As 30 June is fast approaching, we would like to advise you of some key tax planning opportunities you may want to take advantage of before the end of the financial year.

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.

Where appropriate, consider realising capital losses by year’s end so that they may be offset against realised capital gains of that year.

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.

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.

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).

From 1 July 2017, an individual is able to make a personal deductible superannuation contribution regardless of whether they are self-employed or not. Individuals at a lower tax rate would need to make sure what contributions they can make before claiming a deduction. They can review their superannuation accounts to see their employer contributions to date.

Individuals need to be reminded that the concessional contributions cap is $25,000 for the 2018 financial year.

Additionally, individuals earning over $250,000 in taxable income need to be aware that Division 293 tax will apply to concessional superannuation contributions.

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.

For low income earners, subject to certain conditions, the government makes a co-contribution of up to $500 if a taxpayer makes after-tax contributions of at least $1,000. The co-contribution begins to phase-out at a taxable income of $36,813, and is not available for taxable income above $51,813.

Individuals 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.

The MYEFO report from December 2017 announced that new HELP repayments level may exist from 1 July 2018. As a result, students with a HELP debt may need to start repaying the debt on earning $45,000. Delaying some deductions where appropriate may remove the repayment in the next financial year.

A taxpayer who is considering retiring near year end may find it worthwhile to defer discretionary income until after 30 June. In that subsequent year, their 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.

Using lead-time rules for non-commercial losses, as well as property development interest deductions, may only be available for this and next financial year. An announcement to remove these deductions from 1 July 2019 was announced in the Federal Budget. The proposal will also remove these interest amounts from the cost base of the asset.

Therefore, property development clients may need to act quickly to get their operations started.

An additional CGT discount of up to 10% is now available for investors who invest in affordable housing from 1 January 2018. Conditions apply to get the additional discount, including holding the asset in affordable housing for three years.

It was announced, and expected to become law, that the instant asset write-off for small business will be extended 12 months to 30 June 2019. Entities with an aggregated annual turnover less than $10m will be able to immediately write-off an asset costing less than $20,000.

The change in the end date of 12 months reduces a potential cash-flow issue for small businesses.

Companies with annual aggregated turnover between $25m to $50m will have a reduced company tax rate of 27.5% from 1 July 2018. The change in tax rate will only apply to base rate entities.

Entities with 20 or more employees are required to report the following information to the ATO from 1 July 2018:

  • 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.

For the first 12 months, reporting entities will not be subject to administrative penalties, unless first notified by the ATO.

Although only due to commence from 1 July 2019, a change to Division 7A rules has been proposed where unpaid present entitlements will be included as a deemed dividend.

This announcement is perhaps part of a bigger regime of changes that may become law. The extension of the Division 7A regime was announced in the 2016 Federal Budget, as well as in the Board of Taxation review into Division 7A.

This may be the best opportunity to put systems in place to ensure a favourable position for Division 7A loan holders.

The research and development (R&D) tax incentive will be amended for income years commencing 1 July 2018. Under the announcement, the incentive will be based on uplift of the entity’s corporate tax rate in the particular income year.

Also, changes will occur to companies that have an aggregated turnover of $20m or more. The rate of the R&D tax incentive will be determined by the company’s “R&D intensity percentage”. The intensity percentage is the rate of R&D expenditure compared to overall expenditure for the year, where a marginal rate of offset will be applied.

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 2018, 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.

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.

If your client:

  • rents out a room or a whole dwelling on a short-term basis

  • provides taxi travel services (ride-sourcing) for a fare

  • provides services such as creative or professional services (eg graphic design, website development), or odd jobs (eg deliveries and furniture assembly), or

  • rents out a car parking space,

you may need to consider whether they are carrying on an enterprise. They may also need documentation of all their income and allowable deductions for the year.

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 2018, employer superannuation contributions must be made before 30 June for a deduction to be available in the 2017/18 year.

For family businesses, it is important that annual caps for concessional and non-concessional superannuation contributions are not exceeded.