Top things to do and review before 30 June
Private health insurance
From 1 July 2012, the private health insurance rebate will be subject to an income test affecting singles earning above $84,000 and families above $168,000. Also, the rate of Medicare levy surcharge will increase for these taxpayers who do not hold appropriate private health insurance policies from 1 July 2012.
If you are likely to be affected by the changes, the tax office has recently confirmed that you can prepay your health insurance premiums for the new financial year and still claim the offset in your 2011/2012 tax return. But, to qualify for the offset:
• the prepayment must be received by the fund by 30 June (don’t just pop a
cheque in the mail on 30 June). A premium payment occurs when the
insurer receives the amount. The time of physical receipt of the amount by
the insurer is the relevant time, not the date the payment was made to the
insurer or when the insurer allocates the amount to the member's account;
• you can’t already have claimed the rebate as a premium reduction.
Review salary sacrifice agreements
Personal tax rates will change from 1 July 2012 and the flood levy will no longer apply. Also, the concessional contribution cap for superannuation for those 50 and over is also changing (from $50,000 to $25,000).
If you have a salary sacrifice agreement in place, it’s important to review this agreement to make sure it is still relevant. And, in the case of the superannuation contribution cap changes, your existing agreement does not tip you over the contribution cap for 2012/2013.
Living away from home allowance changes
If you receive a living away from home allowance (LAFHA) for working away from home, there are a number of changes that will affect you and your employer. These changes are not yet law but are expected to apply from 1 July 2012.
From 1 July 2012, cash LAFHAs will now be included in your taxable income and taxed at your marginal tax rate. You will now need to keep all the receipts and evidence of your expenses while living away from home: no receipt, no deduction.
Also, a new series of tests will apply to determine if you qualify for LAFHA concessions. The main condition is that you must have a usual place of residence in Australia that is maintained for your “personal use and enjoyment” while you are living and working in another location. That is, you cannot rent out your usual residence while you are away. LAFHAs will also be time limited in most cases to 12 months.
While the changes apply to all new LAFHA arrangements from 1 July, there are some transitional rules that will apply to existing arrangements.
For your business
Trustees must make a decision on distributions by 1 July
Trustees need to decide on distributions of trust income by 30 June (at the latest) to ensure that beneficiaries are presently entitled to trust income for tax purposes. Trustees used to have until 31 August to make a decision but this administrative concession has been removed. If the ATO is not satisfied that the resolutions have been made in time then the risk is that the trustee or default beneficiary will be taxed on all of the trust income.
Manage any loans to shareholders
If you operate through a company structure and the company has advanced you money during the year or paid expenses on your behalf, then work out whether you are going to repay the loans or put in place a complying loan arrangement. If you already have loan agreements in place from prior years make sure that you make the minimum repayment (including interest) before June 30.
If you operate through a company and are going to pay dividends this financial year, make sure that the appropriate resolutions are made and documented. Check whether you need to pay the dividend before June 30. If you wait until July 1 you will defer any additional tax for another year.
Consider whether to buy cars or small assets after June 30
From 1 July 2012, Small Business Entities (operational businesses with an aggregated turnover below $2 million) have access to a much more generous system for claiming depreciation deductions on the purchase of plant and equipment. So, if you can wait a few more weeks to buy those assets you might achieve a much better tax outcome over the next couple of years. In the new financial year, you can claim an immediate deduction for any depreciating assets that cost less than $6,500 (after GST credits have been taken off the original cost), and an immediate deduction for the first $5,000 for any motor vehicle used for business purposes (new and second hand vehicles). However, it is important to do the sums now because in some cases you might be better off buying assets before 30 June.
Defer your income
If possible, defer your income until the new financial year. In particular this can work for service based businesses or where you are billing your clients on a progress payment basis. Make sure that you can manage any cash flow effects that come with this one.
Manage your capital gains and losses
Remember that capital gains trigger on the date of the contract not the date of payment. Also, capital losses can only be written off against capital gains. So, if you are selling assets that will trigger a capital gain try and delay the contract until 1 July unless you have some capital losses that you are able to offset against.
Make the marginal tax rates work for you
If you operate through a trust structure or have discretion around who to pay director’s fees or bonuses to, look at the individual marginal tax rates or the use of entity rates where income could be appointed to a wholly owned company. With trusts, there might be an opportunity to appoint income to children or family members where no tax would arise.
Key person or income protection insurance
If you’ve always meant to take out these insurance policies, now might be the time. Pay the annual premium before June 30 and take the deduction into this year.
For your super fund
New rules for artwork & collectibles
New regulations guide what collectibles SMSFs can buy and sell, and how those collectibles are managed. Assets acquired by the fund from 1 July 2011 need to immediately comply with new regulations. Assets held by the fund at 30 June 2011 benefit from transitional rules that allow trustees until 1 July 2016 to comply.
The regulations seek to ensure that trustees do not gain a benefit from assets now. For example, you cannot hang artwork purchased by your SMSF on your wall at home (or in your office) or wear jewellery acquired by the fund.
Deductibility of superannuation contributions
To claim a tax deduction for super contributions as an employer or as an individual, the payment needs to be received by the fund before 30 June. Merely incurring a liability will not work.
Off market share transfers
Impending changes (from 1 July but are not yet law) will prevent trustees from using off market transfers to transfer shares into their SMSF. For example, if you personally own BHP shares and want to transfer them into your SMSF you could simply complete an off market share transfer to transfer them into the fund. However, the new rules will require you to sell your shares on the market, contribute the proceeds to your fund, then the fund will need to purchase the BHP shares.
If there is anything we can assist you with, or are concerned about, please contact us today to discuss.