end of year tax planning checklist 2018 - moore stephens...a trust or from a sole trader to a trust...

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End of Year Tax Planning Checklist 2018

Disclaimer

Moore Stephens newsletter aims to provide information of general interest to our readers. The content of this alert does not constitute specific advice. Readers are encouraged to consult Moore Stephens for advice on specific matters. Liability limited by a scheme approved under Professional Standards Legislation.

Contents

A. INTRODUCTION 5

1. Taxing of trading income 6

2. Record keeping 6

3. Individual income tax rates 6

4. Medicare Levy 7

5. Medicare Levy Surcharge 7

B. SMALL BUSINESS ENTITY RULES 8

6. Small business taxpayers 9

7. Other Deductions available for SBE’s 9

C. DEDUCTIONS 10

8. Prepayments 11

9. Prepayments of ‘excluded expenditure’ 11

10. Interest on investment loans 11

11. Bad debts (if taxation return prepared on an accruals basis) 11

12. Staff - Bonuses 12

13. Staff - Leave 12

14. Obsolete plant, fittings and equipment 12

15. Trading stock and inventory at 30 June 2018 12

16. Repairs and maintenance 12

17. Directors’ fees 13

18. Travel deductions 13

19. Expense substantiation 13

20. Borrowing costs 13

21. Entertainment 13

22. Property owner’s deductions 14

23. Capital Works deductions 14

25. Donations and gifts 14

26. Audit fees 15

27. Salary packages 15

28. Motor vehicle expenses 15

29. Research and Development Tax Incentives 15

D. SUPERANNUATION 17

30. Contributions 18

31. Employer Superannuation Guarantee contributions 18

32. Downsizing and Superannuation 19

33. Event Based Reporting for SMSFs 19

E. INCOME ISSUES 20

34. Deferring assessable income 21

35. Bad debts recovered 21

36. Deferring livestock and produce sales 21

37. Income splitting 21

38. Employee share schemes 21

39. Government grants 22

F. CAPITAL GAINS TAX ITEMS 23

40. Capital Gains Tax 24

41. Matching capital losses and capital gains 24

42. Consideration of CGT implications 24

43. Proposal that foreign residents may no longer qualify for main residence exemption 25

44. Foreign resident withholding rule 25

G. PERSONAL PLANNING 26

45. Zone Offset 27

46. Sickness and accident insurance payments 27

47. End of year tax schemes 27

48. Salary packaging 27

49. Superannuation contribution schemes 27

50. Splitting of superannuation contributions 28

51. ATO Monitoring 28

H. COMPANIES 29

52. Company income tax rates 30

53. Franking account 30

54. Company loans and unpaid trust distributions 31

I. PERSONAL SERVICE INCOME 33

55. Contractor’s Income 33

J. LUXURY CAR TAX 33

56. Luxury car threshold 33

57. Fuel efficient cars 33

K. COMMONWEALTH STUDY SUPPORT DEBTS (HELP/ABSTUDY/TSL) 34

58. HELP repayment rates and thresholds 34

L. CASHFLOW MANAGEMENT 36

59. PAYG installment variation 36

M. TRUST DISTRIBUTIONS 36

60. Trust deeds 36

N. NOTIFICATIONS TO ATO 36

61. Building and construction industry payments 36

62. GST withholding for new residential premises or potential residential land 36

63. Single Touch Payroll (STP) 37

O. PRIMARY PRODUCERS 39

64. Deductions 39

P. PROFESSIONAL ADVICE 39

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A. Introduction

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A. Introduction

This document sets out various items to consider prior to 30 June 2018, for effective tax planning.

1. Taxing of trading income

There are two forms of taxing trading income depending on whether the business is assessed on a cash or accruals basis:

i. Cash basis businesses are assessed when payment is received.

ii. Accruals basis businesses are assessed when a legally recoverable debt arises, usually at the point of invoicing.

Consider deferring the derivation of income where cash flow permits by either deferring receipt of payment on a cash basis or delay invoicing WIP on an accrual basis.

2. Record keeping

Records are required to be retained for tax purposes for between two and five years, depending on the class of taxpayer.

For taxpayers lodging tax returns under the Small Business Entity rules, the retention period for records is two years.

However, records must to be retained for the term of ownership for an asset subject to capital gains tax. The Australian Taxation Office (“ATO”) does allow taxpayers to utilise an asset register to record capital gains tax transactions. The entries in the asset register must be certified by a registered tax agent. The supporting records do not then have to be maintained for the period of the investment.

It is noted that source records should also generally be retained to substantiate the existence of tax losses, meaning that records should be available to support tax losses incurred more than 5 years ago.

3. Individual income tax rates

The following table outlines the individual Australian resident income tax rates for 2017/18:

Taxable Income ($) Tax Rate (%) 0 - $18,200 Nil

$18,201 - $37,000 19c for each $1 over $18,200 $37,001 - $87,000 $3,572 plus 32.5c for each $1 over $37,000 $87,001 - 180,000 $19,822 plus 37c for each $1 over $87,000 $180,000 and over $54,232 plus 45c for each $1 over $180,000

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4. Medicare Levy

A Medicare Levy of 2% should be added to the above rates. The levy is not payable if your income is less than $21,980, or $34,758 if you are entitled to a Seniors and Pensioners Offset.

5. Medicare Levy Surcharge

The Medicare Levy Surcharge may be payable where appropriate private patient hospital cover is not held for you, your spouse or your dependents. The taxable income thresholds that apply to the 2017/18 financial year are:

Base tier Tier 1 Tier 2 Tier 3 Singles threshold $90,000

or less $90,001 to $105,000

$105,001 to $140,000

Over $140,000

Families threshold $180,000 or less

$180,001 to $210,000

$210,001 to $280,000

Over $280,000

MLS Rates 0% 1% 1.25% 1.5%

Note: For families with children, the family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.

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B. Small Business Entity Rules


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B. Small business entity rules

6. Small business taxpayers

The Small Business Entity (“SBE”) rules apply to a sole trader, partnership, company or trust which operates a business for all or part of the income year and has an aggregated (i.e. group) turnover of less than $10 million. Businesses that qualify as a SBE can elect to utilise simplified depreciation rules as follows:

• A small business taxpayer can immediately write off the cost of assets, including motor vehicles, costing up to $20,000. This incentive is proposed to be extended to 30 June 2019.

• Depreciable assets costing more than $20,000 may be added to a small business pool and depreciated at 15% in the year of purchase – regardless of the date of purchase and 30% in subsequent years.

• Where the purchaser is registered for GST, the cost of the asset is exclusive of GST. However, where the purchaser is not registered for GST, then the cost of the asset is inclusive of GST. For example, a GST registered business eligible to utilise the SBE rules can purchase a car for up to $22,000 GST inclusive and immediately write off the cost of the asset in the year of purchase.

7. Other Deductions available for SBE’s

A SBE in the 2018 year, may also take advantage of the following concessions:

• Small business restructure rollover may be available to restructure business operations without income tax consequences such as transferring depreciable assets, revenue assets, trading stock or CGT assets. The entity might restructure their operations from a company to a trust or from a sole trader to a trust as an example.

• Small business started in the 2018 year will be able to claim an immediate deduction for its start-up costs, such as legal, accountancy, costs of constitution or deed, where those costs are incurred in the 2018 year.

• Simplified trading stock rules apply so that the taxpayer does not have to account for changes in trading stock or complete a stock take for tax purposes where the difference between the value of the original opening stock and a reasonable estimate of the closing stock is $5,000 or less.

• An immediate deduction for certain prepaid expenses where the goods or services will be provided within 12 months from the date of expenditure. Cash flow must always be considered and the taxpayer should have a commercial reason for making the prepayment.


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C. Deductions


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C. Deductions

8. Prepayments

A prepaid expense is expenditure you incur under an agreement for something to be done (in whole or in part) in a later income year.

If an entity does not qualify to use the SBE rules, the prepayment rules will apply to expenditure in which a tax deduction is broadly allowable over the ‘eligible service period’ of the expenditure – up to 10 years. This means the deduction for the prepayment is spread over the period during which the service or benefit will be provided.

If you incurred expenditure for something that was to be done in full within this income year, that is, 1 July 2017 to 30 June 2018, it is not a prepaid expense and the prepayment rules do not apply.

9. Prepayments of ‘excluded expenditure’

Certain types of expenditure are excluded from the prepayment rules. Any taxpayer who incurs a prepayment of excluded expenditure will not be subject to the ordinary prepayment rules. These are payments:

• of less than $1,000 (therefore all prepayments of less than $1,000 are deductible in the year that the payment is made, subject to the payment being otherwise deductible);

• required to be incurred by law or a court order (e.g. rates, workers compensation insurance);

• under a contract of service (i.e. salaries and wages); or

• that are capital, private or domestic in nature.

10. Interest on investment loans

There is an opportunity for taxpayers who have borrowed money for investments or business activities to be able to prepay up to 12 months of interest, with the lenders approval, to safeguard against any increases in interest rates or some other commercial reason, and a tax deduction will be available for that prepaid interest.

As an example, prepaying interest for investment loans on rental properties and margin loans on shares, may allow for a tax deduction to be brought forward to the year it is prepaid (subject to the above prepayment rules).

11. Bad debts (if taxation return prepared on an accruals basis)

Taxpayers should review their debtors listing to determine if any debts are bad debts. The debt must

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be written off as uncollectable prior to 30 June and appropriate minutes prepared authorising the write off.

Generally, to claim a bad debt, the debt must have previously been brought to account as assessable income and you must exhausted all avenues of recovery of that debt and ensure you retain the documentation to evidence all recovery attempts made.

To claim a tax loss for a bad debt, taxpayers must also satisfy ordinary loss recoupment rules.

12. Staff - Bonuses

A bonus may be deductible in the 2018 year if it is quantified, approved and committed to payment prior to 30 June (even if paid after 1 July). Determine whether any bonuses are to be paid and, if so, ensure the amount is quantified and approved (e.g. via board minutes), the relevant staff are notified of the bonus prior to 30 June and that any PAYG Withholding Tax is remitted in the first activity statement after 30 June.

13. Staff - Leave

Provisions for annual leave and long service leave are not deductible. The deduction is only available when the annual leave is paid.

Where practical, encourage staff to take holidays prior to 30 June.

14. Obsolete plant, fittings and equipment

Review your asset register to identify items that are no longer in use to claim a deduction for the written down value of that item.

15. Trading stock and inventory at 30 June 2018

Review your stock on hand and identify any obsolete stock. You should conduct a detailed physical stock take of all stock on 30 June. Retain your detailed stock sheets as part of your taxation records.

Each year for taxation purposes, each individual item of stock may be valued at cost, market value or replacement value – so you can choose the most tax effective method.

The stock records should be properly prepared showing items of stock, quantity on hand, who counted the stock, the valuation used and the extension of value.

Stock taking creates a good chance to spruce up your business by putting slow moving items out on sale. It also enables you to tighten up on pilferage and spoilage.

16. Repairs and maintenance

A deduction for repairs and maintenance expenditure is available for work completed by 30 June,


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and is related to the genuine repair and restoration of an existing asset as opposed to purchase of a new asset.

You might consider bringing forward, prior to 30 June, major maintenance expenditure that was scheduled for the next financial year.

17. Directors’ fees

A company paying directors’ fees, should conduct a shareholders' meetings before 30 June to approve directors’ fees and ensure payment for directors’ fees are drawn prior to 30 June and that PAYG Withholding Tax is deducted from the amount paid to the directors.

18. Travel deductions

To claim for travel expenses, make sure that:

• Overseas travel - You prepare a full itinerary and diary of the overseas trip with full substantiation of expenditure incurred and a dissection between business and private purposes.

• Local travel - If you are away on continuous travel for more than six nights you are required to maintain a diary with full details of the activities conducted on the trip. (However, it is a good idea to keep a diary to support claims for all travel expenditure, irrespective of the duration).

19. Expense substantiation

Ensure that you can justify all employment related expense amounts incurred and the reason for the expenditure being incurred (for individual items costing less than $10 which total less than $200 for a year, you can claim these expenses with diary records to support the claim rather than receipts).

20. Borrowing costs

Review loan documents to ascertain the total borrowing costs on business loans. Borrowing costs can be claimed over the shorter of five years or the term of the loan.

21. Entertainment

Entertainment is not deductible unless it is provided as a fringe benefit and Fringe Benefits Tax (“FBT”) has been paid.

Unless a log of the expenditure is kept, 50% of expenditure is attributed to employees and subject to FBT and the remaining 50% is attributed to non-deductible client entertainment. GST input credits are not available for entertainment expenses where no FBT has been paid on them.


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22. Property owner's deductions

Property owners can claim normal expenses against rental income including rates, land tax, advertising for tenants, body corporate fees, insurance, maintenance, interest paid and other recurrent expenses.

However, from 1 July 2017 travel expenses including travel to attend to repairs or property inspection will not be deductible to the taxpayer.

The claim for expenses relating to a property should be closely monitored as the ATO has notified taxpayers it is reviewing these claims. If you have recently acquired a property it will be very difficult to claim repairs as an income tax deduction in the first year as the ATO will undoubtedly take the view that the expenditure is for improvements (and capital in nature).

Care should also be taken to ensure that if a rental property is used privately (or unavailable for rent), expenses must be apportioned on a reasonable basis to claim only those expenses relating to when the property was genuinely available for rent.

23. Capital Works deductions

The construction costs of income producing buildings may be able to be written off at 2.5% or 4% per year, depending on the date of the construction and use of the property.

A review should be undertaken to ensure that all eligible building write-offs are being claimed. If a building has been acquired during the year, details of the original cost of the building and the date of acquisition should be recorded so that the correct amount of building write-off can be claimed.

It is recommended that a quantity surveyor report is obtained to ensure that your eligible capital works and other depreciation claims have been correctly calculation and maximised.

24. Depreciation and residential rental properties

The claim for depreciation will be restricted for residential rental properties contracted to be purchased after 9 May 2017. Depreciation will not be available for second-hand or used depreciating assets, whether purchased with the property or separately after that date.

25. Donations and gifts

Should you intend to make a tax-deductible gift or donation, then you should ensure that the payment is made on or before 30 June.

You should check that the charity or recipient is an ATO endorsed deductible gift recipient (which can be done on the ABR website) and a deduction is not allowable if the donor receives some benefit (e.g. raffle tickets), unless given at an eligible fund-raising event.


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26. Audit fees

An audit fee accrual is not deductible unless there is a contract that creates a presently existing liability (i.e. a set amount committed to payment) before the 30 June. Ordinarily audit (and other similar) fees are deductible when paid or incurred.

27. Salary packages

Ensure that salary packages for 2018/19 that include fringe benefits and/or employer’s superannuation contributions are negotiated and documented prior to payment of the salary.

28. Motor vehicle expenses

There are two alternate methods available to calculate tax deductions for work related motor vehicle expenses. These are:

• cents per kilometre method – a set 66 cents per business kilometer; and

• logbook method – you calculate your actual business kilometres as a percentage of the total kilometres that the motor vehicle has travelled (established via a log book) to determine the business percentage which can then be applied to the total motor vehicle expenses.

The cents per kilometer method is only available where business use is 5,000 kms or less. The ATO is constantly scrutinising motor vehicle claims and appropriate records and substantiation should be maintained to support your claim.

29. Research and Development Tax Incentives

Proposed changes to Research & Development (R&D) tax incentives apply from 1 July 2018. If passed as proposed, eligible R&D entities with a turnover of $20 million or more, receive an R&D premium (i.e. uplift) that ties the rate of non-refundable R&D tax offset available to the proportion of R&D expenditure for each year as follows:

For eligible R&D entities with turnover less than $20 million, the R&D offset will be the claimant’s company tax rate plus a 13.5% premium, a decrease from the 16% R&D uplift applying to base rate entities in the 2016/17 year. Cash refunds will now be capped at $4 million per annum. R&D tax

R&D premium (calculated as relevant % plus claimant’s company tax rate)

R&D expenditure as a proportion of total annual expenditure

4% 0 to 2% 6.5% >2% to 5% 9% >5% to 10%

12.5% >10%


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offsets which cannot be refunded are to be carried forward as non-refundable R&D tax offsets for use in future income years. To claim these offsets in future years, the usual loss recoupment rules must be satisfied.

The maximum R&D expenditure threshold will be increased from $100 million to $150 million per annum.

In addition, increased resources will be made available to the ATO to ensure compliance with the integrity of the R&D measures.

If you conduct eligible R&D activities, we recommend you engage your chosen R&D advisor to run through the application and impact of these changes with you.

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D. Superannuation


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D. Superannuation

30. Contributions

For the year ending 30 June 2018, the maximum concessional superannuation contribution is $25,000 (which includes superannuation guarantee paid for by an employer, personal contributions and salary sacrificed amounts) for individual aged up to 75 years.

Where you are over 65 years of age, you can only make a personal concessional contribution where you satisfy the work test.

Non-concessional contributions can be made up to $100,000 per annum or, with current bring-forward rules, a total of $300,000 (for those aged under 65) prior to 30 June 2018.

Contributions to superannuation funds for taxpayers with Adjusted Taxable Income (“ATI”) less than $250,000 are taxed at 15% on contributions. For taxpayers with ATI over $250,000, contributions are taxed at 30%. This additional tax is calculated within terms of Division 293, and is calculated by the ATO, and payable after lodgment of the individuals Income Tax Return. An election can be made to have this tax paid by the superannuation fund.

Please consult with your advisor before making any substantial superannuation contributions.

31. Employer Superannuation Guarantee contributions

A minimum and compulsory superannuation contribution (called Superannuation Guarantee) must be paid by all employers on broadly gross wages paid to all eligible employees who are paid at least $450 per month. It is a requirement to pay the minimum superannuation contribution at least every quarter, by the 28th day of the following month and report the payment to the employee in writing.

The prescribed percentage is currently 9.5%. To obtain an income tax deduction in the current year, the contributions must be paid and received by the employees’ superannuation account prior to 30 June.

Late superannuation payments are ordinarily subject to Superannuation Guarantee Charge (“SGC”), which includes interest, administration fees and are non-deductible for tax.

On 24 May 2018, the Government announced a 12-month amnesty to allow employers to correct underpayments without incurring the penalties which would normally apply. The amnesty applies to any shortfalls liabilities calculated between 1 July 1992 to 31 March 2018. Interest charges will remain but the administrative fee component will be waived. These SGC payments made as part of the amnesty will be tax deductible. Note at the time of writing the amnesty is only proposed law and has not yet passed parliament.

If you suspect you may have underpaid Superannuation Guarantee, we recommend you review your position and take advantage of the amnesty. Employers who fail to act during the amnesty will face


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higher charges.

32. Downsizing and Superannuation

For older home sellers, from 1 July 2018, downsizing will be encouraged by allowing people aged 65 or older to make a non-concessional contribution of up to $300,000 to their superannuation fund after selling their family home. This amount is in addition to any other contributions they are eligible to make. The contribution is exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.

The sale must be of a principal residence that has been owned for the past 10 or more years, which will limit the effectiveness of this measure. Where a couple jointly own the family home, they will each be able to contribute up to $300,000.

33. Event Based Reporting for SMSFs

Self-Managed Superannuation Funds (“SMSF’s”) have new reporting obligations from 1 July 2018 which requires they report events affecting a member’s transfer balance to the ATO. Accordingly, if you have made any changes to your pension arrangements then you should let your adviser know as soon as possible. This would include for example, starting a new pension or ceasing an existing pension.

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E. Income Issues


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E. Income issues

34. Deferring assessable income

The ability of a taxpayer to defer income will depend on the taxpayer’s business and the type of income derived.

How much your business could benefit from year-end tax planning can be determined only by preparing interim accounts for the year to date. May to early June is usually the time to do this. The message that may well emerge is that, rather than accelerating your revenue and deferring costs, your business may be better served by doing the opposite in the final quarter.

35. Bad debts recovered

Where a debt has been written off as a bad debt and claimed as a tax deduction, and that debt is subsequently paid, you must bring the amount paid to account as assessable income in the year of recovery.

36. Deferring livestock and produce sales

Primary producers can defer livestock and produce sales until after 30 June. However, you need to assess whether you may suffer price reductions because of the decision to defer sales to a future income year.

37. Income splitting

Income splitting can be highly tax effective, especially if investments have been placed in the name of a lower income earner. This can be applicable where a spouse is not working and the income in the spouse's hands would therefore be taxed at a lower rate.

38. Employee share schemes

If you are a member of an employee share scheme, you should ensure that you receive details of any income that has been earned from the employee share scheme that relates to you as an individual and that the income is included in your income tax return. Employers are not required to withhold PAYG tax from the earnings of an employee share scheme. The responsibility for reporting any income from employee share scheme rests with the individual taxpayer.

If you are an employer seeking to utilise employee share schemes, please consult your advisor, as you will need to understand your reporting obligations as well as the impact on your employees.

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39. Government grants

A grant from a government department is most likely paid to you on the basis that it is taxable income and therefore you need to disclose in your taxation return the receipt of the government grant. If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all the government grant funds have been expended on tax-deductible items prior to 30 June.

You need to be aware that, if you have received a government grant which is assessable income and the expenditure that you have committed the government grant towards is of a capital nature, e.g. a new building, then there will be taxation consequences on the receipt of the government grant which you will need to consider in your income tax planning.

If you have any queries on the treatment of government grants, it is recommended that you seek advice.

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F. Capital Gains Tax Items


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F. Capital gains tax items

40. Capital Gains Tax

Capital Gains Tax (“CGT”) may apply to the sale of assets purchased (or deemed to be purchased) after 20 September 1985.

41. Matching capital losses and capital gains

Capital losses are not directly deductible. Capital losses are offset against any capital gains generated during that financial year.

Where capital losses are not utilised in this manner they are carried forward until such time that capital gains emerge to be offset.

42. Consideration of CGT implications

To effectively plan to reduce tax you should consider the implications of CGT.

A discount of 50% is available for capital gains assets held by an individual or a trust, where capital gains are distributed to an individual, and the asset is held for more than 12 months. Where there is a likelihood of a capital gain emerging on a property and you have an investment which, if sold, would generate a capital loss, then perhaps now is the time to consider selling the potential capital loss investment to offset part or all the emerging capital gain.

Note that you must be able to demonstrate that any profit derived from the sale of an asset is on capital account and not a profit-making enterprise or undertaking.

Small Business CGT Concessions

Separate to the general 50% capital gains tax discount, there may be further CGT concessions for SBE’s. Small business entities are those with either turnover less than $2 million (Note the $2 million turnover test applies for the Small Business CGT Concession rules) or those that meet the $6 million maximum net asset value test. These concessions include:

• fifteen-year exemption – provides a full exemption for a capital gain;

• 50% active asset reduction;

• retirement exemption; and

• rollover concession into replacement assets.

The Small Business CGT Concessions are very complex, and your advisor should be able to guide you through your eligibility and their application if you dispose of a CGT asset.


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43. Proposal that foreign residents may no longer qualify for main residence exemption

A proposed bill will, if enacted, deny non-residents (for tax purposes), at the time of signing a contract to sell their home in Australia, exemption from CGT, regardless of how long the home has been their principal place of residence. It is emphasised that the date of the disposal of a property is the date of exchange of contracts, not the settlement date, and the taxpayer’s residency status at contract date are the key drivers of the tax treatment. This change will apply:

• After 9 May 2017 for homes acquired after 9 May 2017; and

• After 30 June 2019 for homes acquired on or before 9 May 2017.

Take the example of a taxpayer moving overseas and becoming a non-resident for tax purposes. Even though they may have owned their main residence in Australia since 1986, if they contract to sell the property after 30 June 2019 while a non-resident, they will be subject to CGT on the full gain.

While this bill is not yet law, and submissions have been made to limit the effect on Australian residents who are moving overseas, the Senate committee has recommended that this law be passed without any changes.

44. Foreign resident withholding rule

From 1 July 2017, the purchaser of real property from a foreign resident is required to withhold 12.5% of the contract price, where that property price exceeds $750,000, and remit that amount to the ATO.

This withholding obligation applies to both resident and non-resident purchasers and will apply unless the vendor holds a clearance certificate confirming they are a resident for Australian tax purposes.

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G. Personal Planning


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G. Personal planning

45. Zone Offset

If you work predominantly in a remote area you may be eligible for a zone or overseas forces tax offset.

To ensure your eligibility to any zone offset can be considered, record the number of days that you spend working away and the location of this remote work.

46. Sickness and accident insurance payments

Premiums for sickness and accident cover (income protection type policies) are tax deductible. Payments can be made by the employer without incurring Fringe Benefits Tax. (This is because of the operation of the “otherwise deductible” rule).

47. End of year tax schemes

Product rulings are issued by the ATO on various investment products that are marketed particularly around 30 June each year.

If you wish to avoid confrontation with the ATO, then it is best to consider investing in products that have obtained ATO product rulings. However, you should be aware that the ATO product ruling are not a guarantee or any sort of government endorsement on the likely success or profitability of the investment.

48. Salary packaging

Salary packaging can also assist in the minimisation of income tax, particularly in the areas of voluntary superannuation contributions, and acquisition of assets that are subject to "beneficial" fringe benefit tax treatment such as supply of a motor vehicle.

You should be aware that your employer is required to report the value of fringe benefits on your payment summary, form part of your ATI and this may affect government and other payments you may receive or be entitled to.

Check with your advisor to see if salary packing may be advantageous for you.

49. Superannuation contribution schemes

Special concessions are available to low income or non-working spouses relative to superannuation contributions such as the tax offset for spouse contribution and co contribution schemes.

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50. Splitting of superannuation contributions

Legislation enables taxpayers to split superannuation contributions for married and de facto couples to spread the total contributions over two account names.

51. ATO Monitoring

The ATO receives significant information from banks, companies, managed funds, state government departments etc, including interest, dividends, distributions from managed funds, details of land and property sales and purchases, motor vehicles, boat purchases etc., all of which the ATO uses to check that proper disclosure has been made in income tax returns.

When gathering the information required to prepare your income tax return, double check you have included details on all relevant transactions that have occurred during the financial year.

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H. Companies


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H. Companies

52. Company income tax rates

Broadly, the company tax rate remains at 30% for companies which have more than 80% passive income or for companies with a turnover of more than $25 million in 2018, and $50 million in 2019.

Smaller taxpayers with at least 20% active income (e.g. business income) may be eligible for the reduced corporate tax rate.

The rates are as follows:

Year Aggregate turnover Tax Rate 2017/2018 Up to $25 million 27.5% 2017/2018 Over $25 million 30.0% 2018/2019 Up to $50 million 27.5% 2018/2019 Over $50 million 30.0%

While note yet law, the test for passive income above refers to ‘base rate entity passive income’ and includes:

• dividends other than non-portfolio dividends

• franking credits on such dividends

• non-share dividends

• interest income (some exceptions apply)

• royalties and rent

• gains on qualifying securities

• net capital gains

• income from trusts or partnerships, to the extent it is referable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.

If you are unsure whether the company may be eligible for the reduced corporate tax rate, please speak to your Moore Stephens advisor.

53. Franking account

A company’s dividend payments and franking profile should be reviewed before year end to ensure sufficient franking credits are available for any planned dividend. Broadly, the maximum franking credit allocated to a franked distribution is based on the company’s tax rate.


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The rules are not straightforward in that the legislation requires you to determine for the dividend year the “corporate tax rate for imputation purposes” (broadly, the company’s income tax rate in the current year but based on aggregate turnover for the previous tax year) and then apply a formula to work out the available franking credit.

Franking credits may be available at 30% for those companies with a reduced tax rate – but in limited circumstances and guidance should be sought from your Moore Stephens advisor.

54. Company loans and unpaid trust distributions

Shareholder loans need to be properly documented and put on a commercial footing in line with the Division 7A tax legislation.

The ATO continues to undertake audits to ensure payments made by private companies are correctly accounted for and company loans are not used to distribute tax-free profits.

Loans to private company shareholders or their associates include lending money to a shareholder, paying expenses on the shareholder's behalf or forgiving the shareholder a debt. The term of the loan is set out in legislation.

If there is no security offered, the term of the loan should not exceed seven years. If security is offered, the loan should not exceed twenty-five years and the loan must be fully secured by a registered mortgage over real property. The market value of the property at the time the loan is made should be at least 110% of the loan amount.

Interest rate to be charged during 2017/18 is 5.30%.

If loans have been made to shareholders or their associates which do not meet the above provisions, then the payment may be a deemed dividend and included in the assessable income of the shareholder.

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I. Personal Service Income

J. Luxury Car TaxK. Commonwealth

Study Support Debt


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I. Personal service income

55. Contractor's Income

Taxation law includes measures that are designed to limit the deductions available to certain contractors whether operating as a sole-trader or through a company, trust or partnership. These are known as the Personal Services Income (PSI) measures.

A taxpayer who meets certain specified tests will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. If you are operating a personal services business, you need to be aware of the strict approach to income retention and income splitting.

J. Luxury car tax

56. Luxury car threshold

The Luxury Car Tax is 33% and applies to cars that have a GST inclusive value which exceeds the threshold of $65,094 for the 2017/18 year.

57. Fuel efficient cars

The Luxury Car Tax limit for fuel efficient cars for 2017/18 is $75,526.

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K. Commonwealth study support debts (HELP/ABSTUDY/TSL)

58. HELP repayment rates and thresholds

The repayment income thresholds and rates for 2017/18 are set out below.

Repayment Income Rate

Below $55,874 NIL $55,874 to $62,238 4% $62,239 to $68,602 4.5% $68,603 to $72,207 5%

$72,208 to $767,618 5.5% $77,619 to $84,062 6% $84,063 to $88,486 6.5% $88,487 to $97,377 7%

$97,378 to $103,765 7.5% $103,766 and above 8%

Legislation is now in place to require Australian graduates living overseas to make HECS/HELP payments if they earn above the income thresholds. These measures require those going overseas for more than six months to register with the ATO. Assuming parliament passes the changes, the proposed lower income repayment threshold of $42,000 is proposed to commence in the 2018/19 year.

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L. Cashflow Management

M. Trust Distributions

N. Notifications to ATO


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L. Cashflow management

59. PAYG installment variation

Update your financial records to 30 June 2018 so you can review with Moore Stephens any tax planning opportunities or whether you can reduce your June 2018 PAYG Instalment, due by 28 July 2018.

M. Trust distributions

60. Trust deeds

Trustees of discretionary and family trusts must make valid distribution resolutions before 30 June to effectively distribute trust income to eligible beneficiaries. The resolution must be made in accordance with the Trust Deed.

Should you have any questions relative to this, please contact us at your earliest opportunity so that a decision may be made on the trust distribution and a resolution prepared confirming the decision of the trustees.

N. Notifications to ATO

61. Building and construction industry payments

If you operate in the building and construction industry and make payments to contractors principally for labour, you must prepare and lodge a “Taxable payments annual report” with the ATO showing the payments that you have made to each contractor for the year ended 30 June 2018.

This report should be submitted by 28 July 2018.

62. GST withholding for new residential premises or potential residential land

For taxable supplies of residential property, instead of paying the full contract price to the GST registered supplier (vendor) at settlement, a purchaser is now required to withhold an amount from the contract price and pay that amount directly to the ATO.


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From 1 July 2018, purchasers are required to withhold and remit to the ATO:

• 1/11th of the contract price for fully taxable supplies; or

• 7% of the contract price where the margin scheme applies, or

• 10% of GST exclusive market value of a supply between associates.

If the sale of the property is not considered ‘new residential’, then ordinarily these GST withholding rules will not be applicable.

63. Single Touch Payroll (STP)

Employers with more than 20 employees from 1 July 2018 will need to report details of payments such as salaries and wages, withholding and superannuation information electronically via their payroll software to the ATO each time they make a payment.

If you are required to report under STP, your payroll software must be STP ready. Please contact your payroll provider or Moore Stephens advisor for more information.

The system will extend to employers with less than 20 employees from 1 July 2019.

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O. Primary Producers

P. Professional Advice


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O. Primary producers

(In addition to small business entities and entities not defined as small business).

64. Deductions

Non-Commercial Losses – for a business to be commercial, under the “non-commercial losses tests”, the business needs to meet certain prescribed tests. If the tests are not met, any losses arising from the activities must be carried forward and offset in a later year against future income from the same type of source. If you have non-commercial losses, please contact Moore Stephens for advice on the treatment of the losses in 2017/2018.

Accelerated depreciation - applies to allow an immediate deduction for the full amount in the year incurred for the following:

• Water Facilities

• Fencing Assets

• Landcare Operations

• Horticultural Plants with an effective life of less than 3 years

• Expenditure on new fodder storage asses may be claimed in equal instalments over 3 years.

P. Professional advice

Moore Stephens is happy to assist you to implement appropriate strategies for end of year tax planning and to take every available opportunity to minimise your tax liability and comply with tax legislation. It is highly recommended that you consult us if you have any queries relating to end of year tax planning.

For more information on how we can help you succeed and to find your local office visit:

www.moorestephens.com.au/locations

Contact us

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end of year tax planning checklist 2018 - moore stephens...a trust or from a sole trader to a trust...

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