We gave 9 end of financial year tax tips last week – here are the next 9 to consider as you prepare for year end!
10. Offset capital gains with capital losses
Generally, if you have incurred capital losses on your investments, you are able to offset these capital losses against any capital gains you have made. You can also use losses you have carried forward from previous years. Remember, income losses can only be offset against income; capital losses can only be offset against capital gains.
11. Consider the ideal timing for asset sales
If you are thinking of selling a profitable asset this financial year, but are likely to earn a lower income in the next year, it may be worth postponing the sale until after 30 June, as the sale is income, less the original cost. However, if you expect an income windfall from 1 July, it may be worth bringing the sale forward. As always, your decisions depend on your expectations for future asset prices, so don’t postpone a sale for tax purposes if you are expecting your investment to fall in value!
12. Franking credits
If you are planning on paying dividends out to shareholders before the end of the year, it is worth reviewing the company’s franking account to ensure that the company has paid sufficient tax to enable the dividends to be fully franked. This may mean paying ahead of scheduled payments in an arrangement with the ATO. For assistance with calculating your franking account balance, please talk to your tax agent.
13. Spouse and Family wages
Paying family – must be reasonable and legitimate for work performed.
14. Depreciation – Accelerated Write off – Up to $20,000
The accelerated depreciation write-off for assets up to $20,000 acquired by small businesses was announced in the May 2015 budget and is available for purchases until 28 January, 2019, $25,000 between 29 Jan and 2 April 2019, and NOW $30,000 from 3 April to 30 June 2020!.
The write off threshold was previously $1,000 and the concession only applies to businesses with an aggregate annual turnover of less than $2 million.
Also, as a boost for small businesses, the Government will extend access to a number of small business tax concessions by increasing the annual turnover eligibility threshold from $2m to $10m. These measures will apply from July 1, 2016. SEE ATO.
15. Use super to manage Capital Gains Tax
If you make a capital gain on the sale of an asset this financial year and earn less than 10% of your income from eligible employment, you may be able to claim a tax deduction for a contribution to superannuation, which could reduce or offset your capital gain. You will need to be eligible to contribute to superannuation (which means you are under the age of 65, or under 75 and meeting the work test (from 2017 now abolished), and be comfortable having your contribution preserved in super until you meet a condition of release (eg retirement decision).
16. Make tax deductible super contributions
If you earn less than 10% of your income from eligible employment (eg you are self-employed sole trader perhaps, or not employed), you are generally able to claim a tax deduction for personal contributions to superannuation. As with super, you will need to be eligible to contribute to superannuation (which means you are under the age of 65, or in some years under 75 and meeting the work test, but 2017 onwards abolished), and be comfortable having your contribution preserved in super until you meet a condition of release (eg retirement).
If you claim a deduction for it, the contribution you make will be taxed at 15% in your super fund, so your tax saving will be the difference between your marginal rate and 15% – which could be up to 45% plus Medicare levy.
17. Review your portfolio
Review your Business investment portfolio (and personal) and consider a strategic re-allocation of your investments. Consider portfolio allocations – is your portfolio heavily over or underweight in specific industry sectors or stocks? Are you continuing to carry stocks that have exceeded your price targets or continue to under-perform – this may be an opportunity to re-balance.
18. Best Tip of all
Get advice specific to your business and situation that considers your personal position – both go together!
If you need a referral, call me – 0407 361 596 – plan NOW don’t delay!
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