C & W Partners Chartered Accountants

YEAR END TAX PLANNING .

Some matters for consideration are:

1.         Bad Debts

             You should review your current debtor list and isolate those debtors where despite recovery action being implemented collection has not occurred.  As such, for tax purposes it may be time to have these amounts written off.

            For bad debts to be deductible in the financial year these need to be written off in the debtor ledger prior to 30 June.

2.         Investment Allowance

            Clients would recall there are two significant dates which dictate the deductibility of the investment allowance.  These are:

             2.1       Timing of Purchase

 ·         The asset needs to have been purchased or the contract entered into by 31 December 2009.

         2.2       Timing of Use of the Asset

 ·         To claim the investment allowance in this financial year, the asset needs to have actually been used or have been installed ready for use by 30 June 2010.

 ·         To be able to claim the investment allowance next financial year the asset has to have been used or have been installed ready for use by 31 December 2010.

3.         Prepayments

             For small businesses with a turnover under $2 million, you can prepay expenses this financial year and this will be deductible in the 2009/10 year so long as the prepayment is for something that is for 12 months or less and ends by 30 June 2011.

4.         Superannuation

            To ensure your June 2010 employee superannuation guarantee obligations are deductible in this year, payment must be made and received by the Super Fund by 30 June.

5.         Income Deferral

             Deferring income to the next financial year will defer the tax and where applicable the GST until next period.  The added bonus this year, due to changes in tax rates effective from 1 July 2010 is that this action could potentially transfer the income into a lower tax bracket in 2010/11.  Income deferral can be in the form of holding back sale of livestock, grain or trading stock or deferring the sale of an asset which may have depreciation recouped ramifications.

6.         Business Inputs/Future Expenditure

            Clients should be considering where applicable bringing forward business expenditure (repairs, farming inputs, fuel etc) which may be planned for soon after 30 June 2010, to prior to this date to ensure the deduction can be claimed in this financial year.  Again due to 1 July 2010 tax cuts this action takes on greater significance in this year as the deduction potentially will be claimed at a higher tax rate in this year than at the 2010/11 reduced rate.

7.         Farm Management Deposits

            These deposits, available only to individual primary producers, enable deductions to be claimed for deposits made prior to 30 June 2010.  These deposits must be invested for a minimum of twelve months and are treated as assessable income on withdrawal.  FMD’s remain a very effective and financially efficient tax planning tool for primary producers. 

8.         Capital Profit

            If the business has made a profit on the sale of any assets during the year it is likely you are going to be hit with capital gains tax.  If you have not entered into a contract of sale yet, think about deferring the sale contract until after the end of the financial year to defer the capital gains tax.

             On the flip side, if your business has any CGT assets that are worth less than what you paid for them, think about selling them pre 30 June and crystallise the loss.  You can use the loss to offset against any capital gains you made throughout the year and reduce the tax you are likely to pay on those gains.  You need to make sure the sale contract is entered into before 30 June to claim the loss this financial year.

9.         Plant and Equipment Deductions

            If you operate a small business with a turnover under $2 million, you might be able to claim an immediate deduction for the cost of certain assets under $1000.

             For everyone else, take a look at your register.  If you have redundant or damaged plant and equipment that has no value and you are unlikely to use in the financial year, you might be able to claim the remaining tax written down value.