(Aggregated turnover of less than $2 million – “aggregated turnover” is calculated on a group basis and must be “business income”.)
The small business entity rules apply to a sole trader, partnership, company or trust which has a group turnover of less than $2 million in the previous year, or likely to be less than $2 million in the current year.
Depreciation – Motor Vehicle
You can choose to use the capital allowance provision to calculate the deduction for a motor vehicle costing $1,000 or more, if you’ve started to use or have installed ready for use for business purposes.
From 12th May 2015, you can immediately write off the cost of a vehicle costing up to $20,000. If the vehicle costs more than $20,000, the vehicle can be placed into the small business simplified depreciation pool, depreciated at 15% in the first income year (2014/15) and 30% each income year thereafter.
Prepayments
Small business entity taxpayers are entitled to a deduction where the relevant services will be wholly provided within 12 months of the date of expenditure, such as office supplies, stationery, rent, advertising etc.
General Deductions
Staff Bonuses – ensure a cheque has been written prior to 30th June 2016 and PAYG withholding tax deducted.
Staff Holidays – where practical, encourage staff to take holidays prior to 30th June 2016.
Superannuation – for the year ending 30th June 2016, superannuation contributions can be paid for any eligible person:
- aged under 50 years – $30,000
- aged 50 years and over – $35,000 (subject to the “work-test” from age 65)
Self-Employed Persons – self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees.
Salary Sacrifice Arrangements – salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.
Non-Concessional Contributions – non-concessional contributions can be made up to $180,000 per annum or a total of $540,000 over a 3-year period (for those aged under 65).
Superannuation Minimum Contributions – superannuation contributions have to be paid to all eligible employees who are paid, at least, $450 gross per month.
Interest On Loan Funds – interest can be claimed on loans taken out for business purposes or to buy income producing properties and/or shares.
Repairs & Maintenance – ensure that the work has been completed prior to 30th June 2016.
Directors’ Fees – ensure cheques are drawn prior to 30th June 2016 and that PAYG Withholding Tax is deducted.
Travel Deductions:
- Overseas – prepare a full itinerary and diary.
- Local – more than 6 nights you are required to maintain a diary.
Motor Vehicle Expenses – there is 1 method available to calculate tax deductions for work-related motor vehicle expenses:
- cents per kilometre method:
- 66 cents per kilometre
Depreciation – review capital expenditure and ensure you claim depreciation at the highest legally allowable amount.
Donations – any promised tax deductible donations should be made prior to 30th June 2016.
Borrowing Costs – borrowing costs can be claimed over the shorter of 5 years or the term of the loan.
Entertainment – entertainment is not deductible unless it is provided as a fringe benefit and Fringe Benefits Tax has been paid.
Research & Development for companies with turnovers under $20 million – companies that incur research and development can claim additional taxation benefits. Companies must register their research and development projects with AusIndustry by 30th April 2016 or the date of lodgement of the company’s income tax return, whichever is earlier. The company will receive the benefit of a research and development 43.5% refundable tax offset, calculated at 43.5% of the eligible research and development expenditure. The rebate can be paid to the company by the ATO within 30 days of the company lodging its income tax return. If you require further information on the treatment of research and development expenditure, please contact us.
Gifts – ensure payment is made to a tax-deductible charity on or before 30th June 2016.
Audit Fees – deductible if there’s a contract that creates a presently existing liability before 30th June 2016.
Salary Packages – ensure salary packages for 2016/17 are negotiated and documented prior to 30th June 2016.
Legal Costs – review any legal costs that have been incurred. If the legal costs relate to regular business operations (eg debt collections), separate them from costs relating to capital items which are not claimable for income tax purposes.
Luxury Car Tax – the Luxury Car Tax is 33% and applies to the GST inclusive value in excess of $61,884 (including GST). The Luxury Car Tax for “fuel efficient vehicles” applies from a cost of $75,375.
Stock
Trading Stock Rules – small business entities do not have to account for changes in trading stock or prepare a stocktake for tax purposes, where the difference between the value of the opening stock and a reasonable estimate of the closing stock is $5,000 or less.
Stock On Hand – review stocktake list as at 31st May 2016. Determine whether to conduct “sales” prior to 30th June 2016. Conduct stocktake as at 30th June 2016. If you’re conducting regular “rolling” stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30th June 2016. Stocktaking may not be necessary if you’re a small business entity.
Value Of Stock – stock can be valued at different individual methods for each item of stock:
- Cost
- Sale Value
- Lower of Market Value or Replacement Cost
Obsolete Stock – identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.
Assets
Fixed Assets – determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30th June 2016.
Employment Issues
Payment Summaries – payment summaries have to be prepared and sent to all employees by 14th July each year.
PAYG Withholding Tax – annual summary due 14th August to ATO.
Payroll Tax (if you are liable) – you have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconcile this with the remittances that you have forwarded on a monthly basis.
Work Cover – a Work Cover Declaration is due by 31st August certifying wages paid for year ending 30th June 2016.
Income Issues
Government Grants – if your business has received a grant from a government department, it’s most likely paid to you on the basis that it’s taxable income and therefore you need to disclose in your tax 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 of the government grant funds have been expended on tax-deductible items prior to 30th June 2016 (if possible).
Personal Service Income – taxation laws include 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 service business you need to be aware of the ATO’s strict approach to income retention and income splitting.
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 have to 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 us for advice on the treatment of the losses in 2015/16.
Trust Distributions – the ATO has indicated that it will be enforcing the full meaning of the law, whereby trustee distribution/resolutions have to be made by the 30th June each year.
Utilising Tax Free Threshold
Every adult taxpayer has a tax-free threshold of $18,200. If a taxpayer is verging on losses, consideration should be given to the decision being made in relation to the valuation of stock, bringing forward or delay of sales, etc, to utilise the tax-free threshold. Otherwise, it will be lost forever.
Disclaimer
This information is provided as a guide only and is not intended to constitute advice whether legal or professional. You should obtain appropriate advice concerning your particular circumstances.
