Deferring Assessable Income- The timing of when business income is derived depends on the method which a taxpayer uses. Depending on the nature of the business, income can be reported using either the cash or accrual basis. If the taxpayer is reporting income on an accrual basis, the income is assessable when a recoverable debt is created. If the taxpayer is reporting income on a cash basis, the income is assessable when it is physically received or applied on the taxpayer’s behalf. However, an exception exists for income received in advance of services provided.
- If income is received in advance of services provided, it will be not assessable until the services are provided. However, the accounting records of the business must classify the unearned income separately from income already earned.
- Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June to defer the income.
- Interest, rental income, dividends and royalties are not assessable until received (or otherwise paid or credited on the taxpayer’s behalf).
- Generally, trust distributions are assessable in the year they are declared payable, notwithstanding the Commissioner’s practice which allows a trustee up to two months after the end of the financial year to distribute the trust’s income.
Maximising Deductions- An entity’s debtors may be reviewed prior to year-end to identify and write off any debts which have gone “bad”. A bad debt can qualify for a deduction subject to certain conditions being met.
- Certain business-related capital expenditure may be deductible. This expenditure includes: establishment of business premises, research into likely markets or profitability of a business, due diligence reports, and liquidation and deregistration costs for a business.
- Consider writing off any depreciating assets which are no longer being held for use. A deduction may be available.
- Review the asset register to identify any low-cost and/or low-value assets that may be pooled together to access an accelerated rate of depreciation.
- Non-business taxpayers are entitled to an outright deduction for assets costing $300 or less, provided certain conditions are satisfied.
- Business taxpayers are entitled to an outright deduction for assets costing $100 (GST inclusive) or less.
- It is the GST-exclusive value of a depreciating asset that is used in calculating the depreciation, regardless of whether entitlement to input tax credits has been claimed.
- If an entity has carried forward losses, identify whether any net exempt income has been derived for the income year. Carried forward losses will need to be firstly offset against the net exempt income before being available to reduce any assessable income derived during the income year.
- Try to avoid making a donation in a year of losses. This is because a payment for a donation cannot add to or create a tax loss.
- An entity that has been classified as a small business entity may consider choosing to apply the simpler depreciation concessions, which will provide an immediate deduction for assets costing $1,000 or less (GST exclusive), and permit accelerated rates of depreciation.
- Trading stock can be valued at replacement value, market value or cost. The method does not need to be the same for each category of trading stock, therefore maximising deductions.
- Taxpayers may review their closing stock to consider whether any obsolete stock exists to obtain a deduction by writing down its value, or writing it off.
- If an entity has previously elected to use the trading stock concessions available to former Simplified Tax System (STS) taxpayers, consideration may be given to conducting a proper stocktake.
- Employers should ensure that superannuation contributions are paid to their employees’ superannuation fund prior to 30 June 2008 to obtain a tax deduction and avoid any superannuation guarantee charge.
- A personal superannuation contribution is available to taxpayers if less than 10% of their total assessable income and reportable fringe benefits is derived from their employment
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