Print Newsletter

Newsletter June 2007

Bad Debts must be written off as a bad debt before year end in order to claim a tax deduction. It is important that a minute recording a bad debt write off is created.

Employee Bonuses are generally only deductible if they’re incurred by year end. This means there must be a legal liability to pay the bonus to the employee and the amount must be able to be reasonably estimated.

Prepayments. Advance deductions for most prepayments are no longer available except where, they are less than $1,000 GST exclusive:

• required to be made by law,
• under a court order,
• under a contract of service, eg. salary & wages
• incurred by an STS taxpayer,
• is a non business expenditure incurred by an individual taxpayer with an eligible service period of no more than 12 months.

Superannuation Contributions. To obtain a tax deduction for the year ended 30^th June 2007, all superannuation contributions must be paid and must reach the complying superannuation fund by the 30^th June 2007. Superannuation contributions for all employees in excess of the age based limit are not deductible. The age base limits are;

If the Superannuation Guarantee Contribution for the year ended 30^th June 2007 is not made by the 28^th July 2007 then the superannuation needs to be paid to the Australian Taxation Office. If contributions are paid to a complying superannuation fund are late but paid before the due date for lodgement of the superannuation guarantee charge statement (28 days after the payment was due) an election can be made for the contributions to reduce the amount of the superannuation guarantee charge that must be paid to the Australian Taxation Office.

Trading Stock at the end of the year can be valued on an item by item basis at either cost, replacement value or market value. Obsolete stock can be valued at a lower value if it can be shown that there is no prospect of future sales. A nil valuation is acceptable if the stock is to be dumped and destroyed within a reasonable time after 30^th June 2007.

Capital Allowances. Depreciating assets that are not used and scraped by year end can be written off with an immediate tax deduction. These items should be identified prior to year end.

Foreign Exchange and Losses. For tax purposes gains & losses are only bought to account when foreign currency, rights or obligations are realized.

Company Carried Forward Loss Provisions. For a company to carry forward its tax losses it must pass the continuity of ownership tests or the same business test.

Dividends paid during the year can be fully franked provided at the end of the financial year there is sufficient franking credits in the franking account to cover the dividend. If there are insufficient credits then a franking deficit tax needs to be paid.

Research & Development. Companies with a financial year of 30^th June 2007 have until the 30^th April 2008 to lodge their R & D Concession registration with Aus Industry.

Capital Gains Tax. Where there is a sale of a capital asset in which a contract is required then for capital gains tax purposes, when the contract is entered into is the date when capital gains tax will apply.

Should a taxpayer incur a capital loss then the taxpayer should consider realizing any capital losses which can be offset against any capital gains. Remember capital losses can only be offset against capital gains.

Simplified tax System (STS). STS taxpayers receive concessional treatment in respect of a number of matters including depreciation, trading of stock a choice of cash or accrual and an entrepreneurs tax offset under certain circumstances.

GST. With the June BAS being due on the 28^th July 2007 an annual check should be completed by running an annual BAS statement and then deducting the September December & March payments so as to ensure the annual GST as per the general ledger system will agree to the four quarters.

Fringe Benefits Tax. With the change in tax rates from the 1st July 2007 clients should review their existing salary package arrangements to make sure they are still tax effective.

Stamp Duty. From the 1^st July 2007 NSW stamp duty on hire of goods is abolished.

Pay-Roll Tax. In NSW where the employers payroll exceeds $600,000 pa payroll tax of 6% is charged on payroll in excess of $600,000. For payroll tax purposes wages include direct wages superannuation fringe benefits annual leave etc. If you believe you have a payroll tax liability for the year ended 30^th June 2007 please contact your Wearne & Co partner.

Superannuation. For the year ended 30^th June 2007 our previous newsletters have addressed extensively superannuation. As a final check list prior to the 30^th June 2007 please consider;

1. Salary sacrifice opportunities
2. Maximizing contributions for non working spouses and other working family members
3. Making non tax deductible contributions into superannuation up to $1 million for the period from 9^th May 2006 to 30^th June 2007.
4. Transition to retirement pension strategies for example maximizing contributions at the same time as receiving concessionally taxed pensions or tax free pensions.
5. Commuting of existing pensions to the accumulation phase to maximize the effect of pre 1983 service.
6. Eligible Termination Payment Strategies and the ability to roll these into superannuation funds.

 For further advice please contact your Wearne & Co partner.