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

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Superannuation: a 30+ year journey but now stop fiddling

Few people have been closer to superannuation policy over the years than Noel Whittaker, especially when he established his eponymous financial planning business. He takes us on a quick guided tour.

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Latest Updates

Superannuation

Superannuation: a 30+ year journey but now stop fiddling

Few people have been closer to superannuation policy over the years than Noel Whittaker, especially when he established his eponymous financial planning business. He takes us on a quick guided tour.

Survey: share your retirement experiences

All Baby Boomers are now over 55 and many are either in retirement or thinking about a transition from work. But what is retirement like? Is it the golden years or a drag? Do you have tips for making the most of it?

Interviews

Time for value as ‘promise generators’ fail to deliver

A $28 billion global manager still sees far more potential in value than growth stocks, believes energy stocks are undervalued including an Australian company, and describes the need for resilience in investing.

Superannuation

Paul Keating's long-term plans for super and imputation

Paul Keating not only designed compulsory superannuation but in the 30 years since its introduction, he has maintained the rage. Here are highlights of three articles on SG's origins and two more recent interviews.

Fixed interest

On interest rates and credit, do you feel the need for speed?

Central bank support for credit and equity markets is reversing, which has led to wider spreads and higher rates. But what does that mean and is it time to jump at higher rates or do they have some way to go?

Investment strategies

Death notices for the 60/40 portfolio are premature

Pundits have once again declared the death of the 60% stock/40% bond portfolio amid sharp declines in both stock and bond prices. Based on history, balanced portfolios are apt to prove the naysayers wrong, again.

Exchange traded products

ETFs and the eight biggest worries in index investing

Both passive investing and ETFs have withstood criticism as their popularity has grown. They have been blamed for causing bubbles, distorting the market, and concentrating share ownership. Are any of these criticisms valid?

Sponsors

Alliances

© 2022 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.