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Newsletter June 2005

The traditional measures continue to apply for year end tax planning to 30 June 2005 as follows:

Income Deferral
Initiatives to defer income could include:

• Review the timing of invoicing.
• Have interest bearing deposits mature in July

Accelerating Deductions
Initiatives to accelerate deductions could include:

• Ensuring superannuation contributions are paid by year end;
• Review and physically write off bad debts before year end;
• Consider scrapping stock and plant and equipment of nil value before year end;
• Valuing stock at a lower replacement price or market value where appropriate;
• Consider realising foreign exchange losses and deferring realisation of gains; and
• Hold meetings before year-end to ratify bonus obligations.  This is because an entity is not entitled to a deduction for directors' fees, bonuses or similar payments until the income year in which the entity has definitively committed itself to the payment.

Capital Gains Tax
Strategies to minimise CGT include:

• Deferring a disposal with a capital gain to a subsequent income year;
• Deferring a disposal to ensure the asset has been held for at least 12 months to potentially) benefit from the 50% discount;
• Match gains and losses where possible to avoid carrying forward a capital loss, this may mean that when a capital gain has taken place, selling other assets so as to realise a capital loss.

Other Issues
Other important matters include:

• The payment of dividends to ensure there are no debit director/shareholder loan Accounts;
• Ensuring minimum prescribed repayments are made on private company loans and documentation of loans prior to 30 June as required;
• Consider making a family trust election where a trust holds shares acquired post 31 December 1997 to maintain franking credit benefits, or for losses to be recouped;
• Consider whether the non commercial loss rules apply;
• Consider whether the alienation of personal services income rules apply and if a personal services business determination is required.

The final date for payment of 9% superannuation guarantee contributions for employees for the quarter 1 April 2005 to 30 June 2005 is 28 July 2005.

However, to claim a tax deduction for superannuation the payment must be made before 30 June 2005 and not accrued.

Following Ryan's case, the ATO accepts that Part IVA will not apply if a business (including a personal service business) pays superannuation contributions that are considerably in excess of the value of the services provided by associated employees.

This means that the limit on related party remuneration being reasonable for the services provided does not apply to superannuation.  Accordingly, spouses that work in the business on a part time basis can be paid superannuation up to the age-based limit to a complying superannuation fund, which will be fully tax deductible to the employer.

From 1 January 2006, a land tax free threshold will be reintroduced, so that land tax will only be paid on properties where the land is valued at more than $330,000.  The new land tax rate will be $100 plus 1.7% of the value over $330,000.

Tax Ruling 2004/19 sets out the reasonable allowance amounts for the 2004-05 income year.  The ruling applies to deductions claimed for work-related losses and outgoings incurred during the 2004-2005 income year, which are covered by a travel allowance or award overtime meal allowance.  A copy of the ruling can be obtained from http://www.wearne.com.au/verve/_resources/td04-019.pdf

Overtime Meals
If you have overtime meal allowance expense, the maximum amount can be claimed without any written evidence is $20.55 per meal provided the meal allowance is paid under an industrial instrument ie an award. If your meal allowance exceeds $20.55, then the whole amount must be supported with receipts or any written evidence.

Domestic and Overseas Travel
You can claim a domestic or overseas travel allowance expense provided the amount of the claim does not exceed the relevant reasonable amount shown in the ruling.  For overseas travel allowance (without documentation), the amount claimed is considered to be reasonable if it does not exceed the relevant food and drink (meals) or incidentals component.