Here are some of the areas that might affect your clients:
• Transitional CGT relief – SMSF's trustees must choose which CGT assets have been impacted by the $1.6 million pension transfer balance cap changes. An irrevocable and one-off election needs to be made as part of the fund's 2016–17 SMSF annual return, the deadline for which has been extended to 30 June 2018. If the election is not made, the capital gains exemption that would have attributed to the CGT asset will be lost.
• Preparing for STP – Businesses with 20 or more employees are required to use the new Single Touch Payroll (STP) system from 1 July 2018. It’s essential that their payroll software is up and running to start reporting salaries, PAYG withheld amounts and super information to ATO in real time from that date. Importantly, businesses should have conducted a headcount of their employees on 1 April to determine if they were required to adopt the new system.
• Depreciation for small businesses – Small businesses (i.e., those with annual turnover of less than $10 million) can instantly write-off assets costing less than $20,000. The cut-off is still 30 June for this measure, though watch out for any budget announcements in May.
• Deemed dividends under Division 7A – Div 7A not only applies to certain loans or debt forgiveness, it also applies when a company makes payments to a shareholder, including the use of a company's asset for less than market value. The use isn't limited to actual use, but includes availability for use; for example, a yacht is available for a shareholder's use if the shareholder holds the keys. Note that if the payment is provided to a shareholder in their capacity as an employee of the private company (e.g., as a director), FBT will apply instead of Div 7A.
• Denial of travel deductions – Individuals, discretionary trusts and SMSFs are reminded that from 1 July 2017 travel expenses when inspecting their residential rental properties are denied. For example, if your client embarked on interstate trips to inspect a residential investment property during 2017–18 income year, he or she cannot longer claim deductions for those travel expenses.
• Trust distributions – It's advisable for the trustee of a discretionary trust to decide (and retain in writing) on distributions of trust income by 30 June to ensure that a beneficiary or beneficiaries are “presently entitled” to that income. If the trustee resolution is not made by 30 June, and no beneficiary is presently entitled to trust income at that date, the trustee will be assessed on the trust's taxable income at the highest marginal tax rate.
• Concessional super contributions – The annual concessional cap was lowered to $25,000 for all taxpayers regardless of age from 1 July 2017. Taxpayers should monitor any salary sacrifice arrangements as well as deductions for personal contributions to ensure they are still within the limit. If possible, make sure extra payments such as financial year-end bonuses are received after 30 June if there is a risk of exceeding the $25,000 cap. Otherwise the excess will be included in the taxpayer's assessable income and taxed at the marginal tax rate.
• Timing of income derivation – Consider whether income can be deferred until after 30 June. If this is commercially feasible and any cash flow effect can be managed; it is recommended for taxpayers to defer invoicing until after 30 June. Conversely, however, if a client is in tax loss, consider whether accelerating income receipts prior to 30 June to recoup losses.
• Timing of expenses – Bring forward any expenses so that they can be claimed as a deduction in this income year. For instance:
Prepayments – Expenses that are not subject to prepayment rules, i.e. those covering up to 12 months, can be prepaid before 30 June (e.g. subscriptions, insurance policies and interests). Note that the prepayment rules do not apply to excluded expenditure such as salaries, amounts required to be paid by law or a court and expenditure under $1,000.
Repairs – If your client owns an investment property, paying for some minor repairs before 30 June could be a good way to claim those expenses in this income year. Initial repairs, substantial replacement of an asset and improving an asset are excluded as deductible repairs.
Gifts – Think of donating to deductible charities before 30 June and ensure the donation is to an endorsed deductible gift recipient (DGR).
Bad debts – If your client has debts that are unlikely to be paid, consider writing them off before 30 June. Remember that bad debts may not be deductible if there has been a change in ownership or control of a company or trust (unless company passes the same business test).
Super Guarantee – Remember that employers, regardless of size, may pay the June quarterly SG contributions by 30 June to claim the deductions this income year (otherwise due on 28 July).
Luiz Vazquez, associate tax writer, Thomson Reuters