It’s that time of year again and we thought we would share some broad strategies which can be applied by most businesses and individuals. Some of these strategies are simple and easy to execute but are often overlooked. Other strategies you will need assistance to execute effectively or to find out whether they suit your circumstances.
Individuals
1. Prepay your expenses: You are allowed to prepay a maximum of 12 months’ worth of tax-deductible expenses which will bring the deduction forward into the 2014/2015 financial year. Some examples of these expenses are income protection insurance, prepaying interest on margin loans or investment loans.
2. Deferring income: At the individual level this is normally out of your control but you may have the opportunity to defer income until after June 30 to avoid paying tax in the 2014/15 financial year. Some examples include maturity dates on term deposits and deferring invoices until July 1 for sole traders. In the case of redundancy or other lumpy employee payments, you may be able to ask your employer to defer these payments until early July.
3. Charitable Donations: We normally don’t advise our clients to spend money for a tax deduction, but your tax saving may as well go to a good cause. The value of the tax deduction depends on your marginal tax rate. Make sure you check their DGR status.
4. Repairs & Maintenance: If you own an investment property and there are repairs which are required you may consider organising and paying for some minor repairs before 30 June. Make sure you are aware of the expenditure that you can and can’t claim for your rental property.
5. Private health insurance: Try not to be fooled by advertisements advising you to taking out private health insurance before June 30 to avoid the Medicare Levy Surcharge. If you take out private health on June 30 you are only exempt for one day of the current financial year. If you are a high-income earner and you do not have hospital cover, in some cases it is cheaper to have some standard cover. This is a strategy that will benefit you for the 2015/16 financial year.
6. Record Keeping: The most common deductions missed are the ones that are forgotten! Keep a separate folder in your filing cabinet for the financial year and store all of you receipts in the one place. Alternatively there is software in the market that allows you to take a photo of your receipt and store it electronically. Contact us if you wish to know more.
Businesses
1. Pay super early: Superannuation guarantee payments for your staff may not be due until July but these contributions are deductible when paid. You may need to beware of your employees’ contribution caps when making 13 payments in one financial year mostly for your employees that are heavily salary sacrificing.
2. Trustee Resolutions: Profitable Discretionary Trusts can distribute funds to recipients on lower tax brackets to minimise tax payments provided they are an eligible beneficiary. Trust minutes are needed to be prepared prior to 30 June. This area is quite complex so please give your Accountant a call to discuss your options.
3. Immediate write offs: Due to the recent budget eligible businesses can immediately write off business assets costing less than $20,000. I would be surprised if this benefit will be available for too long.
4. Bad Debts: For those invoices sitting in your debtors which have been in 90 days for some time and you know you aren’t going to get paid, then it is best to write these off as a bad debt prior to June 30 in order to claim the tax deduction. Make sure your accountant is reviewing these each year. Directors’ minutes need to be prepared for these debtors and must have been declared as income at some point.
5. Trading stock: Counting your stock on 30 June is a great way to write off any lost, damaged or obsolete stock. Having an accurate observation of your stock levels is paramount to those businesses which hold a lot of stock. These businesses should at least have some software in place which manages stock through purchases and sales invoices.
6. Your Superannuation – You may wish to maximise your superannuation contributions for the 2014/15 financial year depending on your circumstances. Please review your contribution caps as they are regularly changed and age is a deciding factor. Contributing into super is a great tax advantage but is not accessible until retirement or your preservation age.