Planning your tax beyond the end of the financial year

With end of the financial year is upon us, now is the perfect time to look ahead and consider how you can best prepare your business for the start of the new financial year in July 2019, and set yourself up for the year beyond.

Are you a small business?

The shifts in the corporate taxation landscape have seen many entities fall into consideration as small businesses. As this definition is based on turnover per year financial year, the start of the new financial year is an ideal time to consider whether or not your entity meets the requirements of a small business. The threshold is turnover less than $10 million for the previous financial year (30 June 2017).

What are the benefits of being considered a small business for tax purposes? You can access a 27.5% corporate tax rate, and receive concessional treatment of your depreciation deductions and asset acquisitions (immediate deductions for acquisition of fixed assets less than $20,000 held ready for use in the business prior to year end).

Have you planned the timing of your deductions?

Often the planning of your deductions looks to the reduction of the amount of tax payable in the current financial year, but even as we head into June 30 it is important to consider whether such a strategy increases your tax in the future. If so, this may have a considerable impact on your cash flow from July onwards given that year-end tax is payable in March or May in the next financial year.  As part of planning the timing of your deductions, you need to determine the appropriate valuation of trading stock at 30 June, review your depreciable assets to determine those no longer used, and review and write down accounts receivable prior to 30 June.

How have you assessed profit and loss between your various entities?

Do you run multiple businesses under one group? If so now is a good time to plan and assess the amount of resources that may be shared between entities. Different entities need to have an effective strategy about the sharing of resources in order to justify any management charges and so capture the correct profit or loss for each entity in the coming financial year.  Your strategy may well see certain business have made losses acquiring resources from other businesses you own which have made a profit.

Do you make loans from a private company to shareholders?

Under Division 7A, if such loans are not repaid within the set deadline, a complying loan agreement needs to be in place to avoid a potential deemed dividend to the shareholder. You will have remembered to ensure that the minimum repayments for these loans is paid before 30 June 2018, and determined whether or not the loan can be repaid by the due date of the 2018 tax return for funds drawn in 2018. Looking ahead to the start of the new financial year, you should consider the impact of any potential dividend to either meet the minimum repayment or reduce the loan balance. As part of this you’ll need to ask yourself whether any repayments have been made to other entities in the group or if there are pre-existing loans provided by shareholders to other members of the group.

Do you engage in innovation?

The R&D Tax Incentive has been much in the news over the first half of this year. Despite controversy over rorting of the benefits scheme, the government is still keen for businesses to take advantage of offset that rewards genuine research and development in any industry. As we head into a new financial year, you’ll need to reassess your business’ applicability to claim this offset.

Re-visit projects from the prior year claim and update them. Then, determine and review the documentation maintained by relevant staff during the year, and the concurrent cost calculations, including any timesheets maintained by employees breaking down their activities. Finally, you can estimate the potential refundable or non-refundable tax offset based on these estimated costs.

How much tax will I pay for the 2017-18 financial year?

The above planning will assist you greatly in gauging your estimated tax liability for 2017-18. As part of this estimation, you can also measure the quantum of tax instalments paid during the year. Furthermore, upon considering the balance of tax to be paid you can determine whether or not the June 2018 instalment can be varied. Now is also a good time to check lodgement dates with your tax accountant for cash flow projecting purposes, since the impact of your potential tax liability needs to be measured around your cash flow planning for the new financial year.

Are you Payroll Tax ready?

The annual payroll tax reconciliation is due with each relevant office in each state on 23 July 2018. While in the past this might have been fairly straightforward, recent shifts in the payroll tax regulatory landscape mean you need to invest additional time and resources into this, and best begin to do so now.

This is particularly the case if you hire contractors. The concern lies in determining whether or not the contractors you engage are subject to payroll tax.  This will largely depend on a number of factors and the documentation you may maintain to support any exemption you may claim for a contractor in regards to payroll tax.  Broadly, these factors include how the price for the contract work was determined (i.e., is the contractor a price maker or taker), the amount of equipment provided by the contractor, whether the contractor has other clients, and whether the contractor has been compliant with his or her other tax obligations.

It is vital that you realise that revenue offices in each state have the power to pursue directors personally should you fail to meet their payroll tax obligations.  This works in a similar way to the Director Penalties Notices issued by the ATO for failure to lodge and pay PAYG withholding and, now, GST.  This makes it all the more important that directors are aware of their payroll tax obligations.

Calibre is an expert in this field as we have been involved in two major cases with the NSW Revenue office.  We are planning on running seminars on this in the next 6 months. Contact us for more information or for direct consultation regarding how you can best prepare your payroll and your start of the new financial year in tax terms.

Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.