Year End Considerations

By Maddern Accountants 21/12/2011

Small Business Entities

  • The taxpayer is eligible to be a small business entity if their annual turnover is less than $2 million.
  • Benefits include small business CGT concessions, simplified depreciation and trading stock rules.

Timing of Income Derivation

  • Consider deferring income (via cash/invoices) until after 30 June 2011.
  • Alternatively if you are in a loss, consider accelerating the receipt of income prior to 30 June 2011.

Income received in advance

  • Income received in advance is not taxed until the services are provided as long as the income is credited to an unearned income account, and released to profit only when the services are provided.

Timing of Expenses

  • Provisions are generally not deductible.
  • Some accruals are not deductible.
  • Some prepayments are not deductible.
  • Interest paid after the business ceases may continue to be deductible.

Repairs

  • Consider accelerating any expenses for repairs and maintenance before 30 June 2011, unless the expenses relate to initial repairs, substantial replacement or improving an asset.

Gifts

  • Donate to deductible charities before 30 June 2011.
  • Check the recipient is an endorsed “deductible gift recipient”.
  • Gifts are not deductible if some benefit is received by the donor.

Bad debts

  • Review all debts before 30 June 2011.
  • Physically write-off bad debts before year end.

Trading stock

  • Scrap unwanted stock by 30 June 2011.
  • Small business entity taxpayers do not undertake a stock valuation if the difference between opening and closing value is less than $5,000.

Prepayments/Advanced Expenditure

  • Prepay deductible expenditure by 30 June 2011.
  • However, the pre payment rules can operate to spread the deduction over more than one year.
  • The prepayment rules do not apply to salary, amounts required to be paid by law or a court, or expenditure under $1,000.
  • Small business entity taxpayers and non business individuals are allowed prepayments if the benefit does not extend beyond 12 months.

Sale of Investments

  • Where CGT assets will be realised for a gain, delay sale until after 30 June 2011, unless you have losses that may be lost because of the company or trust loss rules.
  • If assets have been held for less than 12 months, consider delaying the sale until post 12 months to take advantage of the CGT discount concessions.
  • For small business entities with certain assets less than $6 million or annual turnover less than $2 million consider small business concessions. 

Ceasing Business or Business sold

  • Consider the consequences of payments for employee entitlements, the transfer of employee entitlements to a new employer and redundancy payments.
  • Consider if small business concessions, rollovers, or superannuation.

Depreciation

  • Scrap obsolete items by 30 June 2011.
  • For items that cost less than $1,000 consider putting them into a low value pool, this will provide a diminishing value rate of 37.5%.
  • Replacement of some items of less than $100 ($300 if not in business) may be immediately deductible.
  • Small business entity depreciation concessions: - Immediate deduction for items costing less than $1,000 (increase to $5,000 from 1 July 2012) - Items of plant costing $1,000 and more – automatic pooling facility: 30% rate (5% if life over 25 years).

Imputation

  • If shares are not held at risk for at least 45 full days the franking off set may not be available (except for individuals whose franking off set is less than $5,000).
  • For non-fixed trusts receiving dividends, the franking offset will be lost unless beneficiaries have a vested and indefeasible interest or a family trust election is made.
  • Where more than one dividend is paid in a franking period, ensure all dividends are franked in accordance with the benchmark rate (i.e. the franking percentage of the first dividend).

Home Office Expenses

  • Portion of interest, rent and insurance are not deductible unless you are carrying on business from home and the area is separate and distinguished from private living areas.
  • Converting the spare room is not sufficient.
  • Power, heating and depreciation can be claimed at a flat rate established by the ATO even if the room is not exclusively set aside for a home office.
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