The government announced in the 2014-15 budget that it would impose a temporary budget repair levy of 2% on that part of the taxable income of an individual that exceeds $180,000. The levy commences 1 July 2014 and will be imposed for three years. It applies to both residents and non-residents. There are consequential changes for rates and taxes that reference the top rate of tax. As a result the top marginal rate has increased from 45% to 47%. However the levy is imposed separately to the marginal rates of income tax and cannot be reduced by non-refundable tax offsets.
The calculation of basic income tax to include TBRL:
[Basic income tax] – [Tax offsets] + [TBRL] – [Foreign income tax offset]
All small businesses will receive an immediate tax deduction for every asset they purchase costing less than $20,000. Currently, the threshold sits at $1,000.
This $20,000 limit applies to each individual item. Small businesses can apply this $20,000 rule to as many individual items as they like.
Increasing the depreciation threshold will mean value-added cash flow for small businesses. It will inspire businesses to bring forward investment in the assets they need to grow their business and service their customers.
The new threshold will also necessitate small businesses spending less time tracking assets across years for tax purposes. This removes red tape and allows business owners to focus on operating and growing their business.
Any assets over $20,000 can be added together (‘pooled’) and depreciated at the same rate. These assets are depreciated at 15 per cent in the first income year, and 30 per cent per year thereafter.
If the value of the pool is below $20,000 until the end of June 2017 it can be immediately deducted too.
This temporary jump in the threshold will support small businesses to invest in new assets which will help them grow and prosper into the future.
There are a number of ways that business owners can reduce a whopping great tax bill. AustralianBiz CEO Joe Kaleb lists the top six you can use before 30 June, 2014.
The first two strategies apply only to small business taxpayers, while the rest apply to all businesses.
1. Instant write-off for assets reduced to $1,000 from 1 January, 2014
Under the current law, your small business is able to claim an immediate tax deduction for “individual” assets costing less than $6,500 ex GST, including individual assets that form part of a set. This immediate write-off also applies to the purchase of new and second-hand assets which are used in your business.
Also, from 1 January 2014, you don’t have to aggregate the individual assets costing less than $1,000 which form part of a set, when applying the $1,000 threshold. For example, if you bought a team collaboration table costing $950 and 5 matching chairs costing $1,000 on 15 January 2014, your business would still be entitled to claim an immediate deduction for the entire $1,950.
2. Claim deduction for prepaid expenses
Your small business can claim an immediate deduction for certain prepaid business expenses where the payment covers a period of 12 months or less, and ends in the next income year. The most common expenses that you should consider prepaying by 30 June, 2014, include lease payments, interest, rent, business travel, insurances, business subscriptions, and etc.
However you cannot choose to prepay any expense you like as you must be able to make the prepayment under the relevant contractual agreement to get the immediate tax deduction this financial year.
3. Make superannuation contributions by 30 June, 2014
If you are self-employed and making a personal superannuation contribution, ensure you obtain the correct documentation from your superannuation fund to substantiate the deduction before lodging your tax return.
The maximum concessional superannuation contribution limits for the 2013/14 year are:
- Individuals aged 60 and over on 30 June, 2014, have a $35,000 contribution limit
- Individuals aged 59 and under on 30 June, 2014, have a $25,000 contribution limit
Where a concessional contribution is made which exceeds these amounts, the excess is taxed at an effective rate of 46.5%. In order to obtain a deduction in the 2014 financial year, the contribution must be received by your superannuation fund by 30 June, 2014.
4. Defer income & capital gains tax
If your business returns income on a cash basis, you will be assessed on income as it is received. A simple end of year tax planning strategy is to delay “receipt” of the income until after 30 June, 2014.
- Businesses that return income on a non-cash basis are generally assessed on income as it is derived or invoiced. Income may be deferred in some circumstances by delaying the “issuing of invoices” until after 30 June 2014.
- Realising a capital gain after 30 June, 2014, will defer tax on the gain by 12 months. It can also be an effective strategy to access the 50% general discount which requires the asset to be held for at least 12 months. The date of the contract is the realisation date for capital gains tax purposes. In some cases, the capital gain can be further reduced to “Nil” under the small business capital gains tax concessions.
5. Write off slow moving or obsolete stock
You have the option of valuing trading stock on 30 June, 2014, at the lowest value between the actual cost, replacement cost or market selling value. Furthermore, this valuation can be applied to each item of trading stock.
For example, where the market selling price of stock items at year-end is below the actual cost price, the taxpayer can generate a tax deduction by simply valuing the stock at the market selling value for tax purposes.
Also, in situations where a stock item has become obsolete at year-end (e.g. fashion clothing), the business may elect to adopt the lowest value between the actual cost, replacement cost or market selling value.
6. Write off bad debts
If your business accounts for income on a non-cash basis and has previously included the amount in assessable income, a deduction for a bad debt can be claimed in 2013/14 as long as the debt is declared bad by 30 June, 2014.
Your business will need to show that it has made a genuine attempt to recover the debt by 30 June, 2014, to prove that the debt is bad. It’s preferable that this decision is made in writing such as in an executive’s meeting minutes.
Your business can also claim back the GST paid on debts that have been written off as bad, or where not written off as bad, the debt has been outstanding for 12 months or more.
This article was originally posted on MYOB.
Our Government has released its first Budget on 13 May 2014. The Budget will deliver a deficit of $29.8bn for 2014/15 with a myriad of spending cuts and increased taxes/levies designed to reduce it over the coming years.
The key elements that have changed in taxation are:
1. Temporary Budget Repair Levy – the big news, which we already knew about, is that the Government will introduce a three-year levy, called the Temporary Budget Repair Levy from 1 July 2014.
The Temporary Budget Repair Levy will apply at a rate of 2% on individuals’ taxable income in excess of $180,000. This effectively means the highest marginal tax rate will go from 47% to 49% (remember that the Medicare Levy goes from 1.5% to 2% on 1 July 2014 so the highest marginal tax rate goes to 47%).
Therefore, for these high wealth individuals, if they can bring income into this year, or push deductions to the following year they can save 2% of the amount. Year-end tax planning this year will be interesting.
2. A number of other tax rates that are currently based on calculations that include the top personal tax rate will also be increased. For example, the FBT rate will be increased from 47%to 49%from 1 April 2015 until 31 March 2017. There will also be changes to the FBT rebate and other concessions, like the PBI exemptions as a result of the change to the FBT rate.
3. Other changes – most of the other changes to the tax system are minor and include the following: •Both the Dependent Spouse Tax Offset and the Mature Age Worker Tax Offset, which have been limited over the last years, will not be available for anyone from 1 July 2014.
•The income thresholds for the private health insurance offset and the Medicare Levy surcharge will be frozen for three years from 1 July 2015.
•The Research and Development Tax Incentive will see its rates reduced by 1.5%, effective from 1 July 2014. This will mean the rate for the refundable offset will be 43.5%.
•The Seafarer Tax Offset will be abolished from 1 July 2015.
4. Family Tax Benefit – while not exactly a tax announcement, there will be lots of changes to the Family Tax Benefit (FTB). The FTB Part B income limit will reduce from $150,000 to $100,000 from 1 July 2015. The income threshold for the Dependent (Invalid and Carer) Tax Offset will also be reduced to $100,000. Family Tax Benefit Part B will also be limited to families with children under six years of age from 1 July 2015. And finally, the rates of family tax benefits will be frozen for two years.