How to be in good tax health by 30 June 2016 by Nexia Australia

How to be in good tax health by 30 June 2016

With the end of the 2016 income tax year fast approaching, this document draws your attention to year-end tax planning strategies and compliance issues to ensure you are in good tax health. Although a myriad of year-end strategies are in the market place that aim to increase your tax refund and minimise your tax liability, this Planner will focus on only the most important strategies available for small to medium businesses and individuals. This document serves as general information only, and should not be relied on as advice because the content may not be applicable to your specific circumstances. Please speak to your Nexia adviser before implementing any tax planning strategies because unexpected tax or other consequences may arise. Please note that the general anti-tax avoidance provisions potentially may apply to any year-end arrangements.

To assist with finding the section most relevant to you in reading this planning document, we have divided the document into: 1. General year-end tax planning tips; 2. Business year-end tax planning tips; 3. Individuals year-end tax planning tips (including superannuation); 4. Year-end tax compliance tips; and 5. Some rates & proposed changes to keep an eye on.

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Effect of this year’s budget on any tax planning strategy The recent Federal Budget that was handed down on 3 May 2016 proposes to make significant changes to: 1. Company tax rates (e.g. a proposed long term strategy to reduce the company tax rate to 25% by 2027 with the first cut of 1% in 2017 afforded to companies that are small business entities); 2. The turnover threshold of entities that will qualify as small business entities to be increased from the current turnover threshold of $2 million to $10 million from 1 July 2016 for certain small business tax purposes1; 3. The discount percentage afforded to unincorporated small business entities from 1 July 2016 onwards (i.e. the current discount to be increased from 5% to 8% as well as the turnover threshold from $2 million to $5 million); 4. Superannuation proposals to impose lifetime caps on non-concessional contributions and pension accounts, to lower the yearly concessional contributions cap to $25,000 but allow for top-ups, lowering the threshold from $300,000 to $250,000 where the 30% concessional contributions tax commences and to allow people with interrupted working arrangements to build up their superannuation balances. These proposals and how they may affect current year’s tax planning as well as that of future years, will be discussed in this year-end planner. Please note that at the time of writing this yearend planner2, these Budget proposals are not yet law and subject to normal Parliamentary process. Because both Houses of Parliament are currently dissolved due to the impending double dissolution election on 2 July 2016, some uncertainty exists on when and whether these proposals will become law.

General Speak to us to ensure you don’t miss out on possible opportunities The “holy grail” of tax planning is to use temporary differences to defer the amount of tax you should pay in one income tax year to the next income tax year by either deferring income or bringing forward expenses (subject to cash flow requirements). Furthermore, when determining which expenses may be deductible for tax purposes in the 2016 income tax year, certain capital expenses (such as improvements that may be mistakenly categorised as repairs) will be nondeductible. For such expenses, the cost may be included in the cost base of the item for CGT purposes, depreciated or deducted over 5 years (i.e. “blackhole” expenditure).

Defer the derivation of income (if cashflow permits) ■■

Don’t raise an invoice for WIP before 30 June.

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Defer receipt of interest to after 30 June

For businesses that recognise income on an accruals basis (i.e. when an invoice is raised), they can delay raising invoices for services rendered until after 30 June and therefore delay deriving assessable income until after the 2016 income tax year. An example of this could be to delay raising some invoices for accrued income such as Work in Progress (WIP). Also note that service income received in advance (e.g. where amounts are received before 30 June but services are only provided after 30 June) may only be assessable income in the 2017 income tax year. If income is derived on the cash basis (e.g. interest, royalties, rent and dividends), where possible, defer the receipt of the payment until after 30 June 2016 (e.g. set term deposits to mature after 30 June rather than before 30 June). Budget implications – small business company tax rate cut, increase in discount rate and individual bracket creep. Strategies of deferring the derivation of income to the 2017 income year would be particularly useful for small business entities3 and middle income earners that will receive the following proposed tax benefits from 1 July 2016:

1. A further 1% tax rate cut for such small businesses operating through companies (i.e. proposed company tax rate for such small companies will be 27.5% as opposed to the 2016 small business corporate tax rate of 28.5%) ;

2. A proposed 3% increase in the discount of the tax payable by unincorporated small business entities4 (i.e. proposed discount for such small non-companies will be 8% as opposed to the 2016 discount rate of 5% however, the total discount - delivered through a tax credit in the individual’s tax return - will still be capped at $1,000); and

3. For individuals, the taxable income threshold at which

Business - Small Business issues

the 32.5% (as opposed to 37%) personal income tax rate commences will be increased from $80,000 to $87,000 (for example, in 2016 an individual having taxable income of $85,000 will be subject to the 37% marginal tax rate – whereas that same individual with a taxable income of $85,000 in 2017, will only be subject to a 32.5% marginal tax rate).

Bring Forward your tax deductible expenses through prepayments

$20,000 instant asset write-off Small business entities ($2m turnover threshold for 2016) will have the benefit of the $20,000 instant asset write-off for most new or 2nd hand depreciating assets bought and used or installed ready for use in the business in the 2016 income tax year. Whether GST should be included in working out

To qualify for deductions in the 2016 income tax year, taxpayers may bring forward up-coming expenses (i.e. incur the expenses before 30 June 2016) or small businesses and individual non-business taxpayers may prepay expenses up to 12 months ahead (i.e. pay tax deductible expenses relating to the 2017 income year before 30 June 2016). This should only be done provided your cash flow permits this and a commercial basis exists for doing so.

whether the threshold is met depends on whether the purchaser is registered for GST or not:

1. If the purchaser is registered for GST – the GST exclusive amount is the cost of the asset; and

2. If the purchaser is not registered for GST – the GST inclusive amount is the cost of the asset.

Examples of business expenses that can be prepaid:

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Short term consumables such as office supplies and stationery.

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Unpaid workers’ compensation insurance premium instalments.

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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 2016, even if these fees are only paid after 30 June. Examples of expenses for individuals that can be prepaid:

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Investment property expenses such as insurance, rates, repairs and maintenance and strata fees

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Subscriptions to professional journals and memberships to professional associations

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Interest on investment loans (e.g. for share portfolios and investment properties)

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Income protection insurance

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Business travel expenses (e.g. airfares and accommodation) even if the trip will only take place in the 2017 income tax year.

Small business entities that make eligible purchases of less than $20,000 and use the asset or install it ready for use before 30 June 2016, will therefore be able to instantly reduce their taxable income for the 2016 income tax year. However, assets costing $20,000 or more can be pooled in a general small business pool, treated as a single depreciating asset and depreciated at:

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15% for such assets acquired during the 2016 income tax year; and

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30% for the 1 July 2015 opening balance of the assets in such a pool (i.e. if you acquired such assets between 12 May 2015 and 30 June 2015 and after the 15% depreciation in 2015 the balance of the pool is still greater or equal to $20,000).

Budget implications – $20,000 instant asset write-off and $10m turnover threshold The budget proposal to increase the turnover threshold for small business entities from $2 million to $10 million a year makes those businesses eligible for the following concessions from 1 July 2016:

1. $20,000 immediate asset write-off; 2. Simplified depreciation rules (e.g. small business pooling rules); 3. Simplified trading stock rules (e.g. avoid end of year stocktake if value of the stock has changed by less than $5,000);

4. Simplified PAYG rules (e.g. ATO to calculate PAYG instalments); 5. Cash basis accounting for GST and ATO to calculate GST instalment payable;

6. Immediate deductibility of start-up costs; 7. 12 month prepayment rule; 8. FBT and the ability for employees to salary-sacrifice 2 identical portable electronic devices such as laptops (from 1 April 2016 to align with the FBT year).

Note that the proposed $10 million turnover threshold will not apply to the application of the small business

Small business restructure rollover relief5 Claiming small business CGT concessions can be tricky

CGT concessions – to qualify for the small business CGT concessions, businesses will still have to have an

Although this rollover is not relevant for the 2016 income tax year (i.e. this measure only commences from 1 July 2016) – you may wish to hold off restructuring your small business (e.g. changing the business structure from a company to a trust or from a sole trader to a trust etc.) until after 1 July 2016.

annual turnover of less than $2 million or satisfy the $6 million net asset value test.

Immediate deductibility of start-up costs

This is because pursuant to this small business restructure rollover, you should be able to change the legal structure of your small business without any tax consequences (i.e. no tax consequences on transferring depreciating assets, revenue assets, trading stock or CGT assets between the different restructured entities).

If you started a small business this year, you would be entitled to an immediate deduction of all start-up costs (e.g. lawyer’s and accountant’s fees) incurred in the 2016 income tax year. Note that pursuant to the budget proposals, from 1 July 2016, this relief would also be available for entities with less than $10 million turnover (currently there is a $2 million turnover threshold).

With the limited information available at the time of writing (e.g. only the Budget papers), uncertainty exists

Claim small business CGT concessions

whether the $10 million threshold would also apply to the small business restructure rollover that will apply from 1 July 2016. We are waiting for more information

Claiming small business CGT concessions can be tricky

from the Government on this issue. Broadly, if you are selling your business and you have an aggregated turnover of less than $2 million or the value of your net CGT assets is $6 million or less, you may qualify for the small business CGT concessions. Depending on your particular circumstances (e.g. you are thinking of selling your business, but are unsure

General Business issues

Beware of private company loans and unpaid trust

when to do so), if your business is expanding rapidly

distributions

(e.g. you exceed the $2 million turnover test) and you may be at risk of also breaching the $6 million

Businesses operating through private companies often treat such private companies as their own piggy bank where the owners (who are also the shareholders) make drawings from the company to either provide funding for other business interests or for private lifestyle reasons.

net asset value test, you may consider selling your business before breaching the $6 million cap so that you can qualify for the small business CGT concessions.

Examples of the concessions are:

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15 year exemption (no tax payable)

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50% active asset reduction (another 50% CGT discount)

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Retirement exemption (up to $500,000 tax free)

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Active asset roll-over (minimum 2 years’ deferral)

Manage your private company loans

If you document such a cash advance with a complying loan agreement and make the required minimum repayment of the benchmark interest and principal by 30 June, such drawings will not give rise to a Division 7A deemed dividend. Care must also be taken when a private company makes a loan, payment or forgives a debt of a shareholder (or the shareholder’s associate) or if a trust declares a distribution to a private company without the cash payment to the company.

You may apply all the concessions you are entitled to, and may pay no tax on the capital gain made on the sale of your business. Speak to your Nexia adviser so that we can assist you in determining whether you may be eligible for these concessions.

Such unpaid present entitlements (UPEs) made after 16 December 2009 by a trust to a company may be treated as either a loan by the company to the trust or remain a UPE (if put on sub-trust). This is a very complicated area of tax law so please speak to your Nexia adviser regarding loans from trusts or companies to associated parties.

Apply look-through treatment to earnout rights If a business was sold in the 2016 income tax year subject to an earnout arrangement 6 where the sale price is paid in instalments (if performance markers are satisfied), the capital gains are recognised in the income year that the business was sold. This look-through approach will not only defer the taxation of the capital gain on the earnout, but will also allow the financial benefit arising from the

earnout to potentially qualify for the small business CGT concessions (i.e. the instalments paid after the sale will form part of the same CGT event as the original sale).

Review your trust deeds and make trust resolutions by 30 June Make trust distribution resolutions by 30 June (or an earlier date if the trust deed stipulates an earlier date) Trustees must make valid distribution resolutions before 30 June (or an earlier date if specified in the trust deed) to distribute trust income to eligible beneficiaries. If trustees fail to make valid distribution resolutions before 30 June, the trustee can potentially be assessed on all the Trust’s net income at the top marginal tax rate (i.e. 49%).

Find out how long your superannuation payment processing time is

To ensure that valid trustee distribution resolutions are made, the terms of the Trust Deed must be complied with.

To claim a tax deduction for superannuation contributions in the 2016 income tax year, the superannuation fund must physically receive the contribution by 30 June 2016.

For example, if the Trust Deed defines trust net income to be equal to taxable net income, but your trustee resolves to distribute only accounting income to beneficiaries, this resolution may not be an effective distribution of trust income (in part or whole) – and may result in the trustee being assessed at 49%.

You must be aware of exactly how long a superannuation contribution takes to reach a superannuation fund – for example if you are paying the superannuation contributions one day before 30 June, but the payment is only received 2 days later (i.e. after 30 June), no tax deduction will be allowed in the 2016 income tax year. We note that 30 June 2016 falls on a Thursday this year.

Also, since the exact Trust net income will not be known by 30 June, trust distribution resolutions should be made distributing different percentages to beneficiaries (adding up to 100%) or distributing specified dollar amounts to certain beneficiaries – and the balance to a default beneficiary.

Please note that if the employer is utilising the ATO small business clearing house, the super guarantee contributions are counted as being paid on the date the clearing house accepts them (provided the fund does not reject the payments). Also, be careful if the retail superannuation fund closes off their acceptance of contributions before 30 June.

That way, you may be able to ensure that all the amount of trust income – regardless of its definition – will be distributed – and hence avoid a trustee assessment at the highest marginal tax rate.

Review your bad debts & obsolete plant and machinery Before 30 June bad debts should be reviewed to determine the likelihood of not receiving payment of these debts and whether attempts to recover the debts will be successful (keep documentation to evidence that the debt is considered to be non-recoverable), and then write off the debts that you believe will not be paid before 30 June. This is because you may only qualify for a deduction for the bad debt in the 2016 income tax year if you physically write off your bad debts before 30 June (and they were originally included in your assessable income). Ensure that you have not forgiven these bad debts because forgiven debts may not qualify as bad debts. This same methodology applies to scrapping obsolete plant and machinery. In such a case you should review your asset register, identify, scrap (i.e. physically dispose of) and claim a deduction for such assets.

Value trading stock at the lower of cost, market value or replacement value Revalue trading stock at 30 June The valuation of trading stock at year-end may impact on the amount to be included in assessable income for the 2016 income tax year. Since a lower closing value for trading stock may generally result in a lower taxable income, value the amount of trading stock on hand at 30 June as the lower of cost, market value or replacement value.

Pay superannuation contributions before 30 June

An easy way to prevent any late payment issues is to simply pay your superannuation contributions at the beginning of June each year.

Ensure that SuperStream does not catch you out! Make changes to your payroll to be ready for the SuperStream changes

The ability for employers to meet their compulsory superannuation guarantee obligations by manually paying contributions at least quarterly to the superannuation funds of their employees, is gradually being phased out with the introduction of SuperStream. Pursuant to SuperStream, employers must meet certain obligations with regard to the electronic payment of superannuation contributions and the provision of contribution data to complying superannuation funds. Broadly, if you have less than 20 employees, you should have been using SuperStream from 1 July 2015 and have until 30 June 2016 to be fully compliant with SuperStream7. If you haven’t done so already, please talk to us to ensure you are ready for the SuperStream system so that we can help you update your payroll system to one that meets the SuperStream standards.

Individuals

What are some considerations before 1 July 2017 (that you can apply in the 2016 income tax year as well)?

Consider the effect of the recent Budget on your superannuation

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As you may be aware, the recent Budget proposes to make some fundamental changes to the way superannuation will operate in Australia.

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Max out your concessional contributions (e.g. $30,000 or $35,000 per year) Watch out for recontribution of pension drawdowns under TRIS as that will count towards your $500,000 cap

The $500,000 lifetime non-concessional contribution cap Determine how much of your $500,000 cap is left

There are also other proposed changes to super due to take effect on 1 July 2017 – with potential flow on consequences for the 2016 income tax year.

Of particular importance for the 2016 income tax year is the proposal to place a lifetime cap of $500,000 on non-concessional contributions (i.e. after-tax contributions) – particularly because this measure is proposed to apply from 3 May 2016 (and takes into account all nonconcessional contributions you have made from 1 July 2007).

Proposals with 1 July 2017 start date

If contributions are made after 3 May 2016 which causes the $500,000 cap to be breached, the excess contributions will either have to be removed from the superannuation fund or be subject to a penalty tax. However, if your non-concessional balance exceeded $500,000 before budget night, no changes would need to be made to the existing balance (i.e. such contributions can remain in the superannuation fund with no adverse tax consequences).

4. Remove work test of ages 65-74 to make contributions

This cap will severely limit the ability of individuals to put money into superannuation (i.e. before 3 May 2016, individuals were allowed to contribute up to $180,000 as a non-concessional contribution each year or by using the bring-forward rule, put $540,000 (i.e. $180,000 x 3) of non-concessional contributions into superannuation over 3 income years). Furthermore, individuals who have bought property using limited recourse borrowing arrangements (LRBAs) and are relying on nonconcessional contributions to repay the borrowing costs – may be adversely affected by this proposed change (e.g. worst case scenario is the property may have to be sold to be able to service the debt since the non-concessional contributions are limited to lifetime cap of $500,000).

1. $1.6m cap on tax-free pensions 2. Cut concessional contributions cap to $25k per year 3. Allow catch-up concessional contributions 5. Extra 15% tax for income ≥ $250,001 6. Reduce TRIS concessions 7. Abolish 10% rule (i.e. deduct personal superannuation contributions even if you are only an employee). Assuming the budget proposals become law, the table below gives a brief before and after 1 July 2017 overview of the changes to superannuation: Budget proposal to operate from

What to do before

1 July 2017:

Impose $1.6 million cap on maximum amount an individual may have in a pension account.

We expect that proceeds from the sale of a business can still be contributed to superannuation subject to the lifetime small business CGT cap ($1,395,000 in 2016 and $1,415,000 in 2017), without breaching this $500,000 lifetime non-concessional contribution cap.

If you have a balance over $1.6m, either:

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Transfer excess back into accumulation phase (then taxed at 15%); or

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Withdraw excess from superannuation (withdrawal may be taxed at marginal tax rate and income earned on withdrawal will be taxed).

Annual concessional contribution cap reduced to $25,000.

If cashflow permits, contribute the maximum concessional amount (e.g. $30,000 or $35,000) before this lower cap begins on 1 July 2017.

Reduce transition to retirement income streams (TRIS) concessions namely:

Currently TRIS pensions can still be paid. Note, that recontributions of TRIS pensions are now subject to the new $500,000 non-concessional cap.

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Tax earnings from assets supporting TRIS at 15%, whereas currently such earnings are tax free;

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No longer option to make election to treat TRIS payments as lump sum (whereby the first $195,000 will be tax free as is currently the case)

Please note that these budget proposals are not yet law at the time of writing this year-end planner, and since very little further information is available on how the proposed measures are supposed to operate, the comments made above may change once more information becomes available.

Is superannuation still a good choice as an investment?

Although the budget proposals are not yet law, individual taxpayers would be well advised to consider new strategies to ensure their contributions into superannuation are maximised and may have to consider alternative investments outside of superannuation (e.g. in family trusts, innovation companies etc.).

Deduct work-related expenses

You may claim up to $300 of work-related expenses without producing a receipt. If you are doing work from home, you may be able to deduct a pro rata portion of water and electricity costs as well as depreciation for office equipment provided you keep a diary of the hours worked at home to substantiate your claim.

Possible new investment opportunity outside of

An individual may claim the amount that was actually incurred on selfeducation expenses as a tax deduction, provided the expenses were incurred to maintain or improve the individual’s skill or knowledge necessary to perform the individual’s current job (as opposed to securing a new job).

superannuation? Innovation investment incentive8. According to this incentive, certain investors in certain small Australian innovation companies will basically qualify

An example of such a deductible expense would be an accountant attending an accounting seminar, conference or workshop to stay up to date with the latest accounting developments.

for 2 incentives for investments made on or after 1 July 2016: When they make the investment – a 20% nonrefundable carry-forward tax offset on their investment (capped at $200,0009); and

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Review any salary packaging arrangements (e.g. motor vehicles) to ensure that they were entered into before the services have been performed or before salary review time to be effective.

Substantiate claims where necessary

At the moment we would recommend a “watching brief” – particularly because both Houses of Parliament have been dissolved and new legislation cannot be passed until after the 2 July 2016 election.

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Review salary-packaging arrangements

Make donations

Use negative gearing

When they dispose of their investment – a CGT exemption if disposal after holding the investment for

Donations of $2 or more to a deductible gift recipient are tax deductible. Donations of property to such recipients may also be tax deductible.

more than 1 year but less than 10 years. Therefore, (mainly sophisticated) investors9 may want to hold off investing surplus funds in 2016 to make use of this investment incentive to support the ideas boom in Australia.

Manage your exposure to capital gains tax CGT event happens when contracts are exchanged If possible, delay the exchange of contracts to sell an appreciating capital asset until after 30 June 2016. That way, the capital gain will only be assessable in the 2017 income tax year. If you have already made a capital gain this year, you may wish to crystallise capital losses (e.g. by selling shares that have declined in value) to offset the capital gain. However, when adopting this strategy, ensure that you are not engaging in “wash sales” (where you sell shares shortly before 30 June solely to realise the capital loss and then buying the shares back shortly after 30 June). Also, if you have realised a capital gain in this year, ensure that you have applied the 50% CGT discount to the gross gain if you have held the assets for at least 12 months before the happening of the CGT event (e.g. sale of the asset).

Which spouse has the higher marginal tax rate? An investment property is negatively geared if the rental income generated is not enough to offset the costs of financing and maintaining the property. In such a case, the loss on your investment property can be offset against your other income to reduce your taxable income. Because individuals on higher tax rates will gain a greater tax benefit compared to individuals on lower tax rates, a possible strategy (provided CGT consequences and other circumstances have been considered as well) with married couples is to have the negatively geared property in the name of the spouse who earns the highest income. Of course the benefit of this strategy reverses when the property yields a net income. Therefore, investment properties that are positively geared (i.e. when rental income is more than the costs associated with the investment property) may be held in the name of the spouse with the lower taxable income. This also applies for interest-bearing deposits such as term deposits.

Year-end tax compliance

Ensure collectables and personal use assets held by a SMSF satisfy certain strict Superannuation Industry Supervision (SIS) rules Ensure you comply with the strict SIS rules for all

Some rates & proposed changes The following rates and proposed changes to keep an eye on may be relevant when you are considering your 2016 year-end planning. Individuals Measure

Explanation

collectables & personal use assets by 30 June 2016 Currently, only collectables and personal use assets acquired by a SMSF on or after 1 July 2011, must satisfy certain strict SIS rules (e.g. such assets may not be leased to a related party or stored in the private residence of a related party).

When does it apply?

Medicare levy unchanged at 2%.

2015 onwards

Temporary Budget repair Extra 2% on individual’s levy unchanged at 2%. taxable income in excess of $180,000 a year.

1 July 2014 to 30 June 2017 for levy and 1 April 2015 to 31 March 2017 for FBT rate increase to 49% as well.

Although such assets acquired before 1 July 2011 are currently not subject to these strict SIS rules, they will be subject to these rules from 30 June 2016. Superannuation SMSFs that acquired such assets before 1 July 2011 and transfer them before 1 July 2016, do not need a valuation of such assets to support the transfer price – however, the transaction must still take place on arm’s length terms.

Keep all relevant documents & make appropriate elections by the necessary time Taxpayers must keep all relevant documents to show that they have incurred the expense for which they are claiming a tax deduction for (usually for 5 years). If a taxpayer needs to make an election to have a specific concession apply (e.g. small business CGT concessions, family trust elections), ensure such an election is made by the relevant time. Also note that generally only the taxpayer incurring the expense (and deriving the income) may claim the tax deduction.

Report your TFNs to the ATO Although this is not strictly a 30 June issue, while we are talking about trust resolutions that must be made before 30 June, remember that:

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Beneficiaries must quote their TFNs to trustees before a trust makes a distribution to them for the first time

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The trustee must report details of all new TFNs quoted to the ATO by 31 July 2016 (since this is a Sunday the trustee can report on Monday 1 August 2016).

Explanation

Superannuation guarantee unchanged at 9.5%

When does it apply? 2016 & 2017 income years

Superannuation concessional contributions cap unchanged Proposed to change to $25,000 (regardless of age) from 1 July 2017*

Aged < 49 (on last day of previous financial year) = $30,000

Superannuation non-concessional contributions cap changed*

From 3 May 2016, lifetime cap of $500,000 (measured from 1 July 2007)*

Excess superannuation concessional10 & non-concessional11 contributions

Excess can be withdrawn from super

2016 & 2017 income years

Various superannuation proposals in 3 May 2016 Budget*

1. $1.6 million cap on

2018 income year onwards (i.e. from 1 July 2017)

Report your payments made to contractors in the building & construction industry Businesses in the building and construction industry must report the total payments they make to contractors on a taxable payments annual report by 28 August 2016.

Measure

2016 & 2017 income years

Aged 49 years or older (on last day of previous financial year)= $35,000 2016 & 2017 income years

Pre 3 May 2016, nonconcessional contributions cap was $180,000 per year and $540,000 pursuant to the 3 year bring forward rule

2. 3. 4. 5.

These compliance issues can easily be incorporated into your 2016 end of year tax planning work.

6. 7.

amount in tax free retirement products $25,000 concessional contribution limit Allow catch-up concessional contributions Remove work test for ages 65-74 Extra 15% Division 293 tax for income ≥ $250,001 (currently $300,000) Reduction of TRIS tax concessions Abolish 10% rule (i.e. employee can also get a deduction for super contributions)

Businesses Measure

Explanation

When does it apply?

Cut in company tax rate by further 1 % for incorporated small business entities (i.e. turnover < $10 million)*

Down to 27.5%*

From 1 July 2016

8% discount of tax payable by unincorporated small business entities (turnover < $5 million)*

Capped at $1,000 per individual per year

From 1 July 2016

Small business entity $20,000 instant asset write-off

2016 = $2 million turnover 2017 = $10 million turnover*

Business assets purchased & used or installed ready for use between 12 May 2015 and 30 June 2017

Small business entity immediate deduction for start-up costs

Start-up costs incurred before 30 June 2015 is deductible over 5 years

From 1 July 2015

Small business entity automatic CGT rollover if change business structure

Will make business restructuring easier

From 1 July 2016

Netflix tax

Offshore suppliers of digital products & services subject to GST

From 1 July 2017

Changes to Part IVA to catch multinationals

Multinationals with global revenue ≥ $1 billion

From 1 January 2016

Harsher penalties on multinationals for tax avoidance

Multinationals with global revenue ≥ $1 billion

From 1 July 2015

All taxpayers if applicable Measure 10% non-final withholding tax when non-resident sells a

Explanation

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property in Australia

Foreign vendor will only be paid 90% of the sale price because

When does it apply? From 1 July 2016

10% will have to be withheld by purchaser and paid to ATO as a prepayment of tax by the foreign vendor.

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This measure will result in extra compliance measures (e.g. parties must obtain ATO clearance certificates etc.) but carve outs from this rule will be available (e.g. for purchases of Australian real property valued at less than $2 million).

1 - Please see the part of the year-end planner that deals with small business issues that sets out when the $10 million threshold is proposed to apply. 2 - 24 May 2016 3 - According to the current s328-110 of the ITAA 1997, a business will be a small business entity if it carries on a business in the current year and was either carrying on a business in the previous year where its aggregated turnover was less than $2 million or its aggregated turnover for the current year is likely to be less than $2 million. From the 2017 income tax year it is proposed to increase the turnover test to $10 million for certain purposes. 4 - From 1 July 2016, the turnover threshold for such unincorporated small businesses is proposed to be $5m (as opposed to the current $2m). This means that more unincorporated businesses can potentially qualify for this discount. 5 - The Tax Laws Amendment (Small Business Restructure Rollover) Act 2016 received Royal Assent on 8 March 2016 and applies from 1 July 2016. 6 - The Tax and Superannuation Laws Amendment (2015 Measures No 6) Act 2015 received Royal Assent on 25 February 2016 and applies from 24 April 2015. 7 - Businesses having 20 or more employees were supposed to have been fully compliant with SuperStream by 30 June 2015. 8 - The Tax Laws Amendment (Tax Incentives for Innovation) Act 2016 received Royal Assent on 5 May 2016 and applies from 1 July 2016. 9 - There is no limitation on the amount sophisticated investors (i.e. investors with net assets of at least $2.5 million or gross income for each of the last 2 financial years of at least $250,000) may invest (though the maximum amount of offset will remain at $200,000. However, non-sophisticated investors (i.e. mum & dad investors) may only invest a maximum of $50,000 a year in such companies. 10 - Excess concessional contributions are now included in your assessable income and taxed at marginal rate less the 15% tax offset. You may elect to withdraw up to 85% from the fund and the amount withdrawn will not count towards your non-concessional contributions cap. 11 - For non-concessional contributions any excess can be withdrawn along with any associated earnings. The earnings would then be taxed at your marginal rate. * Not yet law at time of writing

Final Thoughts ■■

Are you using the most efficient structure to run your business?

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Are you effectively tracking all your business expenses?

Tax is complicated and is a constantly changing. Quite possibly strategies used in the past have become outdated and may not work for you anymore. When doing year-end tax planning, you should assess whether your current business structure (e.g. company, trust, partnership, sole trader) is still appropriate for your current situation. We hope that this Tax Planner helps you to identify some extra ideas for tax time to assist you in running your business more efficiently. Please speak to your Nexia adviser if you would like to discuss any of the strategies mentioned above or would like us to perform a financial health check on your business. After all, why pay more tax than you legally need to?

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The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Australia. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Advisor. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omission of financial services licensees. Independent member of Nexia International