Tax Planning - Minimise your business tax

Imagine what you could do with tax saved? 

IS YOUR BUSINESS A “SMALL BUSINESS” ENTITY? 

Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected / affiliated with you) of less than $10 million and be operating a business for all or part of the 2018 year. 

REDUCTION IN COMPANY TAX RATES FOR SMALL BUSINESSES 

The company tax rate for businesses with less than $10 million turnover is 27.5%. 

If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 27.5% for the 2018 year. Note that this company must have business operations to qualify for the reduced company tax rate. 

INSTANT DEDUCTION FOR ASSETS LESS THAN $20,000 

If your business is a Small Business Entity, the following tax concessions apply: 

• Depreciating assets valued at less than $20,000 will be immediately deductible 
• Depreciating assets valued at more than $20,000 will be depreciated in one pool at a rate of 15% in the first year and 30% in future years 
• If your pool balance at the end of the year is less than $20,000 before applying any other depreciation deduction, the entire pool balance can be written off. 

You should buy these assets before 30 June 2018. 

If your business is not a Small Business Entity, you will need to depreciate all assets purchased over $300. Any assets purchased for $300 or under can be immediately deducted. 

MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS 

The concessional superannuation cap for 2018 is $25,000 for all individuals. Do not go over this limit or you will pay more tax! 

Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge. 

For the contribution to be counted towards the employee’s 2018 contribution cap, it must be received by the fund by 30 June 2018. 

TOOLS OF TRADE / FBT EXEMPT ITEMS 

The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. 

Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones. 

If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased. 

You should buy these items before 30 June 2018. 

PAY EMPLOYEE SUPERANNUATION NOW 

To claim a tax deduction in the 2018 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2018. 

You should avoid making last minute superannuation payments as processing delays may cause them to be received after year-end. If for any reasons you end up having to make last minute payments and you would like to claim them as deductions for the current year, contact us immediately and before you make any payments for possible resolutions. 

DEFER INCOME 

If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2018. This strategy pushes tax payable to future years. 

BRING FORWARD EXPENSES 

Purchase consumable items BEFORE 30 June 2018. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now and get the deduction this year. 

REPAIRS & MAINTENANCE 

Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2018. 

DEFER INVESTMENTINCOME & CAPITAL GAINS 

If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2018. 

The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date! 

MOTOR VEHICLE LOG BOOK 

Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2018. You should make a record of your odometer reading as at 30 June 2018 and keep all receipts/invoices for motor vehicle expenses. 

An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method. 

INVESTMENT PROPERTY DEPRECIATION 

If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property. 

PRIVATE COMPANY (“DIV 7A”) LOANS 

Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2018. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual. 

YEAR-END STOCKTAKE / WORK IN PROGRESS 

If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2018. Review your listing and write-off any obsolete or worthless stock items. 

Talk to us about your different options for valuing Stock, and how they affect your tax payable. 

WRITE-OFF BAD DEBTS 

Review your Trade Debtors listing and write-off all bad debts BEFORE 30 June 2018. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2018. 

SMALL BUSINESS CONCESSIONS - PREPAYMENTS 

“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2018 and obtain a full tax deduction in the 2018 financial year. 

TRUSTEE RESOLUTIONS 

Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2018 for all Discretionary (“Family”) Trusts. Please see us for more information about these resolutions. 

Talk to us TODAY, before the 30 June 2018 deadline for assistance to reduce your tax!

This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.

How To Claim Your Car Expenses – The Car Logbook Method

A Car Logbook is a good way to track your car expenses and claim them on your tax return (to increase your tax refund).

If you’re a small business owner and you use your car for work purposes, the ATO will let you make a claim on your tax return for some car-related expenses. The complicated bit is how you keep records and calculate your car deduction claim.
In this article, we look at claiming car expenses using a “car logbook”. If you’re a business owner or sole trader and you use your car a lot for work, the car logbook will usually get you a bigger tax refund.

Although it takes a bit of patience to get going, it’s only one recording period for every five years, so overall the car log book is really quite convenient to use.
Previously, claiming work-related car expenses was done via one of four different methods to calculate your car expenses. Now, the old “1/3 expenses” and “12% cost” methods are no longer available. There will be only two methods to calculate car expenses: The “cents per kilometre method” or the “log book method”.

If you have used the cents per kilometre method in the past, you may become disadvantaged under the new ATO changes. The cents per kilometre rate is now fixed at 66c per kilometre for all vehicles. That means if you use a large vehicle and use it a lot, you could really lose out..

It is likely the car logbook will become the most popular and the most advantageous way to calculate and claim car expenses for most taxpayers. Ask your tax agent to confirm the best method for you.

How A Logbook Works

Using the logbook, your tax deduction claim is based on your car’s “business use percentage”. Your business use percentage is the percentage of kilometres you travel in your car for business related purposes.

How To Use Your Logbook

To work out your business use percentage, you need to keep a logbook for your car for a “typical” 12 week period. These must be 12 consecutive weeks (i.e. 12 weeks in a row).
There are very strict ATO rules for completing a car logbook, so make sure you abide by them all. (There’s no sense in doing a logbook, only for it to be deemed worthless by the ATO; get it right the first time and you’re good for five years.)
Your logbook must include every trip you take – not just your business related trips.
The logbook must include the following details:

• date for each journey
• start and finish times for each journey
• start and finish odometer readings for each journey
• total number of kilometres for each journey
• reason for each journey
• start and finish dates for the logbook period
• start and finish odometer readings for the logbook period
• total number of kilometres travelled during the period
• business use percentage for the period

Does the logbook method sound like a lot of effort?

It can be, but believe us: it can be worth it at tax time, when you get a bigger tax refund.
And as a bonus, the good news is that IF your business use percentage is consistent…
…then you only need to fill out a new logbook for one 12-week recording period every 5 years.

How To Calculate Your Business Use Percentage

Once you’ve completed your 12 week logbook, you’ll be able to calculate your car’s business use percentage.

To do this, divide your business use kilometres by your total kilometres, then multiply by 100.

So, for example, if you travel 4,000 kilometres in total for the 12 week period, and 1,200 of these were for business-specific purposes, you would do the following calculation:
1,200 ÷ 4,000 × 100 = 30

In this example, your car’s business use percentage would be 30%. This means that you could claim 30% of your vehicle expenses for the financial year.

What Sort of Vehicle Expenses Can You Claim?

So, what are “vehicle expenses” in the eyes of the ATO?
Vehicle expenses include:

• running costs such as fuel, oil, and servicing
• registration
• insurance
• vehicle depreciation

Vehicle expenses do not include:

• the purchase cost of the car
• parking tickets, speeding and other fines

Remember: Record, Record, Record

Of course, it’s not just your logbook records that you need to keep in order to make a claim for car expenses in your tax return. You must also keep written evidence (such as receipts) of all the car expenses you are claiming.

Always remember: Your car expenses claims cannot be guessed or made-up. They must be legitimate, and you must have evidence of them. If you don’t, you could be audited by the ATO, and this could cost you thousands of dollars in fines.

On the other hand, if you stick to the rules and use the logbook method for claiming your car expenses, you can maximise your tax refund.

If you have any questions for us about this article or anything else, please contact us.

This information is of a general nature only and has been provided without considering your objectives, financial situation or needs. Because of this you should consider whether the information is appropriate considering your objectives, financial situation and needs.