InTheBlack’s Paul Drum has outlined, what we believe to be, an insightful list of tax tips for small business. These have been summarised below, or you can take a look at the article in detail here:
Check eligibility for small business tax regime
Small business entity’s (SBEs) are individuals, partnerships, companies, and trusts that have an annual turnover (excluding GST) of less than $2 million. While meeting the $2 million turnover test automatically entitles SBEs to choose certain concession it is important to note that additional eligibility tests apply to some claims, like the small-business CGT concession.
Maximise depreciation deductions
SBEs will get an immediate tax deduction for almost all purchased individual assets costing under $20,000, purchased from 7:30pm AEST on 12 May 2015 to the given that it is used for an income producing purpose.
For business assets first used, or installed and ready to use prior to 12 May 2015, an immediate deduction can be claimed if the cost of the asset was less than $1,000.
For businesses registered for GST, the $20,000 threshold is calculated on a GST-exclusive 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 from 7.30pm on 12 May 2015 or an asset costing $1,000 or more prior to that time) will be automatically depreciated at a flat rate of 15 per cent in the year it was bought to the extent the asset is used for income-producing purposes, and is used or installed ready for use by 30 June 2015.
Take advantages of the tax rate cut for small business from 1 July 2015
A number of tax planning opportunities have opened up with the reduction of company tax to 28.5 percent, and the proposed introduction of a five percent small business tax discount on income tax payable on business income received from an unincorporated entity that meets the SBE test, capped to $1,000 per individual.
In particular, eligible businesses can bring forward expenses into this financial year, and delay revenue into the next financial year.
Seeking professional advice when starting a business
The government has proposed that professional expenses situated with starting a new business be fully deducted in the year they occurred as of 1 July 2015. If a new business and possible, we advise you hold off from seeking professional advice until after the end of financial year.
Review salary sacrifice arrangements
Employees can consider salary sacrifice arrangements under which their gross salary may be foregone to obtain either a packaged car for fringe benefits tax (FBT) purposes, or they can make additional superannuation contributions.
Make trust resolutions by 30 June
Trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for 2014/15 by 30 June at the latest.
If not executed by 30 June, any default beneficiaries under the deed will become entitled to trust income and subject to tax, or the trustee will be assessed at the highest marginal tax rate on any taxable income derived by the trust.
A trustee must be able to show how an effective resolution was made through draft minutes, file notes or an exchange of correspondence documented before year end.
Stream trust capital gains and franked distributions
Trustees of discretionary trusts can stream capital gains and franked dividends to different beneficiaries of the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts. This must be documented before 30 June.
Private company loans
Income tax law can potentially treat a payment or loan by a private company to a shareholder or associate, or the forgiveness of a shareholder’s or associate’s debt, as an unfranked seemed dividend unless an exemption applies.
The most common exemption is to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term.
Private companies can do various thing before 2014/15 tax returns need to be lodged, including repaying loans, declaring a dividend or entering a complying loan agreement before the return needs to be lodged.
Prevent deemed dividends in respect of unpaid trust distributions
Any unpaid distribution owed by a trust to a related private company beneficiary that arises on or after 1 July 2014 will be treated as a loan by the company, if controlled by the same family group. The associated trust may be taken to have derived a deemed dividend for the amount of the unpaid trust distribution in 2014/15. This may, however, ne prevented by paying out any unpaid distribution, or a complying loan agreement entered into before 2014/15 tax return is due for lodgement.
Write-off bad debts
Income tax deduction for bad debts can be obtained by businesses when various conditions are met;
- The debt still exists at the time it is written off
- Debt is effectively irrecoverable
- It is written off in the accounts as bad in the year the deduction is claimed
- 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 if creditor is either company or trust
Super guarantee
Employers are required to contribute 9.5 percent of employees’ salary to the super fund of their choice under the superannuation guarantee. Tax deductions for personal contributions can be made if you’re substantially self-employed.
SMSFs and employer contributions
From 1 July 2014, employers with 29 or more employees are required to pay superannuation contributions electronically. For further information what is required for this, take a look at one of our blogs.