Client Information Bulletin June 2011
Business Tax Planning Issues to Consider Prior to 30 June 2011
- If you pay superannuation for your employees, consider making a payment prior to 30 June 2011 in order to be able to claim it as a tax deduction in the 2011 tax return;
- Review your aged debtors and determine whether any debts are bad debts and need to be written off in the 2011 financial year. In order to be classified as a bad debt, it must be considered unrecoverable;
- Ensure that any repairs & maintenance work is completed prior to 30 June 2011 to be able to claim a tax deduction in the 2011 tax return;
- If you wish to pay any bonuses to your staff, ensure that you draw the cheque and deduct Pay As You Go Withholding prior to 30 June;
- If you are a small business (turnover under $2m), you can prepay certain deductible expenses in the 2011 financial year and claim a deduction in the 2011 tax return. This includes expenses for services that will be wholly provided within the 12 months of payment such as office supplies, consumables, insurance, rent, lease payments, advertising or maintenance contracts. You will however need to consider the effect of prepaying such expenses on your cash flow in the short term;
Are you planning to purchase substantial assets or a motor vehicle in your small business?
The timing of investment in your business is likely to have significant tax consequences depending on the nature of the investment. As part of the recent Budget the government announced that from 1 July 2012, small business will be entitled to:
- An immediate write-off of the first $5,000 of any motor vehicle purchase in the year of acquisition; and
- An immediate write-off of assets valued under $5,000 ($1,000 at present).
You should take these measures into account when planning your business's asset purchases for the next year or two. Your Ruddicks adviser can provide further guidance on these matters.
Are you receiving a pension from your Self Managed Superannuation Fund? Consider Minimum Pension Payments
It is a requirement that a minimum payment be made from a superannuation pension at least annually. Minimum amounts are determined by age and the value of the account balance at 1 July each year.
The rule is designed so that retirees drawn down on their super savings over their retirement and recognises the substantial tax concessions available. These are lost where you do not make the minimum required payment. There is no maximum cap if you are drawing down on an account based pension but there is a 10% upper cap where you are in receipt of a Transition to Retirement Income Stream (TRIS). The following table shows the minimum percentage factor for each age group.
2010/11 Minimum Pension Factors
Age as at 1 July 2010
Minimum % withdrawal
95 or more
We recommend that pension payments are reviewed to ensure that the total pension received by 30 June 2011 falls within the mandated range. Please contact your Ruddicks adviser immediately if you are unsure what your minimum or maximum amounts are and how much you should have withdrawn during the 2011 financial year.
Are you considering making a super contribution? Beware of breaching contributions caps!
There are caps on how much super you can contribute each year before being required to pay excess contributions tax at the rate of 46.5% of the excess. There are two types of superannuation contribution caps which apply per financial year:
Concessional (before tax) contribution caps. Concessional contributions include:
- All employer contributions (including salary sacrifice)
- Personal contributions for which you claim an income tax deduction (e.g. self-employed people)
The concessional contribution cap is $25,000 per income year generally, and $50,000 per income year for taxpayers aged 50 years old and over for the 2011 and 2012 income years. As noted below, this is set to change in respect of the 2013 income year onwards.
Non-concessional (after-tax) contribution caps. Non-concessional contributions include:
- Personal member contributions (no tax deduction claimed)
- Spouse contributions
- Any excessive concessional contributions
The non-concessional contributions cap is $150,000.
You should consider making additional contributions before the end of the income year to take full advantage of these caps. But make sure you do not exceed the contributions caps under any circumstances – just a few extra dollars can result in a substantial tax liability for excess super contributions tax!
Additionally, the government announced during this year's Budget that from 1 July 2012:
- Persons who have been subject to excess contributions tax for the first time (provided these excess concessional contributions are less than $10,000) will be given the option of withdrawing any contributions from their superannuation fund and paying tax on the excess at their marginal rate of tax, rather than incurring excess contributions tax at the rate of 46.5%.
- Individuals over 50 years of age with total superannuation balances of less than $500,000 will have their super contributions cap set to $25,000 above the general indexed concessional cap in order to assist such individuals in contributing greater amounts into superannuation to fund their retirement.
Do You Employ Staff?
Reminder: PAYG Payment Summaries must be issued to employees by 14 July 2011 and lodged with the ATO by 14 August 2011. PAYG Payment Summaries must now include Reportable Employer Superannuation Contributions!
What are Reportable Employer Superannuation Contributions (RESCs)?
An individual’s RESCs for an income year is the amount contributed to a superannuation fund on behalf of an individual during an income year by their employer which that individual has, or would reasonably be expected to have had, the capacity to influence either the size of the contribution or the way it is contributed to the fund so that their assessable income from the employer is reduced.
In effect, this means that salary sacrificed and other additional contributions over and above the Superannuation Guarantee amount (currently 9% of ordinary time earnings) will be subject to the disclosure requirements.
RESCs do not include superannuation guarantee contributions (the mandatory 9% contributions), contributions under an industrial award, contributions from your employee’s after tax income and additional contributions made for administrative reasons where the employee has no capacity to influence the amounts or the decision.
Minimum Wage Increase from 1 July 2011
Fair Work Australia’s Minimum Wage Panel has ordered a 3.4% increase to minimum wage rates. Employers who pay employees under modern awards or in accordance with the national minimum wage need to ensure that they implement the revised pay rates by 1 July 2011. These are available from the Fair Work Australia website: www.fwa.gov.au.
Paid Parental Leave becomes compulsory from 1 July 2011
The Paid Parental Leave (PPL) Scheme was rolled out on 1 January 2011 however it becomes compulsory for employers to implement from 1 July 2011. After this date, it will be mandatory to lodge claims and administer payments for all eligible employees who take PPL.
Employers will need to register their organisation details with the Family Assistance Office prior to making any claims under the PPL scheme. Employers will need to withhold tax from these payments but superannuation contributions are not required to be made in relation to PPL payments.
We recommend that employers review existing parental leave policies and procedures and ensure that they are ready to implement and administer the PPL scheme from 1 July. Further information for employers is available from the Family Assistance Office website: www.familyassist.gov.au/publications.
2011/12 Tax Rates
Tax rates are not going to change for the 2011/2012 income year and this is the case for every type of entity, including individuals, companies and superannuation funds. Resident individual tax rates applicable for the 2010/11 and 2011/12 income years are set out below for your reference.
Tax on this income
$1 - $6,000
$6,001 - $37,000
15c for each $1 over $6,000
$37,001 - $80,000
$4,650 plus 30c for each $1 over $37,001
$80,001 - $180,000
$17,550 plus 37c for each $1 over $80,001
$180,001 and over
$54,550 plus 45c for each $1 over $180,000
However, if you are an individual, your effective tax rate will go up in the 2011/12 income year due to application of the once-off flood levy. Individuals with taxable income between $50,001 and $100,000 will be required to pay 0.5% of their taxable income, and individuals who have taxable income greater than $100,000 will be required to pay 1% of their taxable income.
The flood levy will not be payable by taxpayers in flood affected areas and taxpayers who have taxable income of less than $50,000 in the 2011/12 financial year.
Employees who earn more than $50,000 in 2011/12 but who lived in the flood affected areas during 2010/11 year will need to complete the Flood Levy Exemption Declaration which is available from the ATO website and provide it to their employer to ensure that flood levy is not included in the tax taken out of their pay.
The ATO has issued new withholding tables for the 2012 income year which include the flood levy. Therefore, even though the tax rates have not changed, it is essential to use the new withholding tables from 1 July 2011 when calculating tax to withhold from your employees’ pay.
Beware! Are you on the Tax Office Watch List?
Work expenses are always on the Australian Taxation Office (ATO) watch list. As in previous years it has singled out occupations with a pattern of large and/or rising claims, returns that do not the fit the pattern for a particular occupation and claims that are outside of what the ATO considers the norm. This year teachers, engineers and mechanics have been singled out as being of interest.
The most common areas where mistakes are made by people working in these occupations include:
- Insufficient documentation to support motor vehicle and travel expenses;
- Motor vehicle expenses being claimed on the basis of carrying bulky equipment;
- Home office, mobile phones and internet expenses.
The ATO now have advanced data matching capabilities including benchmarking both individuals and businesses to compare claims made across an industry or occupation groups.
Substantiation requirement for work-related travel expenses
As work-related travel expenses are always on the ATO radar, it is important to ensure that your substantiation records are up to scratch so that you can claim the maximum deduction that you are entitled to.
For overseas travel, you would need to prepare a full itinerary and diary of your trip with full substantiation of expenditure and a split between business and private purposes.
For local travel, if you are away for more than six nights, you are required to keep a diary to support claims for all travel expenditure, though it is a good idea to keep a diary for substantiation purposes for shorter trips too.
Are You an Investor? TAX TIP - Utilise Share Losses
Have you made a capital gain this year on your share sales? Have you considered selling some of those stocks that are chronic underperformers that you still hold to crystallise any loss? These losses can be offset against gains so it is worth talking to your stock broker or financial adviser about quitting these to offset those gains before the end of the financial year. You will need to ensure that the contract for sale of the shares is entered on or before 30 June 2011 in order to be able to use the losses to offset the gains in the 2011 financial year.
ATO Focus: Unpaid Director Fees in Private Companies
In a recent Taxpayer Alert, the Commissioner of Taxation warned directors of private companies about claiming deductions for director fees where amounts may remain unpaid by the end of the following income year. That is, director fees that relate to the 2010 financial year that have not been paid by 30 June 2011.
It would therefore be prudent to review any unpaid director fees now and to ensure that those relating to the 2010 income year are paid immediately, subject to cash flow considerations. Likewise, director fees relating to the 2011 income year should be paid within a reasonable time frame after the year end to ensure deductibility to the company.