Lodging tax returns and planning for the year ahead can be a stressful time for everyone involved, but the tips below should, hopefully, make it a straightforward experience.
As advisers, our first step should be to outline the “standard” EOFY planning tips. These should always include bringing forward any deductions into the current year, helping your clients to do the necessary paperwork before 30 June to write-off any bad debts and seeking to delay the derivation of assessable income — in a legitimate way of course.
Aside from these, we should also be recommending and actioning the following:
The extension of the federal government’s instant asset write-off scheme for another 12 months to 30 June 2019 was a welcomed part of the budget this year.
To recap, a small business with an aggregated turnover of less than $10 million can claim an immediate tax deduction for assets costing less than $20,000 (GST exclusive). This includes individual assets that form part of a set. The immediate write-off applies equally to the purchase of new and second-hand assets which are used in the business.
In the interests of maintaining positive cash flow, accountants should consider advising clients to make these purchases now to minimise the time between purchase and tax deduction.
Following another budget announcement, companies with an aggregated annual turnover of less than $20 million will receive a refundable R&D offset 13.5 percentage points above a claimant's company tax rate, capped at $4 million each year. For those companies that have been on the 27.5 per cent tax rate up to now, this represents a reduction from the 16 per cent that currently applies.
For companies with an aggregated turnover of $20 million or more, for many, the proposed reduction in R&D benefits will be even greater – the current 8.5 per cent benefit may drop to as low as 4 per cent.
In a nutshell, we urgently need to consider the potential impacts our clients might face following the proposed changes and, if they will qualify for a significantly lower benefit next year, we should suggest the acceleration of what R&D can be done in the next few weeks to squeeze the expenditure into this year.
Tax rate reduction
From 1 July, company tax rates will be reduced from 30 per cent to 27.5 per cent for companies with a turnover between $25 million and $50 million.
As a result, where possible, we should be assisting with urgent tax planning now to bring expenses forward to this year or delay the derivation of income until next year.
Linked to this, with the decrease of the corporate tax rate for small businesses, the maximum franking credits that can be allocated to dividends will also decrease from 30 per cent this year to 27.5 per cent next year and beyond. Advisors should be sitting down with their clients to review their franking account position to assess whether it is better to pay out franked dividends this year. If they don’t, businesses may end up with excess franking credits which will be largely useless.
Single touch payroll
Following the urging of the ATO, employers with 20 or more employees should be acting now to prepare for Single Touch Payroll (STP).
When fully rolled out. employers will need to report their employees’ tax and super information to the ATO through payroll software that is STP ready.
This will come into effect from 1 July 2018, therefore is something we need to be across now.
There have been a few changes to superannuation in recent years and the lead-up to EOFY provides the ideal time for us all to read up on these.
For individuals, if they have savings in the bank or surplus income, it may be worth considering a pre-tax contribution to superannuation.
From 1 July 2018, if individuals have a total superannuation balance of less than $500,000, they will be able to “carry-forward” any unused amount of their concessional contributions cap. The unused concessional contributions cap can be accessed on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
For their employees, we should be advising our clients to consider bringing forward June quarter superannuation payments one month early. This will get it all squared off, allowing businesses to start the year afresh.
Superannuation Guarantee Amnesty
Speaking of superannuation, it’s very much worthwhile reminding clients of the superannuation Guarantee Amnesty. If an employer has been concerned whether they have been contributing the correct amount of superannuation on behalf of their employers, they may have just struck it lucky!
On 24 May 2018, the government announced a 12-month superannuation guarantee (SG) amnesty, which provides a one-off opportunity for employers to self-correct past SG non-compliance without penalty.
Of course, employers will still be required to pay the unpaid SG amounts owed to employees and the nominal interest, as well as any associated general interest charge. As is typically the case with amnesties, if they haven’t been doing the right thing and they don't come forward during the amnesty period, your clients can expect to pay higher penalties in the future if they subsequently get caught. So make sure you clearly advise your clients on this.
Not surprisingly, the amnesty does not apply to the period starting on 1 April 2018 or subsequent periods — thus, current EOFY planning needs to include a review of superannuation payments on behalf of employees since 1 April 2018 to ensure everything is in order. This is going to be on the ATO’s radar come the end of the amnesty, so ensure you’re pushing for a review now.
Trevor Pascall, senior partner, Tax Advisory, Crowe Horwath