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Tax Planning - Year End Strategies

By Peter Vickers Business Group | Accounting, tax, directors numbers, inflation, managing your money as you age, accounting software, year end tax planning strategies, News Highlights |

END OF YEAR TAX PLANNING STRATEGIES
This Year End

You need to do some housekeeping:

  • Scrap or sell inventory and fixed assets in order to claim the loss.
  • Bad debts need to be written off. You then also get the GST back on those debts.
  • A provision for doubtful debts is not deductible. You can still continue to try and collect the debt even if you have written it off in your records.
  • Unlike all other expenses, superannuation must be paid before 30 June in order to get a tax deduction for it this year.
  • Trustees need to meet to resolve to distribute profits before the 30th June.
  • Directors also need to meet before 30th June in order to pay any dividends. 
  • For Super funds in pension phase, the minimum pension must be paid by 30 June in order to make the income of the fund, tax free.

Next Year

  • The super guarantee percentage goes up from 10% to 10.5%. It is actually an increase in remuneration to employees even though most employees will not see the benefit till they reach 65. Keep this in mind when doing staff pay reviews.
  • From 1 July all workers are to be paid the 10.5% super and the minimum thresh hold of $450 per month has gone. Yes, if you pay a person for two hours of work at $60 then you have to put $6.30 into their super fund.
  • Profits are now returning back to normal and care needs to be taken in planning for the payment of tax. The ATO computer does not learn of your increased profit until you lodge an income tax return. This can have the effect of paying tax for 3 separate years in close proximity. So do not spend all your profits, leave some aside for your silent partner. 
  • The instant asset write off continues till 30 June 2023. As does the halving of the minimum pension rate for super funds.
  • Members of super funds who are under 75 years old will no longer have to meet the work test for contributions.

LINDFIELD SUPERANNUATION FUND

We set up the Lindfield Superannuation Fund in the mid 1980s when compulsory super was introduced at 3%. Since, that time the regulation of super has changed dramatically. We lost control of the investments in this old fund about 3 years ago and we moved our clients with larger balances into SMSFs. The manager of this fund is now closing the old Lindfield Superannuation Fund. All remaining members have now received a letter about its close. This letter exemplifies how the running of the fund has changed. The default option is to send the money to the Taxation Office. This is the worst possible option. For remaining members May 6 was the deadline to make changes. This letter is a clear indication why we recommend running your own SMSF rather than being in someone else’s hands with poor marketing and business skills.

DIRECTOR NUMBERS  

As a service to clients we have contacted all directors to ensure that they have their DIN by the due date of 30 November. A number of clients do not have a smart phone or are overseas so we will thus have to use a paper alternative application.

We still have not received any information on how to lodge the DIN with ASIC. This was supposed to be available by April. Then will come our next challenge in getting the information on ASIC to agree to the DIN.   

INFLATION

The March CPI figures have been announced with inflation running at 5.1% for the past year. Businesses and also employees need to change the way they look at their pricing, wages and purchasing. It looks like we will have even higher inflation over the next year.

The last serious level of inflation was in the 1980's. What happened then was that there was a spiral: prices go up thus wages have to go up to match which increases costs which are then recovered by more price rises which then require wages to go up to keep pace.

AGE IS PERCEIVED AS A CREDIT RISK

A number of clients have applied to increase their credit card limits and have been refused. This also has happened for new credit card applications.

Are they bad credit risks?

One client had half a million in their bank account. Others had net assets over $10 million.

What was the problem?

Their age! Credit departments of banks and lenders have been saying not to lend to any person over 65 and to even consider people over 55 as risks. 

What can you do?

Yes there are lenders out there but their interest rates are much higher. However the advice must be that by age 55 you ensure that you have a number or credit cards with high credit limits and that you have loan facilities in place with long payment horizons. 

None of these lenders have asked the client to cancel these facilities. In the case of one client, who is 97 with severe dementia their family are still able to pay the doctor and for the incontinence pads with the credit card that has a limit of $20,000. Of course that person has an enduring power of attorney in place to their children.  

ACCOUNTING SOFTWARE

For many years we have been using the same software to produce accounts and using what is called MAS in MYOB Accountants Enterprise. MYOB has warned us that this will no longer be supported and we have to switch to what they call Client Accounting. We now have to review our procedures and reports to get back to very efficient method of producing financial statements. 

As we have mentioned in the past software houses are designing their offering for the one million small businesses in Australia and going away from the 8,000 public accounting practices. We note that the financial reports that businesses produce using Xero and MYOB do not give adequate information for users. Comparatives for the year before are a fundamental in presentation of financial statements. Very few businesses bother. Because we have access to your online software we are able to bring these reports up to a standard that bankers and lenders require.  An example of some of the other horrors created by businesses include leaving out share capital, putting loans and dividends into equity, not providing for income tax, forgetting the opening balances when setting up. However we are here to fix these issues rather than you doing this you can rely on us.

If you’d like more information on how to grow your business, please contact one of our accounting and tax experts using the button below.

The advice in this newsletter is general advice and does not take into account your individual objectives, financial situation or particular needs. Do not take any action based on the information provided without first discussing it with us. 

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