Tax Planning – Key Strategies
The end of another financial year is fast approaching, now is the time to start considering your tax planning strategies which are an important part of managing your tax affairs.
Tax planning refers to the process by which taxpayers structure their business transactions in order to achieve the maximum tax outcome available to them and to forward plan end of year tax obligations with certainty. This is particularly relevant where there are likely to be legislative tax changes as a result of Federal Budget announcements in May of each year.
In the 2016-17 Budget, the Government announced an increase to the small business entity turnover threshold from $2M to $10M from 1 July 2016. This legislation has since been passed which means there are businesses who did not qualify for the small business turnover concessions in the 2016 year. They will qualify in the 2017 year because the turnover test increased to $10M (the current $2M turnover threshold will be retained for access to the small business Capital Gains Tax Concessions).
If your business is a Small Business Entity (SBE), the following tax concessions apply:
Small Business Income Tax offset
- An individual is entitled to a tax offset on the tax payable on their portion of income that is net small business income from sole trading activities; income from a partnership; or income from a trust less any deductions on your share.
- The Income Tax offset can reduce the tax payable up to a maximum of $1,000 each year.
Small Reduction in company tax rates
- The Income Tax rate for small business trading companies will reduce from 28.5% to 27.5% for the year ended 30 June 2017.
Instant deduction for assets less the $20,000 (Ceases 30 June 2017)
- Depreciating assets costing less than $20,000 that were acquired, first used or installed ready for use prior to 30 June 2017 will be immediately deductible.
- Depreciating assets costing more than $20,000 will be depreciated in a single ‘pool’ at a flat rate of 15% in the first full year and 30% each year after.
- If your pool balance is less than $20,000 at the end of the year, the pool balance may be written off in full.
For primary producers
- Immediate 100% deductions still apply for expenditure on fencing and water facilities, such as dams, tanks, bores, pumps, windmills and irrigation channels. This 100% deduction will cease on 30 June 2017.
- Primary producers can claim a deduction for Farm Management Deposits. All deposits must be at least $1,000 with the limit increased to $800,000 per person from 1 July 2016. They must be held for a minimum period of 12 months (the SBE turnover test does not apply).
- With many Queensland regions declaring drought conditions, primary producers should consider deferring the profit of forced sales of livestock for up to five years (the SBE turnover test does not apply).
Small business restructure rollover
- From 1 July 2016, small businesses can change the legal structure of their business without incurring any Capital Gains Tax liability when ‘active’ business assets are transferred by one business entity to another.
MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS
- The concessional superannuation limits for 2017 are $30,000 per year for individuals under 49 years of age and $35,000 for those aged 49 to 74. Amounts must be paid prior to 30 June 2017.
- If these limits are exceeded then excess contributions tax will apply. The excess contribution amount is added your assessable income and taxed at your marginal rate. Employer contributions are included in the above limits.
For further information on how we can maximise your tax planning options contact your Powers Advisor today.