PREPARATION KEY: Planning ahead will pay off come tax time

WHEN it comes to tax time, knowledge is power.

Mark Harrison, Crowe Horwath’s associate principal of business advisory in Hobart, suggests now is the time for business owners to prepare for their optimal tax return.

“Allowing the time to prepare thoroughly for your greatest tax advantage is certainly time well spent,” he said.

Reduction to company tax rate from July 1, 2015

The government remains committed to reducing the company tax rate for small businesses from 30 per cent to 28.5 per cent after July 1, 2015.

The reduction was originally for all companies. However, large businesses with income of more than $5 million were to incur the Paid Parental Leave (PPL) levy of 1.5 per cent, to offset the tax reduction.

Since the PPL is no more, it is still unclear how the company tax rate reduction will be limited to small businesses.

Small businesses should consider the following:

  •  the timing of income and deductions recognised in 2014-15 versus 2015-16
  •  the impact on franking credit account balances and whether to pay franked dividends in 2014-15 versus 2015-16
  •  the adjustment to Pay As You Go (PAYG) instalment rates for quarters commencing from July 1, 2015
  •  impacts on tax effect accounting for 2014-15 (including adjustments to deferred tax asset and liability balances).

These matters should be addressed as more details come to hand regarding the tax rate reduction.

R&D tax offset

Legislation to reduce the tax offsets available under the R&D tax incentive by 1.5 per cent was defeated in the Senate on March 2, 2015.

So, despite the reduction to the company tax rate for small businesses, the R&D tax offsets remain at 45 per cent (refundable offset for eligible entities with turnover of less than $20 million) and 40 per cent (non-refundable offset for all other eligible entities).

Businesses who may have undertaken eligible R&D activities should speak to Crowe Horwath to consider whether they are entitled to the R&D tax incentive.

Tax-related changes upon repeal of the Mineral Resources Rent Tax Capital allowances

The $6500 write-off threshold for depreciating assets, costs incurred in relation to depreciating assets, and low pool values under the small business entity capital allowance rules, was reduced to $1000, from January 1, 2014.

The special rules for motor vehicles costing more than $6500, whereby the first $5000 plus 15 per cent of any excess cost was immediately deducted, ceased to apply from January 1, 2014, and motor vehicles are now subject to the same rules as other depreciating assets.

Company loss/carryback rules: The short-lived company loss carry-back rules have been abolished. Superannuation Guarantee The gradual increase in the Superannuation Guarantee rate to 12 per cent has been re-phased, with the 2014-15 year rate of 9.5 per cent now frozen until July 1, 2021.

Monthly PAYG tax instalments 

From January 1, 2015, companies that had a base assessable instalment income of more than $100 million moved to monthly PAYG tax instalments.

From January 1, 2016, this shall apply to companies with an assessable income of more than $20 million.

The disclosures in company tax returns for 2014-15 and later years will be important, in terms of whether they meet the $20 million threshold to incur monthly tax instalments.

Trust distributions

It is crucial that your trustee resolution to appoint or distribute income to beneficiaries is effective as at June 30, 2015.

Tax planning for trusts should be done as soon as possible, to ensure the resolution can be made with tax-effective considerations in mind and documented prior to 30 June.

Areas of ATO focus in 2015

The ATO is concerned with small businesses who fail to report income and over-claim tax concessions,
whether deliberately or through inadvertent mistakes.

The ATO has expanded its information-gathering to include more small business transactions.

The ATO will use this data to identify businesses that fail to report income, leading potentially to default assessments and even prosecution.

The ATO will focus additional compliance activities on taxpayers with capital losses, poor tax and economic performance, and large oneoff or unusual transactions.

For more information, contact mark.harrison@crowehorwath.com.au or your nearest Crowe Horwath advisor on 1300 856 065.

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