Extension of instant asset write-off
It was announced, and expected to become law, that the instant asset write-off for small business will be extended 12 months to 30 June 2019. Entities with an aggregated annual turnover less than $10m will be able to immediately write-off an asset costing less than $20,000.
The change in the end date of 12 months reduces a potential cash-flow issue for small businesses.
Company tax cuts
Companies with annual aggregated turnover between $25m to $50m will have a reduced company tax rate of 27.5% from 1 July 2018. The change in tax rate will only apply to base rate entities.
Single touch payroll
Entities with 20 or more employees are required to report the following information to the ATO from 1 July 2018:
- withholding amounts and associated withholding payments, on or before the day by which the amount is required to be withheld
- salary or wages and ordinary time earnings information on or before the day on which the amount is paid, and
- superannuation contribution information on or before the day on which the contribution is paid.
For the first 12 months, reporting entities will not be subject to administrative penalties, unless first notified by the ATO.
Division 7A
Although only due to commence from 1 July 2019, a change to Division 7A rules has been proposed where unpaid present entitlements will be included as a deemed dividend.
This announcement is perhaps part of a bigger regime of changes that may become law. The extension of the Division 7A regime was announced in the 2016 Federal Budget, as well as in the Board of Taxation review into Division 7A.
This may be the best opportunity to put systems in place to ensure a favourable position for Division 7A loan holders.
R&D tax incentive
The research and development (R&D) tax incentive will be amended for income years commencing 1 July 2018. Under the announcement, the incentive will be based on uplift of the entity’s corporate tax rate in the particular income year.
Also, changes will occur to companies that have an aggregated turnover of $20m or more. The rate of the R&D tax incentive will be determined by the company’s “R&D intensity percentage”. The intensity percentage is the rate of R&D expenditure compared to overall expenditure for the year, where a marginal rate of offset will be applied.
Trust distributions
Trust tax planning should be undertaken as soon as possible. The resolution appointing or distributing income to beneficiaries needs to be made on or before 30 June 2018, or earlier if required by the trust deed.
Capital gains
Capital losses realised before year’s end can be used to offset capital gains of that year.
Deferral of income
Subject to cash-flow considerations and anti-avoidance rules, income could be deferred to the following year, particularly if:
- income in the following year is likely to be lower, or
- tax rates for the following year are expected to be lower.
Note: For cash businesses — deferral of income can be risky, especially when the deferral puts them outside the ATO small business benchmarks.
Sharing economy
If your client:
- rents out a room or a whole dwelling on a short-term basis
- provides taxi travel services (ride-sourcing) for a fare
- provides services such as creative or professional services (eg graphic design, website development), or odd jobs (eg deliveries and furniture assembly), or
- rents out a car parking space,
you may need to consider whether they are carrying on an enterprise. They may also need documentation of all their income and allowable deductions for the year.
Prepayments
Subject to cash-flow considerations, deductible purchases could be made by year’s end in order to accelerate deductions. This applies particularly if the income in the following year is expected to be lower than in the current year.
Trading stock
For obsolete stock, or in other special circumstances, a special lower valuation could be adopted. Also, no adjustment for closing stock is necessary when a reasonable estimate of closing stock is within $5,000 of opening stock.
Bad debts
A properly authorised resolution is required when writing off a bad debt and claiming a tax deduction. A GST adjustment may also be required on the original invoice.
Directors’ fees
To claim a current year deduction for directors’ fees, the company should have definitively committed itself to the payment, ie by passing a properly authorised resolution.
Superannuation
For the quarter ending 30 June 2018, employer superannuation contributions must be made before 30 June for a deduction to be available in the 2017/18 year.
For family businesses, it is important that annual caps for concessional and non-concessional superannuation contributions are not exceeded.
**Reference: CCH iKnow – Checklist: 2017/18 year end – tax planning opportunities for small businesses