It is only weeks away and there are tasks you need to be preparing your bookkeeping for the Year End 2014.
ATO focus areas in 2014
The ATO have advised that they will be focussing on a number of areas in its 2014 compliance program, including:
1. Benchmarking small businesses;
2. Reporting of payments to contractors in the building industry;
3. Eligibility to access Capital Gains Tax (CGT) small business concessions on sale of assets used in business (discussed further below);
4. Goods and Services Tax (GST) on property sales; and
5. Cross border business transactions.
Maximising allowable deductions
Expenses that are incurred before year end can reduce taxable income. Consider upcoming liabilities and the value in incurring them before year end. Allowable deductions may include:
● Paying directors’ fees and bonuses;
● Minor repairs on property and machinery;
● Pooling depreciating assets; and
● Scrapping of depreciating assets.
Some Key Bookkeeping & Tax Areas to look at –
If you have any bad debts, ensure you write them off prior to 30 June and prepare minutes approving the write-off. This will also enable an adjustment for any GST charged on the original invoice. Ask us how 0407 361 596.
Depreciating assets and motor vehicle purchases
The concessional depreciation rules that are applicable for the 2014 income year for small business entities, are broadly summarised as follows: (although the final Federal consent has not been given to reductions)
1. An immediate write off of depreciating assets costing less than $6,500 first used or installed ready for use by the 31 December 2013. For depreciating assets acquired from 1 January 2014, the immediate write-off threshold has been reduced to $1,000;
2. An immediate write off of the first $5,000 cost of any motor vehicle (with a total purchase cost of at least $6,500) first used or installed ready for use by 31 December 2013, with the balance of purchase price being allocated to a depreciation pool. For motor vehicles acquired from 1 January 2014, the immediate write off threshold has been reduced to $1,000; and
3. Non-motor vehicle depreciating assets costing more than $6,500 first used or installed ready for use prior to 31 December 2013 are written off in a depreciation pool at the rate of 15% in the first year and 30% in later years. From the 1 January 2014, depreciating assets costing more than $1,000 are written off in a depreciation pool at the rate of 15% in the first year and 30% in later years.
Non-commercial loss provisions restrict the ability of an individual who carried on the ‘non-commercial’ business activity to offset that loss against other income earned in that income year. These provisions will not apply if certain tests are satisfied. There are also special exceptions for primary producers and artists. Note – Individuals with an adjusted taxable income of $250,000 or more will generally not be eligible to offset losses from non-commercial activities against other income. However, there may be an opportunity to request the Commissioner’s discretion to allow you to claim your losses.
PAYG payment summaries
PAYG payment summaries must be provided to employees by 14 July 2014 and the Payment Summary Statement lodged with the ATO Office by 14 August 2014, unless the ATO have granted your business an extension of time.
Personal services income
Be aware there are special rules about the tax treatment of Personal Services Income (PSI). The rules can apply to individuals, contractors and contracting entities by:
● Limiting the deductions available; and/or
● Attributing personal service income derived by an entity to the individual
An individual or entity is subject to the PSI rules, unless it can show that the “results test” is satisfied; or it does not derive 80% or more of its income from one client and passes one of three additional tests. See ATO site
Personal use assets
Where assets owned by a company are used outside of a business by a shareholder or “associate” – this may result in a breach of Division 7A. This can give rise to an unfranked dividend to you for tax purposes. If your company owns any assets that are available to be used for non-business purposes, please contact your tax advisor to discuss this issue.
Only certain prepayments required to be made by law (eg. worker’s compensation insurance) and amounts of less than $1,000 are deductible as incurred.
If you or your “associates” borrowed money, received a benefit, or had a debt forgiven from a private company during the year, the Division 7A rules may apply.
Small business entities
In general terms, you are classed as a Small Business Entity (SBE) if you carry on business and your aggregated turnover is less than $2 million or is likely to be less than $2 million as at the commencement of the financial year. SBE’s can choose to access certain concessions including:
● CGT concessions;
● Immediate deductions for certain prepaid expenditure; and
● Simplified depreciation and trading stock rules.
If you are transitioning beyond being able to be considered a SBE based on your turnover, it is important to consider the implications in this transition and consider whether there are any opportunities to minimise this impact on you and your associated entities.
Small business Capital Gains Tax (CGT) concessions
There are 4 specific small business concessions may apply to reduce capital gains as a result of the sale of your business (or active business assets). These are:
● A 15 year exemption;
● A 50% reduction for active assets;
● $500,000 retirement concession; and
● Replacement asset roll-over relief
If the 15 year exemption does not apply, you may apply one, two or all three of the remaining concessions.
If you sell your business or the entity that carries on the business, or are considering selling your business in the future, please talk to your tax advisor BEFORE entering into any agreement to discuss eligibility and planning to access these concessions.
Contributions in respect of the quarter ending 30 June 2014 must be made before 30 June for a deduction to be available in the 2014 year. For family businesses, consider maximising concessional contributions for key individuals. Concessional contributions (include SG and salary sacrifice) are limited to $25,000 pa. for all individuals, unless you are 59 years of age on the 30 June 2013, your concessional contribution limit is increased to $35,000 p.a. Consider whether you are eligible to make an additional $10,000 concessional superannuation contribution prior to 30 June 2014. But be careful – contributions above these caps are generally subject to tax at the top marginal tax rate.
Timing of income
Consider issues associated with the timing of income close to 30 June, such as:
● The time of billing work in progress;
● Timing of sales income; and
● The date of entering into a contract for the sale of CGT assets.
Stock can be valued under different methods for each item of stock.
● Sales value; and
● Lower of market value or replacement cost.
Remember to conduct a stocktake before year end and also identify damaged lost or obsolete items.
If your entity structure is a trust, then it is crucial that your trustee resolution to appoint or distribute income to beneficiaries is effective as at 30 June 2014. This means tax planning for trusts should be done as soon as possible to ensure the resolution can be made with tax effective considerations in mind and also finalised/documented prior to 30 June.
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