Small business tax tips for 2018

 Small businesses may be eligible for a range of tax benefits.  We have put together the following tax tips to help small businesses.

Maximise depreciation deductions

If you have a turnover of less than $10 million you can still get an immediate deduction for nearly all business assets purchased by 30 June 2018 that cost less than $20,000.  These assets must be used by the business for an income-producing purpose and must be installed ready for use by 30 June 2018.

Make sure you pay the correct company tax rate

With a turnover of less than $25 million, a company will pay tax at 27.5% in the 2017-18 if it is “carrying on a business”.  However, some companies with a turnover below $25 million will continue to pay tax at 30%, if they earn nearly all their income from passive investments such as rental or interest income.  Companies that pay tax at 27.5% can only frank dividends up to that rate.

Make trust resolutions by 30 June

Trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for the 2017-18 year by 30 June.  If a resolution is not executed by 30 June, any default beneficiaries under the deed will become presently entitled to trust income and subject to tax (even where they do not receive any cash distribution), or the trustee will be assessed at the highest marginal tax rate.

Seek professional advice when starting a business

Professional cost associated with starting a new business, such as legal and accounting fees, are deductible in the financial year those expenses are incurred rather than deductible over a five-year period as was the case previously.

Consider whether your legal structure is right for your business

A small business can change their legal structure without incurring any income tax liability when active assets are transferred by one entity to another.  This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used in the course of carrying on a business.

Document the streaming of trust capital gains and franked dividends to beneficiaries

Trustees can stream capital gains and franked dividends to different beneficiaries if the trust deed allows.  The trustee must document this resolution before 30 June and the beneficiaries receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.

Review your private company loans

The income tax law can treat the following as an unfranked deemed dividend for a taxpayer:

  1. A payment or loan by a private company to a shareholder or associate (family member)
  2. The forgiveness of a shareholder’s debt
  3. The use of a company asset by a shareholder or their associate, or
  4. The transfer of a company asset to a shareholder or associate.

To be exempt from this, you need to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term, which may be seven or 25 years depending on if the loan is secured.  Other strategies used to avoid a deemed dividend is to repay the loan or declare a dividend.

Write-off bad debts

You can only obtain a deduction for a bad debt when certain conditions are met.  A deduction will only be available if the debt still exists at the time it is written off.  If the debt is forgiven before it is written off as bad in the accounts, no deduction will be available.  The debt must also be unrecoverable and written off as bad in the year the deduction is claimed.

Paying employee bonuses

If you pay staff bonuses and you want to bring expenses into the 2017-18 year, ensure they can be determined and a proper resolution (minutes) has been made prior the year-end to enable a deduction to be incurred even if the amounts are not paid until the subsequent year.

Pay any outstanding super entitlements

The government has announced a 12-month amnesty from 24 May 2018 for employers to pay any outstanding super guarantee (SG) contributions for periods prior to 1 April 2018.  Employers who voluntarily disclose and pay previously undeclared SG shortfalls during the Amnesty and before an SG audit will not be liable for the administration penalties and will be able to claim a deduction for payments made during the 12-month period.  This announcement is subject to approval by the Parliament.

Source:  CPA In The Black June 2018