Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 19

Health check for end-of-year tax planning

Year-end tax planning checklists have a tendency to look like grocery lists. They can be mildly interesting if they are yours and you are hungry - but otherwise are deadly dull.

It is wise to use the time and effort to conduct a detailed financial review of your affairs. Rather than compiling a shopping list, let’s have a look at a process for a year-end review:

  • information gathering
  • planning and projections
  • review

The first part of the process is to gather critical financial information including last year’s tax return and current year-to-date income and expenses. The next step is to estimate likely taxable income at 30 June 2013. You won’t have all the required information so estimates of numbers like managed fund distributions will be required.

Although it may be harder, it will be useful to project forward to 30 June 2014. There is no point in planning 2013 carefully if it makes the 2014 result worse, but opportunities arise if you expect to be in a different marginal tax bracket from one year to the next.

Finally, it is an opportune time to undertake a general review of your insurance, superannuation and investments and to consider your estate planning. After all, if you don’t do it now, when will you do it, and you can’t do your year-end tax planning in December.

From a tax perspective, the key elements to consider are:

  • deferring income or gains until the next financial year
  • incurring or maximising expenditure in the current financial year
  • attending to any crucial paperwork prior to the year-end such as trust resolutions and minutes or  trust deed amendments.

There are some things that simply must be done before 30 June, such as contributions to superannuation, drawdowns of minimum pension amounts or prepayments of interest on an investment loan.

Consider your superannuation contributions carefully. The limits are currently $25,000 per annum on concessional contributions (deductible) and $150,000 per annum non-concessional (non deductible) or $450,000 on a bring forward basis. Failure to comply with the rules could mean that the ATO imposes excess contributions tax.

If you are commencing or paying a pension from your SMSF remember to comply with the pension minimum and maximum rules according to your age before the year-end.

Income and gains

Make sure you understand the rules relating to the time at which income or gains are earned and review any opportunities to defer these until the subsequent financial year:

  • dividends and interest income are generally earned when they are paid or credited to a person
  • bonuses are earned when they are paid or credited. This may differ from the time at which your employer becomes entitled to a tax deduction
  • the contract date is the relevant time for disposal of a capital gains tax (CGT) asset not the settlement date. Accordingly, you may prefer to enter into a sale contract immediately after year-end rather than just before so that the gain will be included in the subsequent financial year. Likewise capital losses are realised at the time the contract is entered into. You need to actually sell assets to crystallise capital losses.

If you have received employee shares at a discount price you may be required to include the discount in your current year’s taxable income.

You may wish to defer disposal of CGT assets until you have held them for greater than 12 months to be able to access the 50% CGT discount.

If you have a family trust you may have beneficiaries turning 18 in the current financial year or perhaps the subsequent financial year. This may impact on your proposed distributions.

For business owners:

  • payments received in advance of provision of goods or services may be regarded as unearned income. Even though you have received the cash from your client or customer, you may not be required to pay tax on that amount until you provide the goods or services
  • the invoice date is the time at which the income is derived not the time at which you receive payment.

Expenses

Rental property owners may wish to bring forward repairs prior to year end. Remember the difference between repairs and capital expenditure. Repairs are deductible outright but capital expenditure will be eligible for depreciation or capital write off entitlements.

Make donations to your favourite charity, especially if you expect to be in a lower tax bracket next year. Consider giving more if you receive a higher tax deduction.

Although the amounts have now been reduced, collate medical expenses as you may be entitled to a rebate.

For higher income earners (above $250,000 per annum) the non-commercial loss provisions may limit the availability of a deduction for hobby farm losses or other activity unless you obtain a private ruling from the ATO.

For business owners:

  • a deduction can be made for warranty claims based on an estimate derived from the history of prior warranty claims
  • bonuses can be expensed provided the employee bonus is minuted, even if the bonus is not actually paid to employees until the subsequent financial year
  • holders of trading stock (including share traders) are able to value the trading stock at the lower of cost or market value
  • a deduction is available for bad debt write-offs provided they have been documented prior to year-end as being bad
  • small businesses are entitled to an outright deduction for certain prepayments
  • small businesses are entitled to an immediate $6,500 write off for purchases of capital assets.

Action

The essential paperwork which may be needed prior to year-end includes trust deed amendments, dividend declarations, debt write-off documentation, minutes of employee bonuses, trust distribution minutes, pension payments, trading stock valuations and private company loan repayments.

In reviewing your year-end options you should ensure that any action you take will withstand scrutiny from the ATO. This outline has been brief and general in nature, and tax advice should be sought if you are in any doubt about the issues raised.

A final watch out – 29 and 30 June 2013 fall on a weekend so you lose a couple of business days for that last minute panic and for items to hit your bank account. It’s a 28 June deadline this year.

 

Ray Cummings is Principal of Greenoak Advisory Pty Ltd, and for 15 years was a Tax Partner at Pitcher Partners.

 

banner

Most viewed in recent weeks

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Five stock recoveries not hanging on COVID predictions

The focus on predicting the recovery from the pandemic is the wrong emphasis. Better to identify great companies benefitting from market changes over a three- to five-year horizon with or without COVID.

Peak to peak, which LIC managers performed during COVID?

A comprehensive review of dozens of LICs shows how they performed in the crucial 'peak to peak' of COVID. This 14 months tested the mettle and strategies of a sector often under fire, with many strong results.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Blink and you missed a seismic shift in these stocks

Blink and it happened. If announcements in this sector were made by a producer of iron ore, gas, copper or some new tech, the news would have been splashed across the front pages. Have we witnessed a major change?

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

Latest Updates

Shares

Platinum’s four guiding investment principles

Buying mispriced stocks is often uncomfortable when companies are outside the spotlight and markets are driven by emotions. And it's inescapable that the price paid ultimately determines the end result.

Interviews

Andrew Lockhart on corporate loans as an income alternative

Loans to corporates were the traditional domain of banks, but as investors look for income alternatives to term deposits, funds have combined hundreds of loans into a single structure to create a diversified investment.

Retirement

10 things I learned in my faux-retirement

Pre-retirees should ‘trial run’ their retirements. All those things you want to do - play golf, time with the family, a hobby, write a book - might not be so appealing in reality, but you might discover other benefits.

Retirement

Achieving a sufficient retirement income portfolio

Retirees require a reliable income stream to replace the wages they received when they were working and should focus on the dollar income generated over time rather than the headline yield percentage.

'Wealth of Experience' podcast and ASA webinar on ETFs v LICs

Peter reveals some top stock picks with an emphasis on long-term assets like Sydney Airport, Graham discusses spending in retirement and valuing assets, the key to Amazon, guest Andrew Lockhart and plenty more.

Strategy

Lucy Turnbull’s three lessons on leadership and successful careers

From promoting women to boost culture to taking opportunities as they arise, Lucy Turnbull AO says markets should not drive decision-making and leaders must live and breathe the company's mission and values.

Economy

Are concerns about inflation inflated?

While REITs and some value stocks are considered 'inflation-sensitive' assets, the data provide little support that they are good inflation hedges, and energy stocks and commodities are too volatile. So what works?

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.