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CLIENT ALERT Explanatory Memo
May 2012
Tax planning
Simply put, tax
planning is the arrangement of a taxpayer’s affairs so as to
comply with the tax law at the lowest possible cost. This involves
objectively assessing and actively managing tax risk. Common tax
planning techniques include deferring the derivation of assessable
income and applying techniques to bring forward deductions.
Deferring income
Income
received in advance of services to be provided will generally not be
assessable until the services are provided.
Taxpayers
who provide professional services may consider, in consultation with
their clients, rendering accounts after 30 June to defer the income.
A taxpayer
is required to calculate the balancing adjustment amount resulting
from the disposal of a depreciating asset. If the disposal of an
asset will result in assessable income, a taxpayer may want to
consider postponing the disposal to the following income year.
Maximising deductions
Business taxpayers
Debtors
should be reviewed prior to 30 June so that any bad debts can be
identified and written-off.
A
deduction may be available on the disposal of a depreciating asset
if a taxpayer stops using it and expects never to use it again.
Therefore, asset registers may need to be reviewed for any assets
that fit this category.
Review
trading stock for obsolete stock for which a deduction is available.
Non-business taxpayers
Outgoings
incurred for managed investment schemes may be deductible.
Assets
costing $300 or less may qualify for an immediate deduction, subject
to certain conditions.
A
deduction for personal superannuation contributions is available
where the 10% rule is satisfied.
Capital gains tax
Small business entities
From
2012–13, the small business instant asset write-off threshold
will be increased from $1,000 to $6,500.
Consider
whether the requirements to be classified as a small business entity
are satisfied to access various tax concessions, such as the simpler
depreciation rules and the simpler trading stock rules.
Eligible
small business entities can access a range of concessions for a
capital gain made on a CGT asset that has been used in a business,
provided certain conditions are met.
Companies
Companies
should ensure that all dividends paid to shareholders during the
relevant franking period (generally the income year) are franked to
the same extent to avoid breaching the benchmark rule.
Loans,
payments and debt forgiveness by private companies to their
shareholders and associates should be repaid by the earlier of the
due date for lodgment of the company’s return for the year or
the actual lodgment date. Alternatively, appropriate loan agreements
should be in place.
Companies
may want to consider consolidating for tax purposes prior to year
end to reduce compliance costs and take advantage of tax
opportunities available as a result of the consolidated group being
treated as a single entity for tax purposes.
Companies
should carefully consider whether any deductions are available for
any carry forward tax losses, including analysing the continuity of
ownership and same business tests.
Trusts
Taxpayers
should review trust deeds to determine how trust income is defined.
This may have an impact on the trustee’s tax planning.
Avoid
retaining income in a trust because the income may be taxed at
46.5%.
If a trust
has an unpaid present entitlement to a corporate beneficiary,
consideration should be given to paying out the entitlement by the
earlier of the due date for the lodgment of the trust’s income
tax return for the year or the actual lodgment date to avoid
possible tax implications.
Trustees
should consider whether a family trust election (FTE) is required to
ensure any losses or bad debts incurred by the company will be
deductible and to ensure that franking credits will be available to
beneficiaries.
Personal services income
FBT – car fringe benefits
Superannuation
The ATO
has reminded taxpayers to consider the superannuation contributions
caps when planning tax affairs to avoid excess contributions tax.
The
Government has proposed that eligible individuals who breach the
concessional contributions cap by up to $10,000 will be allowed a
once-only option for the excess contributions to be refunded without
penalty.
The
Government has proposed to temporarily “pause” the
indexation of the superannuation concessional contributions cap so
that it will remain fixed at $25,000 up to and including the 2013–14
financial year.
For
eligible individuals, a government low-income superannuation
contribution of up to $500 may be available from 1 July 2012.
A member
of an accumulation fund (or a member whose benefits include an
accumulation interest in a defined benefit fund) may be able to
split superannuation contributions with his or her spouse.
Individuals
Individual
taxpayers with a taxable income exceeding $50,000 in 2011–12
will have to pay an additional levy known as the temporary flood and
cyclone reconstruction levy, unless they fall within an exempt class
of individuals.
The
Government is phasing out the dependent spouse tax offset. For
2011–12, the offset will only be available to those born on or
before 1 July 1971.
The
Government has proposed that from 1 July 2012, living-away-from-home
allowances will be taxed to the recipient as assessable income
rather than to the employer under the FBT rules.
The
Government has introduced legislation to extend the Paid Parental
Leave scheme by introducing a two-week “dad and partner pay”.
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Important:
This is not advice. Clients should not act solely on the basis
of the material contained in this Bulletin. Items herein are general
comments only and do not constitute or convey advice per se. Also
changes in legislation may occur quickly. We therefore recommend
that our formal advice be sought before acting in any of the areas.
The Bulletin is issued as a helpful guide to clients and for their
private information. Therefore it should be regarded as confidential
and not be made available to any person without our prior approval.
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