Year end tax planning – 30 June 2011
With 30 June 2011 fast approaching, this edition of MTN
discusses some of the matters to be considered as part of your
business year end tax planning. The list of matters is not intended
to be exhaustive. We would be pleased to discuss these and other
matters with you in more detail.
General action items
Identify unwanted stock that may be scrapped or discarded before
year end so that it is not on hand for tax purposes.
When reviewing the method of valuing stock for tax purposes (cost, market selling value or replacement value) you should also identify items that can adopt a lower value resulting from obsolescence or other circumstances
Asset registers should be reviewed in order to identify items
that may have been scrapped or destroyed.
To obtain a deduction in the current year, you should make sure
the superannuation fund receives the contribution by 30 June
Deductions are only available for contributions to a 'complying superannuation fund'. Individuals wishing to claim member contributions must also satisfy a substantially self employed test. We can assist you with assessing this test before making contributions.
The concessional contribution cap for an individual in this year is $25,000 (or $50,000 for those aged 50 years and over at 30 June 2011).
Restrictions and work tests apply for those aged 65 years and over who are intending on making contributions.
Employers should also ensure the minimum rate of compulsory superannuation (9% of ordinary times earnings) has been made by the quarterly due dates throughout the year. Certain limits and exclusions can apply.
Bad debts should be written off by year end (30 June) if a
deduction is desired in the current year.
You may also be entitled to claim back GST where a debt is written off as bad or is overdue for 12 months or more.
Timing of expenses
For many businesses the timing of the deductibility of most
other expenses is based on when you first have adefinitive
commitment to those expenses (i.e. when they are incurred). This is
commonly evidenced by
invoice dates or supplementary documents.
In the case of some expenses (e.g. unpaid employee bonuses), you will need other documentation to
Net capital gains tax (CGT) position
Matching capital gains and losses may be advantageous where
there has been a gain made during the year that can be reduced by a
loss on disposal of an asset that is no longer needed.
Companies should also consider if there is a risk that capital losses may not be available in future years because of a failure to satisfy the company loss rules (see comments under Losses heading below).
Franking and dividends
Companies should estimate their franking account balance at 30
June 2011. Franking deficits tax will be payable by the end of July
2011 if the account balance will result in a deficit.
Franking deficits tax may offset against company tax subsequently assessed to the company, thus representing a prepayment of tax and not a penalty. However, excessive over-franking can have additional
Companies with losses (or bad debt deductions) will need to
satisfy either the continuity of ownership test or the same
business test to benefit from those losses (or bad debt
deductions). Such companies should review their position under
these tests. Where losses are at risk you may wish to contact us to
consider strategies to recoup losses.
Share capital tainting
Transfers in and out of the share capital account during the
year should be reviewed to identify possible tainting of the
account or implications for franking dividends.
Private company loans and payments
Deemed dividends may arise where a private company makes a loan
or payment (or forgives an amount) to a shareholder or their
associates. The accounts of the company should be reviewed to
identify such amounts.
Some private companies will have complying loan agreements that require minimum repayments to be made before year end to prevent deemed dividends arising.
These rules can also apply to loans or payments (or forgiven amounts) made by a trust where the trust has an unpaid present entitlement in favour of the private company. The private use of company and trust assets is also subject to these rules and should be carefully managed.
The formalities for making an effective distribution of income
for tax purposes should be attended to in accordance with the trust
Streaming of income
Trustees should have regard to recent developments impacting on
the ability to stream categories of income to specific
beneficiaries (see comments in a recent edition of MTN).
Unpaid present entitlements and private companies
The ATO is of the view that an unpaid present entitlement in
favour of a company can itself be subject to the deemed dividend
rules discussed above. These arrangements need to be closely
monitored and managed for all trusts with corporate
Trusts with revenue losses should review their ability to
satisfy the trust loss rules. Where the losses are at risk you
should contact us to discuss strategies to recoup losses.
International tax matters
The thin capitalisation rules may restrict debt deductions in
respect of excessive debt for taxpayers with multinational
arrangements. We can assist you in reviewing and possibly enhancing
your thin capitalisation position at year end.
Foreign exchange (forex) transactions
The realised and unrealised forex position should be reviewed
and it may be appropriate to realise further forex gains or losses
before year end.
Foreign income tax offsets
Excessive foreign income tax offsets (FITOs) cannot be carried
forward and used in later years. To prevent wastage taxpayers in
receipt of foreign taxed income should therefore consider
strategies that may enhance the use of FITOs.
Farm management deposits
Primary producers should consider making or withdrawing farm
management deposits having regard to their estimated tax
Deductions for eligible new water facility assets are generally
deductible over three years. The deduction will commence in this
income year if the costs are incurred (e.g. invoiced) by 30 June
Small business entities
The concessions available to small business entities with an
annual aggregate turnover of less than $2m can
provide further year end planning opportunities. These concessions include the:
- outright deduction for depreciating assets costing less than $1,000, and
- immediate deductibility of certain prepaid expenses.
Varying your next PAYG instalment
As part of reviewing your estimated tax position for this year,
you should also consider if it is appropriate to vary down your
next PAYG tax instalment.
This will be especially relevant for businesses that have been impacted by business interruption or downturns during the year. We can assist with reviewing your instalment obligations.
Please contact your Moore Stephens relationship partner for assistance with your year end tax planning.
This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.