With the end of the 2018 income tax year rapidly approaching, this issue of Client Alert draws attention to year-end tax planning strategies and compliance issues that taxpayers need to consider to ensure they are in good tax health. It focuses on the most important issues for small to medium businesses and individuals to consider so as to increase their tax refund or minimise their tax liability in respect of the 2018 income tax year.
One interesting procedural matter this year is that 30 June 2018 falls on a Saturday, meaning that ATO payments or lodgments due on that day or on Sunday 1 July can be made on Monday 2 July 2018 without incurring a general interest charge. However, where practically possible, all actions, payments or lodgments should be undertaken before Friday 29 June 2018.
This "date shuffling" conundrum should be kept in mind when reference is made to actions to be undertaken by 30 June 2018.
Common tax planning techniques include deferring the derivation of assessable income and bringing forward deductions. It is equally important to consider any pending changes to the tax legislation, and to specifically take note of any commencement dates and transitional provisions.
This issue of the Spry Roughley Report contains general information only, and should not be relied on as advice – it may not be applicable to taxpayers' specific circumstances.
Businesses that recognise income on an accruals basis (ie when an invoice is raised) may consider delaying the raising of invoices for services rendered until after 30 June and thereby delay deriving assessable income until after the 2018 income tax year.
For example, if cash flow permits, businesses could delay raising some invoices in respect of work in progress (WIP). Also note that service income received in advance (eg where amounts are received before 30 June 2018 but services are only provided after 30 June 2018) may only be assessable income in the 2019 income tax year.
If income is derived on the cash basis (eg interest, royalties, rent and dividends), businesses may consider deferring the receipt of certain payments until after 30 June 2018 (eg set term deposits to mature after 30 June 2018 rather than before 30 June 2018).
Companies with a turnover of between $25 million and $50 million may want to defer the recognition of income to the 2019 income tax year, to ensure that the lower tax rate of 27.5% applies (rather than 30% in 2018).
To qualify for deductions in the 2018 income tax year, taxpayers may bring forward upcoming expenses (ie incur the expenses before 30 June 2018) or small businesses and individual non-business taxpayers may prepay expenses up to 12 months ahead (ie pay tax-deductible expenses relating to the 2019 income year before 30 June 2018). This should only be done subject to available cash flow and where there is a commercial basis for the prepayment.
Business expenses that may be prepaid include:
- short-term consumables such as office supplies and stationery;
- unpaid workers' compensation insurance premium instalments; and
- superannuation guarantee payments (only due in July).
Also note that bonuses and directors' fees that are confirmed and committed to by 30 June (as evidenced in Board minutes) may be deductible in 2018, even if these payments are only made after 30 June 2018.
Expenses that individuals may prepay include:
- investment property expenses such as insurance, rates, repairs and maintenance and strata fees;
- subscriptions to professional journals and memberships to professional associations;
- interest on investment loans (eg for share portfolios and investment properties); and
- income protection insurance.