Director Chi Berkowitz Partners
As the 2016 financial year-end is only one month away, it is essential to reflect on our individual circumstances to determine if there are any last minute tax tips to take advantage of and what must be done before the financial year-end to avoid a tax pitfall.
Maximise your tax deductions
Make sure you claim all relevant work-related expenses such as mobile phone costs, home internet, seminars, computer equipment, work-related reading materials and subscriptions.
You may be able to claim travel expenses incurred for meals, accommodation and incidentals while away overnight for work-related purposes.
Self-education expenses such as course fees and text books might also be deductible provided the study is directly related to maintaining or improving your current skills or is likely to increase your income from current employment.
If you are required to wear a uniform or occupation specific/protective clothing, you might also be able to claim its purchase cost and laundry.
Donations of $2 or more to an approved registered Australian charity are tax deductible if you do not receive a benefit for the donation (i.e. a losing raffle ticket). Donations typically spike in June as taxpayers want to claim a last minute tax deduction.
Consider repairs that could be carried out prior to June 30 to claim a tax deduction in the current financial year. Where the works are structural in nature, they may not be deductible outright.
Playing the capital gains tax (CGT) game
Capital gains are generally assessable and taxed at marginal rates. If you have made a capital gain this financial year, consider realising a capital loss (i.e. selling another investment at a loss) before June 30 to offset the gain. However, you cannot sell an asset to trigger a loss and buy it straight back – The Australian Taxation Office (ATO) considers this a form of tax avoidance known as a wash sale.
Make sure to claim all your investment expenses incurred in the course of earning assessable investment income. This might reduce your tax payable and your PAYG instalment rate for the next financial year.
If you have borrowed money for an investment, or plan to do so before 30 June, consider prepaying the interest expense to reduce your taxable income in the current financial year.
Timing of taking long service leave
Long service leave entitles the employee to paid leave for a set period at their current salary. If you are contemplating taking paid long service leave, it might be worthwhile to do so after June 30 when wages will be increased for inflation CPI.
Concessional (i.e. taxable) contributions
The limit for concessional superannuation contributions for taxpayers under 49 is $30,000 and for 49 and over is $35,000. Those earning more than $300,000 will pay 30 per cent contributions tax (as opposed to the current 15 per cent). This is set to change in the new budget recently presented with the earning threshold to reduce to $250,000.
Consider making voluntary contributions up to the limit by way of personal contributions or salary sacrifice. You might even consider making super contributions to offset a capital gain.
Salary sacrifice arrangements
Employees who salary sacrifice to super should review their salary sacrifice arrangement to ensure they will stay within the contribution limit. Any amounts contributed to super above the set limits can incur penalties.
If you have a self managed superannuation fund (SMSF) with a pension, you need to ensure that you have withdrawn (at least) the minimum amount in the form of cash before 30 June. The minimum is calculated with reference to the age of the member and the value of their superannuation balance. If the minimum pension is not drawn by 30 June, the superfund member risks losing out on tax concessions associated with a superannuation pension for that year.
Employers must ensure they have made sufficient superannuation contributions (currently 9.5 per cent of salary) for employees on a quarterly basis throughout the financial year. Eligible superannuation contributions for the June quarter must be paid by 30 June 2016 to be tax deductible in that financial year.
Small business accelerated deductions
Certain businesses can immediately deduct the cost of the purchase of business assets under $20,000. Previously these purchases had to be depreciated over a number of years (as opposed to being claimed outright).
Accrued expenses are those which have been incurred but not yet paid. Generally, you want to ensure that you are claiming these expenses in your books at the time of incurring as they might not be paid until the following financial year.
Private company loans
Private company loans that extend beyond the end of the income year should be appropriately documented with annual repayments to ensure they are not caught under the laws of Division 7A. Non-compliance with these rules can result in the loan balance being a deemed dividend with unfavorable tax consequences.
If claiming bad debts, they must be non-recoverable and written off for accounting purposes before the end of the financial year. Bad debts must generally have been brought to account as assessable income and you must have given up all hope and action of recovery.
Stock on hand
Each 30 June, you need to include a value in your financial accounts of stock on hand and work-in-progress. Closing stock can be recorded at cost, replacement cost or market value (or even less if the stock is damaged or obsolete). The method chosen must be documented and the valuation method be adequately substantiated.