Tax Planning time
As we are almost three quarters of the way through the 2018 tax year, we are starting to commence our usual tax planning activities: review YTD profits, project how that will convert over the full year, estimate likely tax payable if no action is taken, and then suggesting the measures that can be taken to give you the best tax outcome.
Here are just a few ways you can manage your tax bill this financial year (but as always, speak to us before you make any significant financial decision):
Thinking of buying a new asset? The $20,000 immediate asset write-off for small business entities has been extended to 30 June 2018
Small businesses with an aggregate annual turnover of less than $10 million are able to immediately deduct the cost of each and every depreciating asset that they purchase for less than $20,000. In order to access the deduction, the asset must be purchased, installed, and ready for use before 30 June 2018. An immediate deduction can be claimed to the extent to which the asset is used for income earning activities (i.e. business purposes).
All assets (including new and second hand) are eligible, except for a small number of exclusions. There is no limit on the number of eligible assets costing less than $20,000 that you can deduct.
Pre-pay your interest on your investment loans
When you borrow money to make an investment that will generate assessable income (often called gearing), you are generally entitled to claim a tax deduction for the interest on the money borrowed.
Considering interest rates are low at present, it may be worth considering prepaying up to 12 months interest on the loan if you currently have a geared investment portfolio or rental property. Doing so will allow you to lock in the interest rate you pay for next financial year (giving you certainty around the cost of your investment) and will bring forward your tax deduction to this financial year.
Pre-pay your income protection premiums
If you have income protection insurance, you could claim your premiums as a tax deduction. If you choose to pre-pay your premiums for the next 12 months, you can bring forward a tax deduction from next year to the current year – potentially reducing your taxable income this financial year.
Year end trust distributions – planning in advance is essential
A trust resolution determines which beneficiaries will receive distributions and what portion of trust income they will receive for that financial year. Trust distribution resolutions must be made prior to 30 June. If they are not made by this date, the income of the trust will be subject to the highest marginal rate of tax (which could be significantly higher than the rate which would otherwise apply). In addition, the trust deed should be reviewed to consider how trust income is to be determined and to which beneficiaries income can be distributed for the most tax effective outcome.