BRM Holdich E-News
14 June 2013
Changes Affecting Businesses for 2014
The compulsory super guarantee rate will gradually increase from 9% to 12%. From 1 July 2013 the new contribution rate for employers will be 9.25%. Businesses should update their payroll and accounting systems to apply the appropriate increase to the super guarantee rate.
The South Australian government has introduced a two year payroll tax rebate for eligible employers with a taxable payroll of between $600,000 and $1.2 million. The rebate will be paid before 31 December 2013. The rebate will be 2.45% of the payroll tax rate for wages up to $1m phasing out completely at $1.2m.
Building and Construction Industry
The new compulsory Taxable Payments Annual Report is due on 21 July, 2013. If you have received this report and require further information or our assistance, please contact Aaron, Lisa or Scott.
If you have had a new addition to your family or if your child has turned 18 please advise us so that we can prepare a Trust Details Report, this is required to facilitate the ability to distribute income to them as nominated beneficiaries.
Please remember to make your Trustee Resolution for 2013, determining your income distributions. If you have not received your draft minute from us, please contact Aaron, Lisa or Scott.
Tax planning involves arranging your taxation affairs in order to comply with the income tax legislation at the lowest possible cost. As such, tax planning is contrasted from tax avoidance, which is the entering into a scheme in order to obtain a tax benefit and can result in significant penalties.
As 30 June approaches taxpayers should engage in tax planning, many strategies require action prior to 30 June in order to be effective. The following is not intended to be an exhaustive list but provides a number of issues for your consideration.
The timing of when income is derived and expenses are incurred may impact the timing of income tax liabilities. Further, such timing may also impact the quantum of tax liabilities where income tax rates and / or the level of taxable income differ between financial years. Changes to existing, or the introduction of new, legislation may also have an impact which needs to be considered.
Please contact Aaron, Lisa or Scott should you wish to discuss any of these items.
Income is assessable when derived, the timing of derivation will depend on whether the business applies the cash or accrual basis. Under the cash basis, income is generally derived when it is received, whereas under the accruals basis income is generally derived when a recoverable debt is created such that the taxpayer is not obliged to take any further steps before becoming entitled to payment. A non-business taxpayers’ income is generally assessable when received.
In any event, tax planning should consider the timing of deriving income.
Ensure that any income received in advance is identified as this may not be assessable until the services are provided. For this principle to apply, the accounting records must classify the unearned income separately from the income already earned.
Taxpayers who provide professional services may consider rendering invoices after 30 June. Work in progress of such businesses is not included in assessable income.
Consider the timing of asset disposals before or after 30 June in terms of applicable tax rates, realised capital gains and losses and the availability of any capital gains tax concessions, such as the 50% discount, small business CGT concessions or rollover relief. However, be mindful of the tax office’s negative view of ‘wash sales’ where an asset is sold and then reacquired in order to realise a capital loss.
Expenses are deductible when the expense has been incurred, this is generally defined as when there is definite commitment to the expense even if no actual payment has occurred. However, small business entities that continue to utilise the cash accounting rules under the former simplified tax system can only deduct an outgoing when it is paid.
Therefore tax planning should consider the timing of expenses being incurred.
Debtor ledgers should be reviewed prior to 30 June with amounts considered bad written off. Only debts that are identified as bad and written off at 30 June can be claimed as a deduction, a provision for doubtful debts is not deductible. However, ‘writing off’ does include a board authorisation and financial controller recommendation of the bad debt prior to 30 June even if the physical writing off occurs later. Note that before the debt can be considered bad, appropriate steps must have been taken to attempt to collect the debt. Such steps may include contacting the debtor, issuing reminder notices or taking more formal action. It is worth noting that a deduction can also be available for the partial write off of a bad debt.
A deduction may be available for obsolete stock. Stock should be reviewed and obsolete items written off or reduced in value where appropriate. Relevant considerations when making such a decision include the stock being out of use, out of date, unfashionable or outmoded.
Ensure that all incurred expenses, including trade creditors, are processed reflecting the appropriate timing. Further, it may be worth bringing forward planned deductible expenditure.
Bonuses may also be deductible if they are incurred by 30 June. For this to be the case the employer must be definitely committed to the bonus, the bonus cannot be subject to any later discretion or review. Further, the amount must be determined or be able to be calculated by 30 June, even if the actual calculation happens at a later date.
Cashflow permitting, consider prepaying expenditure where an immediate income tax deduction is available. Such expenditure includes salary or wages and expenditure that is less than $1,000. Investors may consider prepaying interest on investment loans. Further, small business entities may claim a deduction for expenditure that satisfies the 12 month prepayment rule (the relevant service period does not exceed 12 months and ends in the next financial year).
Superannuation Guarantee Levy amounts should be paid by 30 June, only contributions received by the relevant superannuation fund by 30 June are tax deductible in that year. The accrual of an incurred superannuation guarantee liability is not sufficient to qualify for a deduction.
Review asset registers to identify any low cost assets eligible for immediate write off, opportunities to pool assets achieving accelerated depreciation and assets no longer held which should be written off.
A deduction for personal superannuation contributions may be available where less than 10% of assessable income is received from activities that are conducted as an employee for superannuation guarantee purposes. It should be noted that assessable income includes capital gains, so this test may be passed in years where a capital gain is realised. Note that the concessional contributions cap is $25,000 and this cap is inclusive of employer contributions. Similar to superannuation guarantee amounts, only contributions received by the relevant superannuation fund by 30 June can be claimed as a tax deduction in that year.
Non-concessional contributions as part of a superannuation strategy should also be received by the relevant superannuation fund by 30 June. Note that the non-concessional contributions cap is $150,000, although people under 65 years may be able to make a non-concessional contribution of up to $450,000, which is known as the bring-forward option. Please call Aaron, Lisa or Scott to discuss your options.
Self-Managed Superannuation Funds that are in ‘pension mode’ should ensure that the 2012 minimum pension amounts are paid to members by 30 June 2013. Please contact us if in doubt as to what payments are required.
Low-income earners (including self-employed persons), earning between $33,324 and $63,324, may consider making a personal non-deductible superannuation contribution to qualify for the government superannuation co-contribution payment.
Introduced on 1 July 2012, the small business immediate asset write off threshold increased from $1,000 to $6,500. Small businesses (i.e. generally a business with a turnover of less than $2m) are also able to claim an upfront deduction of $5,000 for motor vehicles purchased from 1 July 2012, with the balance of the cost pooled for depreciation purposes. Where small businesses have the flexibility to manage their depreciable asset purchases and requirements, consideration should be given to the timing of such purchases in light of these effectively accelerated depreciation write offs.
Changes Affecting Individual Taxpayers for 2013
Private Health Insurance Changes
The passing of the Private Health Insurance Bills with effect from 1 July 2012 resulted in the Medicare levy surcharge rate and private health insurance rebate changing where applicable based on the level of taxable income.
The changes mean that the amount of rebate available is dependent on an income test for individuals and families (thresholds are doubled for families). The changes applied from 1 July 2012 and introduced three new "Private Health Insurance Incentive Tiers". The tiers start to reduce the rebate from $84,000, phasing it out to nil at $130,000.
Further, the rate of Medicare Levy Surcharge for individuals and families without private hospital cover will increase based on their level of income. The Surcharge commences at 1% at income of $84,000, increasing to a maximum of 1.5% when income is over $130,000.
The following table details how these changes will operate:
For families with more than one dependent child, the relevant threshold is increased by $1,500 for each child after the first as is presently the case.
Please remember to add any newborn child to your private health insurance policy as soon as possible as to access these rebates all members of your family must be covered by your insurance policy.
The private health insurance rebate can be claimed as a reduction in the premium paid, or where the full premium is paid it can be claimed as a cash refund via Medicare or on lodgement of the income tax return. Twelve months ago taxpayers advised their fund of the level of rebate to be claimed as a reduction in the premium paid, any adjustment necessary will be made on lodgement of the 2013 income tax return.
Bank Account Details
As mentioned in our March newsletter, the ATO have advised tax agents that from 1 July 2013, individual returns will require bank account details to be entered when lodging through ELS, where a refund is expected. This means that cheques will no longer be issued. The ATO will use electronic funds transfer (EFT) which is a fast and secure way for taxpayers to receive their refunds. Please remember to provide us with your relevant bank account details when putting together your 2013 tax information.
Capital Gains Tax Reporting
The ATO has redesigned CGT schedules for 2013. Please talk to us about any significant assets that you’ve sold in the year as taxpayers are now obliged to report where they have applied a CGT concession or rollover, this goes as far as including the sale of non-taxable assets such as the family home. For example, the family home is exempt from CGT but the ATO is using this information to cross reference with land titles records to ensure concessions have been properly applied.
BRM Holdich Milestone
Congratulations to Geoff Holdich, who turned 70 in May. Geoff’s input and sage advice continues to be an invaluable asset to the firm and we are pleased that he continues to be our Chairman.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Level 8, 420 King William Street
Adelaide SA 5000