that the items on the schedule all still exist. Any that don't exist or can't be found should be written off - please advise us so we can make the adjustments into depreciation schedules.
13. Debtors - check any haven't gone (skipped) or will not pay - reverse or credit out or raise a credit note for current year bad debtors (simpler) as it is *not* going to be simpler in the next year to write them off for tax purposes. Do you have a policy of how credit is provided?
14. (Filing, Records). See if your bank can issue Bank Statements more regularly, say weekly or fortnightly if you do not already have some arrangement in place. Some banks are unilaterally changing statement frequency to quarterly. Why - so you can check and reconcile your accounts against fewer transactions per transaction issued and keep your accounts up to date!
15. Balance your accounts weekly in July/August 2012 to be able to identify or push adjustments back into 2012 if they have been overlooked or can be appropriately linked.
16. Exchange rate fluctuations. IDENTIFY realised and unrealised currency conversions. DO NOT book unrealised currency movements to P&L.
Personal taxation/financial matters to consider:
- CGT (Losses): If you have any investments that have lost money consider selling them to offset to any capital gains. Check with your financial planner/broker for other non tax considerations as we focus on the tax. Please look at the records you hold, especially if you bought or sold during the year. We will need details of cost base and sale information. Note be careful if you sell and buy back again to "portfolio balance" - the ATO is looking for this as they see it as something 'bad'; an investor will know the benefits of it. Delay the repurchase or buy a different quantity of stocks on sound investment ideas, not tax and document it to show the ATO, if they ask, why you did "re"buy a particular share. The ATO seems to not understand that stocks do change in price and therefore how it affects a particular stock's attractiveness.
If you want to retain some traded shares and you have an smsf - consider transferring the shares to the Fund. That way you crystalise a CGT loss and the Fund gets the shares at a lower point and will only pay 10% CGT on the share sale profit if sold after a year. The ATO wants to stop this form of contribution. (This measure has now been delayed as the rule would breach the Corporations Law).
- Medical insurance - If your combined couple/family income is above $100K then check if the additional 1% will be cheaper than cover for the whole year although getting backdated cover may be hard. If you have had any major medical expenses - start to see if your Net Unreimbursed amount is approaching $2,000, however the NMERTO is being phased out - check with us.
Medical includes includes pharmacy, dental, optical and any referred therapy. It may be good for Health Offset/Rebate. Apply to Medicare and your health Fund for an annual summary. Register NOW. Consider prepaying Health Premiums (see discussion above).
- Personal negative gearing matters. For residential property, consider any repairs and other expenses that can be brought forward for so they can be claimed in this year and whether or not any prepayment of loan interest is warranted. For other investments prepaying interest may be an advantage.
- Work related expenses: please talk to us. The ATO relies on people not keeping records and car log books so talk to us about how to keep the records and how to keep a log book quickly and completely! It can take up to three years to perfect a system that will suit you. Once you have one it can have a dramatic effect on claims you can make.
- Motor Vehicle - see above under business.
- Rental Property: talk to us, especially if you have purchased a new property this year.
If you have any questions or concerns from the above please contact me immediately. Thanks for taking the time to read this and to think about your financial and tax affairs. The government wants your money. Don't give it up easily!
Brett Lamond
Updated 8 Dec 2015
[20120630, 20151208]
Last Edit: 2015 12 08
Back to Articles
Year End
This is a year end primer for both business and personal matters. Each section can be considered so as to give you ideas for your tax planning for business or for personal work related expense (WRE) deductions or packaging with an employer. Many ideas mentioned should be looked at before 30 June for a better tax result. We suggest you review the whole article and discuss with us any points that are not clear or too summary. It is long, but so are our tax laws and being prepared allows you the opportunity to be well planned! Note, as the article is non technical discuss any points you may want to look at for any technicalities not included. Anyone who thinks tax in Australia is simple is very misinformed.
Planning point: - Immediate Car Deduction of $20,000 in 2015 (from May) and 2016 years.
Small businesses can claim up to $20,000 as an immediate deduction for motor vehicles, with effect for vehicles acquired from the 2015 income year. (There was a lower claim of $5,000 in 2012-13 income year.) If the car is over $20,000 then it must be depreciated under normal rules.
Short answers - None! Anyone who says 'simple' and 'tax' in one sentence has no real idea about the Australian tax. We will attempt to be brief so you can get an idea, and if need be talk to us. We have limited 'pure' technical material, but included practical information to assist.
Be aware that the ATO is now well versed in now only setting deadlines but extracting extra revenue for missing them.
In this article, we cover (in general terms):
Business
- FBT with Wages comments
- RFB - Reportable Fringe Benefits (that is put on a PAYGPS)
- Year End Matters including:
= WCI Workers Compensation Insurance
= PAYGPS Pay As You Go Payment Summary (Group Certificate) [who thinks of these names?]
= PAYGPSS Pay As You Go Payment Summary Statement (Annual Reconciliation of PAYGS)
Personal
- Negative Gearing
- WRE Personal Work Related Expense Comments
- Motor vehicles
- Rental properties
Introduction
We suggest you set aside time to read and discuss matters with us. Even if it is to give us feedback. Given that tax has very complex sets of rules, the rules can have a dramatic affect on your finances year to year and your wealth in the longer term.
When we review your affairs to meet tax/fbt/gst/wre requirements and the host of other rules we also try to correlate all the financial and all the tax areas to each other of your personal or business financial matters. That way a better result is achieved rather than 'dumb 'compliance.. We think of it as a chessboard and suggest you lay all the pieces out so with care so you not only "comply" with what the ATO thinks is the law but by working with us we get what YOU want (or as much of it as we can!)... We call this leveraged compliance..
FBT
Fringe Benefits and FBT declarations/records and returns: The FBT year ends 31 March each year. Please ensure records are up to date and organised so FBT is nil (or will be) by Employee Contribution. For clients we have measures in place that set this in motion each year. We issue this as a reminder at year end to focus the FBT work with year end. This is a general outline so please discuss any specific concerns with me. ALSO, please use the FBT Car Declaration for 31 March and for 30 June for any non company cars so you have a record for year end work! Please note your car odometers readings now (right now!!).
A good way to keep an eye on odometer readings is to write the kilometre readings on the petrol/gas/diesel Tax Invoice each time you fill up. It only takes an extra second when paying for the petrol/gas/diesel. Helps when doing car logs as well...
Odometer Readings: I suggest you take odometer readings of all vehicles, (even if not owned or used by your entity/company, also include 'trucks', 4WD etc) "as at" 31 March to allow FBT or other calculations. You might also update them (in the notes section) for readings at 30 June. If you are a client please email the reading to me. NOW!
FBT QUESTIONS: If you have any questions on any matter above please let me know before 20 July. We have 2 FBT declaration formats available so please request them by email. They are in pdf format. If this presents any problems please contact me. Please send the completed enclosed declarations to us as soon as convenient, ready for FBT and year end as it will assist with any contributions to be calculated for accounts and GST purposes.
For Car Fringe Benefits the Statutory percentages have changed - please discuss as they are progressively being flattened to 20%. That means the operating cost method needs to be looked at for higher business use cars. The % change from now on until 2014. See https://www.ato.gov.au/Rates/FBT/
SALARY & WAGES
This should be reviewed regularly - at least quarterly - to allow a smooth year end. Look at PAYGW and its links to FBT and WCI Reconciliations (Pay As You Go Withholding, FBT and Workers Compensation Insurance).
PAYG Payment Summaries (PAYGPS) and Annual Reports (PAYGPSS): Note, as indicated above, Car Fringe Benefits that are paid to the ATO on the basis of an FBT Return are subject, generally, to "RFB" (Reportable Fringe Benefit [RFB] amount). Car Fringe Benefits are, (of course!), calculated slightly differently for PAYGW Annual Summary (PAYGPS) purposes to the actual amount of Fringe Benefits paid. Our approach is to suggest that any benefit be paid out as salary and contributed by the employee as there is generally a financial advantage to do so given the maximum marginal tax starts at $180,000 so paying FBT sentences you to the highest marginal rate of tax when your employee may be in a much lower bracket.
ATO Paperwork (PAYGPS, PAYGPSS - "Group Certificates"): (PAYGPS) if we assist you in preparing employee and annual payment summary (PAYGPS, PAYGPSS) please forward the group certificates to us . Alternatively scan and email to us the Annual Summary blank (PAYGPSS). Note the PAYGW Annual Summaries (PAYGPS) have to be issued to employees by mid July and reported to the ATO by 14 August.
For "closely held" companies (those where the owner/s is/are the employee/s) the ATO will allow an extension to 30 September but the ATO generally does not do a good job documenting closely held companies.
Superannuation (9.5% of Ordinary Time Earnings OTE) : Please check your superannuation calculations for Salary & Wages now. Ensure they are paid by 30 June or no deduction can be claimed! Pay it after 28 July and it becomes NOT deductible, along with a whole lot of form filling!
If your entity's Workers Compensation (WCI) falls in this period please prepare for this as well! Note, WCI includes Superannuation. Get your WCI estimate to your insurer soon or the Insurer will automatically renew you with a 30% increase which cannot be changed until the end of the next WCI year!
Please forward WCI/PAYGW summary work to us as necessary for review as soon as possible.
FBT - RFB: Employee Reimbursements: Ensure all reimbursements have been signed off with a declaration stating that the entity/company has agreed to reimburse, or they were 'otherwise deductible' as the case requires. If there are reimbursements and declarations that were not obtained then we suggest a 'total' declaration be made for the year in lieu of the reimbursement by reimbursement declaration. We do suggest that these type of declarations be incorporated into internal entity/company documents so no special declarations are needed at FBT year end. The ATO just loves these declarations to be not on file as it means FBT can be levied on reimbursements.
This can cover overseas travel by incorporating a diary format into expense claims to be completed (over 5 night must be completed or FBT applied), as well as providing evidence for any daily travel allowances or "per diem's" to be calculated. As you are aware by paying a (full) daily allowance if the employee doesn't spend it then it is tax free money to the employee. They cannot also claim for the expenses covered by the meals and incidentals allowance! This can simplify claims to the entity/company and reduce administrative workloads.
Note: this also has GST implications under the reimbursement provisions of the GST Acts where there has to be some from of 'transfer' of a Tax Invoice from the person who incurred the expense to the employer who ultimately claims the GST in the Tax Invoice. You must have a reimbursement process or the GST credit is NOT transferred to the entity/company.
Other Non Car Fringe Benefits : For Other Benefits if the following 'key' exists then please contact us: [Note, many are subject to "RFB" as well.]
1. Car Parking Fringe Benefit: Key - Commercial Car Park within 1 kilometre, and daily fee more than $7.00,
2. Loan Benefits: - Key - Loans to employees and directors (note also the new Div 7A rules for companies), with interest rates less than Benchmark. (Note Benchmark for FBT is not the same as Div 7A). Please note that Div 7A acts to automatically create a Div7A loan account with obligations attached. A debit loan account should be addressed now for year end. - Div 7A loans... Div 7A Loans: The Income Tax Legislation has been modified from 2005, but the basic thrust is that an agreement must be in place. We will calculate Div 7A loan interest as it falls on 1 July each year.
3. Debt Waiver Benefits: Key - Loan Fringe Benefit forgiven,
4. Expense Payment Benefit: Key - Expenses paid for employee/Associate, and they are not expenses that would be considered 'Otherwise deductible'. Note, this is where Car Fringe Benefits will go for valuation if the vehicle is not owned by the employer (or leased). It thus is not a concessionally taxed benefit, and can be expensive if not documented properly.
5. Property Benefit: Key - Providing 'property' (eg a lap top PC) to an employee/associate, But note this can be a planning opportunity for the employee. Special rules apply.
6. Entertainment Benefit: Key - Providing Entertainment to employees/associates (but not morning teas, lunches on site without alcohol). Note also provisions of (exempt) or miscellaneous irregular benefits under $300 don't always work well with this Entertainment. Just because entertainment is good for business doesn't mean the tax law lets you have a deduction!
7. Housing Benefits/ LAFHA/ Board Fringe Benefits: Key - Provision of a house, flat, mobile home, to an employee/associate or rent received was less than market,
8. Other Residual Benefits: Key - Generally a 'Benefit' not covered above where an employee/Associate receives something from the employer that is not 'Otherwise deductible', nor exempted, nor a declared reimbursement; but is some kind of property or service paid for by the employer.
Financial Year End Considerations
Superannuation can be one of the most tax efficient planning points. While most people can't afford $35,000 if they are over 50 and the limit falls to $30,000 under 50.
Other matters to consider:
1. Bring forward expenses in this year and delay income into the following income year. (No surprises here!)
2. Watch prepayments of expenses - cannot exceed 13 months - try to obtain commercial benefit in doing so..
3. PAYGW Planning (Group Tax) - if you have made an estimate of the potential profit in your entity, has enough group tax (PAYGW) been paid to cover payment of the profit to you and/or family members? Discuss this with us as need be and review if superannuation has been paid to cover your eventual 'salary'?
4. Tax sensitive accounts - check these accounts for the following issues:-
- Advertising paid including expenses you might consider donations, but need to be here - see next,
- Donations (if not paid to a "registered" [DGR] organisation, reclassify as advertising - what benefit did you get for your advertising?). Check whose name the donation is made out to at first instance,
- Fines, ensure only the part of any payment made that was specifically referred to as a penalty is included in this expense,
- Legal Fees - please keep copies of solicitors' Fee Notes for review as this can be contentious area with the ATO,
- Software is now ONLY depreciable [subject to Decline in Value], not deductible outright,
- Entertainment - ensure staff amenities (or any overtime, light meals) are not included, nor meals paid for whilst travelling; check with us the types of entertainment that are going to be deductible (and probably subject to FBT) or not deductible (and probably not subject to FBT),
- Superannuation PAID - ensure it is paid, up to date, at 9% of (OTE) Ordinary Time earnings of employees and your own potential salary. You can always pay more for yourself, "just in case", as the only limit is the age based limit ($25,000 or $50,000 this year). Note super must be paid and cleared by 30 June to get a deduction in that year. If you normally pay $30,000 or less into super you are ok. If you pay more talk to us.
- Travel - if interstate and/or overseas - ensure a Travel Diary was kept. Both for FBT purposes (prevent trip from being classified as a benefit because no business purpose is documented) and for another opportunity - [employee] travel allowances, (see above),
- Travel allowance - If the company/entity pays for airfare and accommodation then the entity can pay you a daily allowance for meals and incidentals. The ATO has allowances for every major destination in Australia and the world and rules for any other place. As an employee, if you calculate the allowance on a daily amount supplied by the ATO (and even get the entity to pay into your loan account), If you do not spend all the allowance then the unspent part of the allowance essentially becomes tax free to you even though the ATO says that it needs to be 'fully expended'; however the point of a travel allowance is so you don't need to keep all the receipts and chits when travelling which largely are not provided in any event,
- Motor Vehicles - please record kilometre readings as at 31/3/ and 30 June,
- Log Books
- - If you own the car then consider if a car log is required this year - if it has been 3 years since the last log book or the car was changed this year - please ensure a new one has been kept; do you transport bulky, heavy, expensive material wherever you go or at times?, if so you may be able to increase your business percentage, especially between home and work,
- - If your entity/company owns the vehicle then we recommend a log book and a review of total kms for year be done. A new log book may be required (see above). Carefully consider what the business use has been, do you transport bulky, heavy, expensive material where you go?
- Stock - start to count stock (if you have any) held for resale.Check that it is able to be sold, otherwise "scrap" it so as not to include in the stocktake,
- Subscriptions - note all payments can be identified to appropriate subscriptions,
- Fixed Asset purchases. Consider, do want to expense directly to the Profit & Loss any purchase less than $300 or post it to Fixed Assets so it can be recorded into the Fixed Asset register and depreciated 100% this year, but be listed so you have a more comprehensive list for insurance purposes.
5. Records - ensure you have all banks statements for all accounts to date, all EFT and any cheque butts can be identified and any Bank deposit books or other depsit records. If you run a merchant facility then statements should be held. Check all Internet Bank Transactions are also documented.
6. Accounts - All Bank accounts/Credit Cards should be/ have been regularly reconciled and copies are on file.
7. Reimbursements - Expenses paid on behalf of entity/company - start to accumulate and dissect these expenses. Consider any from previous years you may have remembered or found - include these! If you do not have a form for this we have a pro forma - please let us know. The reimbursement can then be credited to your loan account or paid to you.
8. Do you have the latest version of your software? MYOB for example is up to ver 19 for a local app and is in the cloud in various 'models'. If you want to upgrade please let me know to discuss.
9. Filing - Please check your files of payments. Do you keep them by cheque payment number (thus using the cheque number as the index), or do you file alphabetically? How do you keep EFT transactions? Either way, check for completeness. Are you making many transactions electronically? Are they filed separately? Are you filing by date, transaction verification number or by some alternate method? Deposits - ensure you have separated out any money you put in this year. (loan funds). Note that newer special rules apply to all loans in made to your entity after February 1998 and another body of new rules apply to loan taken after 4 December 1997. Do you store records ALL as pdf or in a database. Can you access them easily?
10. Loan accounts. If you owe money to your entity or if your entity owes money to you, check balance and think about what could be done about it. If the balance is small, pay it out or pay it in? Or, if larger - make a payment to ensure any longer term agreement appears to be satisfied or Div 7A satisfied.
11. Consider prepaying expenses if you will get a commercial benefit.
12. Fixed Assets - copy your last 3 years depreciation/pooling schedules and confirm that the items on the schedule all still exist. Any that don't exist or can't be found should be written off - please advise us so we can make the adjustments into depreciation schedules.
13. Debtors - check any haven't gone (skipped) or will not pay - reverse or credit out or raise a credit note for current year bad debtors (simpler) as it is *not* going to be simpler in the next year to write them off for tax purposes. Do you have a policy of how credit is provided?
14. (Filing, Records). See if your bank can issue Bank Statements more regularly, say weekly or fortnightly if you do not already have some arrangement in place. Some banks are unilaterally changing statement frequency to quarterly. Why - so you can check and reconcile your accounts against fewer transactions per transaction issued and keep your accounts up to date!
15. Balance your accounts weekly in July/August 2012 to be able to identify or push adjustments back into 2012 if they have been overlooked or can be appropriately linked.
16. Exchange rate fluctuations. IDENTIFY realised and unrealised currency conversions. DO NOT book unrealised currency movements to P&L.
Personal taxation/financial matters to consider:
- CGT (Losses): If you have any investments that have lost money consider selling them to offset to any capital gains. Check with your financial planner/broker for other non tax considerations as we focus on the tax. Please look at the records you hold, especially if you bought or sold during the year. We will need details of cost base and sale information. Note be careful if you sell and buy back again to "portfolio balance" - the ATO is looking for this as they see it as something 'bad'; an investor will know the benefits of it. Delay the repurchase or buy a different quantity of stocks on sound investment ideas, not tax and document it to show the ATO, if they ask, why you did "re"buy a particular share. The ATO seems to not understand that stocks do change in price and therefore how it affects a particular stock's attractiveness.
If you want to retain some traded shares and you have an smsf - consider transferring the shares to the Fund. That way you crystalise a CGT loss and the Fund gets the shares at a lower point and will only pay 10% CGT on the share sale profit if sold after a year. The ATO wants to stop this form of contribution. (This measure has now been delayed as the rule would breach the Corporations Law).
- Medical insurance - If your combined couple/family income is above $100K then check if the additional 1% will be cheaper than cover for the whole year although getting backdated cover may be hard. If you have had any major medical expenses - start to see if your Net Unreimbursed amount is approaching $2,000, however the NMERTO is being phased out - check with us.
Medical includes includes pharmacy, dental, optical and any referred therapy. It may be good for Health Offset/Rebate. Apply to Medicare and your health Fund for an annual summary. Register NOW. Consider prepaying Health Premiums (see discussion above).
- Personal negative gearing matters. For residential property, consider any repairs and other expenses that can be brought forward for so they can be claimed in this year and whether or not any prepayment of loan interest is warranted. For other investments prepaying interest may be an advantage.
- Work related expenses: please talk to us. The ATO relies on people not keeping records and car log books so talk to us about how to keep the records and how to keep a log book quickly and completely! It can take up to three years to perfect a system that will suit you. Once you have one it can have a dramatic effect on claims you can make.
- Motor Vehicle - see above under business.
- Rental Property: talk to us, especially if you have purchased a new property this year.
If you have any questions or concerns from the above please contact me immediately. Thanks for taking the time to read this and to think about your financial and tax affairs. The government wants your money. Don't give it up easily!
Brett Lamond
Updated 8 Dec 2015
[20120630, 20151208]
Last Edit: 2015 12 08
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