The Value Add June 2014
The first 5 months of the year have flown past, and the end of the financial year is almost upon us!
The end of the financial year also heralds tax time, which turns our attention to tax deductions, super contributions, and other ways of reducing the amount of tax we pay. The best advantage of thinking about these things is to use this as a chance to get set for the 2015 financial year and be proactive about managing your tax, rather than reactive and leaving it to the last minute.
The start of the new financial year also brings in a number of penalties for trustees of Self Managed Super Funds (SMSF) who contravene the legislation and regulations governing SMSF. The financial cost of these penalties means this definitely a case of prevention is better than cure.
We also take a look at what it is that we do as accountants. It is not all pocket protectors and fancy spreadsheets (well, most of the time anyway)!
A Day in the Life of Value Beyond
Quite often we get asked “What exactly do you do as an accountant?” A lot of times that is followed by ” I don’t know how you can deal with tax” or “it’s so boring”!
While it is true that there is a certain element of “geek” in the passion that we have for tax, structuring and advising businesses and investors, there are also other aspects to our role that we enjoy.
The main mission for Value Beyond is to try to ensure everyone we help is better off than when they first visit us. To that end, over the last 12 months we have helped our clients in the following ways:
- Helped taxpayers prepare and lodge 10+ years of tax returns with the ATO, so that their lodgements are now up to date. This has now allowed them to provide tax returns to the bank to obtain finance for investments.
- Advised a number of clients on the purchase of existing businesses or establishment of new businesses. This started with getting the right structure sorted, as well as ensuring the purchase was structured for tax, and using our network to obtain finance, legal advice and other assistance.
- Advised clients on the sale of businesses and investments. This includes ensuring that the business’ financial performance was projected in the best light to obtain the best price possible, as well as ensuring an optimal tax outcome on the sale of the business or investment asset. In some cases the options available have enabled the tax to be deferred or reduced to nil.
- Re-structured business real estate into self managed superannuation funds, allowing the business owners to save tax, get additional funds into superannuation above the contribution caps and build up their retirement savings.
One of the main benefits we have been able to provide to businesses is to assist with implementing better and easier accounting systems and procedures. Doing this has freed up more time and allowed business owners to focus on their strengths, while we assist with our strengths and skills. This also has the flow on effect of providing better data for analysis and planning.
The bottom line is that our business exists because of the people we help. If you feel that there is something that you could be doing better or something we can help you with, feel free to call or email us to make a time to discuss how we can assist.
Tips for Tax Time 2014
With 30 June 2014 fast approaching, it is that time of year where we again look to review our earnings and deductions to ensure that we are getting the best tax benefit possible out of the results for the financial year.
It is also a great time to think about the coming year ahead, as being proactive provides plenty of time to implement any strategies, and tends to help avoid any rushed decisions or nasty surprises at the end of the year.
As always, the message is to make sure that implementing any of these tips fits into your business/wealth building plan and makes good financial sense. There is no point spending $1 to save $0.30 or $0.40 of tax if weren’t intending to spend the money on those items, or the money is needed for other investment choices such as debt reduction.
Defer income, bring forward expenses
The general rule when it comes to minimising any tax payable or maximising a tax refund, is to defer income and bring forward expenses.
That means, where possible if any income is to be earned, try and have the income earned in the following tax year. If you are thinking of selling a property or shares that will result in a capital gain, ensure the contract is signed 1 July or later so the gain will fall into the later tax year. if you have any sales that can be invoiced after 30 June, this will delay income into the following tax year.
If you have any spending to do that is deductible, ensure it is does before 30 June to ensure the deduction falls in the earlier tax year instead of the later one.
Specific items to consider before 30 June
Superannuation
- Make a super contribution for your spouse – contribute up to $3,000 into super on behalf of your spouse and get an 18% tax offset if your spouse’s assessable income including total reportable fringe benefits (RFBT) and reportable employer superannuation contributions (RESC) is less than $13,800
- If your assessable income plus RFBT and RESC income is less than $33,516, then the government will contribute 50c in the dollar up to a maximum of $500 for personal super contributions made during the year. These contributions need to be made before 30 June.
- Make concessional (deductible) contributions up to your contributions cap, but ensure your contributions have not exceeded the cap – for the 2014 year, $25,000 for those under 60 years of age, and $35,000 for those 60 and over. For the 2015 year the caps are $30,000 for those under 50 years of age, and $35,000 for those 50 years and over.
Work related expenses
- Check your credit card statements for expenses incurred during the year, including work related travel (plus food and accommodation while away), stationery expenses and other items bought for work use. These small items can add up to decent deductions over the course of a year.
- If you have any professional memberships or registrations due for payment soon, ensure they are paid before 30 June to claim the deduction this year.
- It is also worth considering talking to your employer about salary sacrificing work related items as this often provides you a benefit equal to the GST, as well as bringing forward any refund you may have received when lodging your tax return.
- Make sure you have kept a logbook for any work related or business related motor vehicle usage. and receipts of all motor vehicle expenses paid for during the year.
Investment items
- If you are due for repairs on a rental property, or any other expenses that are coming up soon, consider spending the money prior to 30 June this year to claim the deduction earlier.
- if you have a rental property then consider a quantity surveyor’s depreciation schedule to claim the maximum amount of depreciation available. This is particularly relevant for newer properties or any property that has undergone substantial renovations
- Prepay expenses such as interest on rental properties and loans for shares, to increase deductions for the 2014 year. You can prepay up to 12 months worth of expenses.
Business entities
- If you are running a trust, you will need to prepare a trust resolution prior to 30 June to ensure all the income is distributed, otherwise tax of 46.5% may apply. Please contact Value Beyond to assist with the preparation of the resolution.
- If you have any longer outstanding debtors whose sales have previously been included in your assessable income that are not going to pay you, then writing them off before 30 June will provide a tax deduction, as well as a GST adjustment (if you are registered and the supply is taxable).
- If you are a small business (turnover under $2 million) then purchasing capital items can be an immediate deduction, which can provide tax benefits if done before 30 June.
- Prepay superannuation for your employees so that the contributions reach the super fund before 30 June. Super contributions can only be claimed when made, so paying them before 30 June instead of the mandatory deadline of 28 July can bring forward deductions into the current year and save tax.
As there are still 4 weeks left until 30 June, if you have any questions or concerns about your tax position, contact us at Value Beyond to review your numbers and help ensure your tax position is the best it can be.
New penalties for SMSF trustees
From 1 July 2014, a new system of penalties will apply to the trustees of Self Managed Super Fund (SMSF).
As a result of the penalties and the potential fines that can be applied, it is more important than ever that trustees understand their duties and comply with the regulations to ensure their SMSF remains compliant.
Also, from 18 March 2014 new civil and criminal penalties apply to individuals who promote schemes that result in, or are likely to result in, a payment being made from a regulated super fund other than as prescribed by legislation.
The new powers available to the ATO include:
- A rectification direction requiring action to rectify any contravention and provide the Regulator evidence of compliance with the direction
- An education direction requiring a person to undertake a specific course of education and provide evidence of completion of the course
- The imposition of administrative penalties on persons who contravene a section of the SIS Act (Superannuation Industry (Supervision) Act 1993
The following are examples of some of the administrative penalties that will apply:
Failing to comply with prescribed operating standards – $3,400
Failing to prepare accounts and statements – $1,700
Lending to members – $10,200
The fund borrows money – $10,200
Failing the in-house asset rules – $10,200
Failing to keep records and minutes for 10 years – $1,700
Failing to keep trustee consent for 10 years – $1,700
Failure to notify regulator if unable to pay benefits – $10,200
As is obvious, the financial cost of not complying with the trustee’s obligations is quite high.
These penalties would be imposed on the trustees, and there is no ability to be reimbursed or indemnified from the super fund’s assets, so this non-deductible cost is a personal cost to the trustees.
So, if you are a SMSF trustee, what do you need to do or know?
Firstly, make sure you are aware of your obligations as trustee. These include keeping very good records of the activities of the fund, ensuring accounts are prepared and audited on time every year, do not borrow money to fund investments, and do not lend money to the members (i.e. don’t lend money to yourself!).
Secondly, if you are in doubt, seek advice. If its investment advice to maximise the returns of the super fund, then seek specialist investment advice applicable to your investment strategy. If you are not sure of your obligations, seek professional advice to assist with preparation of accounts and tax returns, and completion of the audit of the fund’s accounts on a yearly basis.
Failure to take care can be quite costly!