With the end of financial year approaching, here are a few last minute reminders which might jog your memory, and give you the chance to take action before its all too late on Monday 1st July. If you want any further information on any of the material covered here, please give us a call.
Personal superannuation contributions
You are able to make a personal deductible superannuation contribution regardless of whether you are self-employed or not. In most cases, you should be able to review your payroll reports to determine the difference between the concessional limits and the employer contributions.
You should be reminded that the concessional contributions cap is $25,000 for the 2018/19 income year.
Additionally, if you are earning over $250,000 in taxable income you need to be aware that Div 293 tax will apply to concessional superannuation contributions. These additional contributions are taxed at 15% on top of the 15% contributions tax paid by the superannuation fund. The Div 293 tax may be paid from an your own money or from your superannuation fund using a release authority.
Catch-up superannuation contributions
The 2018/19 income year is the first year in which you can carry forward unused concessional contribution limits for future use. Although a catch-up superannuation contribution is not allowed for the 2018/19 year, you may benefit from not making additional deductible contributions.
In order to make a catch-up superannuation contribution in the following year, an individual must have a total superannuation balance under $500,000 at 30 June 2019.
An eligible individual may delay a personal deductible contribution in 2018/19 if you expect to be under $250,000 in income in 2019/20. Therefore, a “catch-up” contribution may avoid a Div 293 liability.
If you are aged 65 years or older you will be able to make a contribution into superannuation of up to $300,000 from the proceeds of selling your main residence. This contribution is outside of non- concessional contribution rules.
To be eligible to make the contribution, you must have owned your main residence for at least 10 years. Also, the contribution is exempt from the age test, work test and the $1.6m total superannuation balance test.
First Home Super Saver Scheme
Voluntary contributions up to $15,000 can be made if you have yet to purchase your first home into your superannuation account. The scheme allows you to withdraw this contribution plus earnings in order to be used for a first home deposit.
Voluntary contributions made after 1 July 2018 may be used for withdrawal in the Scheme.
A $540 tax offset is available for after-tax contributions (up to $3,000) to a complying superannuation fund on behalf of a spouse (married or de facto) where the spouse’s annual taxable income is less than $37,000. A reduction of the maximum offset is available where spouse’s income is between $37,000 and $40,000.
Superannuation government co-contribution
For low income earners, subject to certain conditions, the government makes a co-contribution of up to $500 if you make after-tax contributions of at least $1,000. The co-contribution begins to phase-out at a taxable income of $37,697, and is not available for taxable income above $52,697.
You could also take advantage on increasing the amount that can be withdrawn under the First Home Super Saver Scheme. However, the co-contribution itself would not be included.
Insurance policies in super to become “opt-in”
If you have a superannuation account which is inactive you will need to “opt-in” with your life insurance and TPD providers from 1 July 2019 to retain your current policies.
You are an inactive members if you who have not had a contribution or roll-over into your account for 16 months. As at 1 July 2019, this will apply for accounts without a contribution or roll-over since 1 March 2018.
Subject to cash flow considerations, consider making deductible purchases 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.
In certain circumstances, an immediate deduction can be available for prepaid expenditure (eg interest on a loan relating to a rental property).
If you are considering retiring near year end may find it worthwhile to defer discretionary income until after 30 June. In that subsequent year, your income will normally be smaller and the marginal rate may therefore be less.
When considering the timing of retirement, keep in mind the restrictions on the concessional treatment of employment termination payments that apply.
Donations or gifts of $2 or more to a deductible gift recipient (DGR) are tax deductible. A deduction is also allowed for gifts of publicly-listed shares that have been held for at least 12 months and which are valued at $5,000 or less.
You should be aware of the differences between the various terminologies used in crowdfunding websites to ensure you are making a correct claim. In particular, there has been an increase in crowdfunding sites during the 2018/19 income year for drought assistance.
Where spouses are on different marginal rates, consider ensuring that all deductible gifts are made by the spouse in the higher tax bracket so as to maximise the benefit of the deduction.
Online accommodation providers
If you have or may be engaged in providing accommodation services through an online platform that data will be collected by the ATO. This includes Australian bank account information which may be matched to your tax file number, as well as the address of the property.
Other information to be shared with the ATO includes the number of nights booked. This information may be necessary in pro-rating any allowable deductions for the property during the income year.
Holiday home rental deductions being targeted
The ATO has also stated that an increased focus will be applied to holiday homes that are included as rental properties in income tax returns. In particular, they have identified the following circumstances where they believe a property is not genuinely available for rent:
- Advertising which limits exposure to potential tenants — eg, word of mouth, restricted socialmedia and outside holiday “high-season” periods.
- Location, condition and access to the property is poor.
- Requiring prospective tenants to provide references for short-stay periods.
- Setting the minimum stay for five or more nights but excluding weekends.
- Refusal to rent to interested people without adequate reasons.
- Setting the rent well above the rate for comparable properties in the area.
Vacant land deductions
Claiming tax deductions during a “build-to-rent” investment has been proposed to stop from 1 July 2019. This measure was announced in the 2018 federal budget, but is yet to become law.
It may still be prudent to bring forward some payments, where possible, to claim a deduction this year. It is unconfirmed at the time of writing whether this announcement will be introduced into parliament in the future, still with the current expected start date.
Where appropriate, consider realising capital losses by year’s end so that they may be offset against realised capital gains of that year.
Changes to HELP repayments
Students with a HELP debt may need to start repaying the debt on earning $45,000. This lower threshold is significantly lower than previous years ($51,957 in 2017/18), and is necessary for those who have become non-residents.
Deferral of income
Subject to cash flow considerations and anti-avoidance rules, consider deferring income to the following year, particularly if:
- income in the following year is likely to be lower, and
- tax rates for the following year are expected to be lower.
Extension and increase of instant asset write-off
The instant asset write-off for small business has been extended and increased during the 2018/19 income year, allowing more businesses access to the write-off.
The following is a table which will show when the changes to the write-off thresholds have come into effect. These changes apply to small businesses with an aggregated turnover under $10m.
In addition to the above increase and extension of the instant asset write-off, businesses which are medium-sized will have an opportunity to utilise the write-off. Businesses over $10m but under $50m in aggregated turnover will be eligible to write-off assets purchased after 2 April 2019 and costing less than $30,000.
Company tax cuts
For 2018/19 income year, companies with an annual aggregated turnover under $50m will have a reduced tax rate of 27.5%. To be eligible for the reduced rate, the company must be a base rate entity.
Single touch payroll
Entities who are employers are required to report the following information to the ATO from 1 July 2019:
- 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.
There are some exceptions to the single touch payroll allowed for employers who only make payments to closely held employees.
Fodder storage assets allowed immediate write-off
For primary producers, a new law has been enacted which allows fodder storage assets to be immediately written off.
Fodder storage assets may include silos and hay sheds, and are used to store grain and other animal feed. The immediate write-off will apply if the asset is purchased and first installed ready for use on or after 19 August 2018.
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 2019, or earlier if required by the trust deed.
Capital losses realised before year’s end can be used to offset capital gains of that year. If you have already produced a capital gain this financial year, you could consider selling assets which will generate a capital loss to assist in offsetting the gain. This will need to occur before 30th June.
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.
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.
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.
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.
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.
For the quarter ending 30 June 2019, employer superannuation contributions must be made before 30 June for a deduction to be available in the 2018/19 year.
For family businesses, it is important that annual caps for concessional and non-concessional superannuation contributions are not exceeded. The caps for superannuation contributions in 2018/19 are:
- Concessional contributions: $25,000
- Non-concessional contributions: $100,000