The end of a financial year is a busy time for small businesses owners who, on top of the day-to-day pressures of running a business, are faced with the rigmarole of preparing for tax time and ensuring their business is compliant ahead of 30 June.
From 1 July 2017, business owners must take note of key changes to ensure they start the new fiscal year with the right foot forward.
What are the changes?
- Extension of the instant asset write-off: The immediate write-off of concession on depreciable assets with the value of less than $20,000 has been extended for another 12 months to 30 June 2018. From 1 July, businesses with an accumulated turnover of less than $10 million will also be able to access this concession.
- Reduction of the corporate tax rate: Another measure introduced in the federal budget sees the progressive reduction of the corporate tax rate from 30 per cent to 25 per cent by 2027. From 1 July, the 10-year plan will reduce the tax rate for businesses with an annual turnover of $10 million or less to 27.5 per cent.
- Changes to concessional and non-concessional contributions caps: If any of your employees choose to salary sacrifice from 1 July, the before-tax contributions cap will be reduced from $30,000 or $35,000, if they are aged over 49, to $25,000 for all. For any after-tax contributions, the previously announced $500,000 lifetime non-concessional cap will be replaced with an annual $100,000 non-concessional cap, with a total of $300,000 allowed in contributions over a three-year period, provided the super balance is less than $1.6 million.
- Introduction of the $1.6 million transfer balance cap: There will be a balance cap implemented to superannuation accounts that hold more than $1.6 million in the new fiscal year. If your super exceeds the cap, it is important to ensure that the excess is either removed from the account or otherwise it will be subject to a 15 per cent tax rate.
What can you do?
Plan ahead: Although taxation planning often comes to the forefront of business owners’ minds at this time of the year, it is a key contributor to how you structure your business affairs. Therefore, it is important to note that tax planning should be considered throughout the year.
If you start a new business, acquire another business or even change something in your pre-existing business, it is important to consider what the tax planning implications might be and whether your current structure is appropriate.
This extends to capital spending and spending on assets – do any of the assets in your business need replacing? Take advantage of the instant asset write-off by ensuring that any new assets are purchased and ready to use in the business by 30 June to ensure you receive an outright deduction.
Pay attention to superannuation: For many business owners and individuals, making personal contributions of up to $30,000 to $35,000 will be advantageous ahead of the lowering of the concessional caps from 1 July.
For individuals, superannuation contributions are the main tax planning mechanism, so for any employees within your business, providing a superannuation over and above the 9.5 per cent guarantee should be encouraged, as the amount sacrificed is reduced from their wage rather than being taxed with the wage.
When it is deposited into your employee’s superannuation fund, it is taxed at 15 per cent against whatever their marginal tax rate is, determined by their salary bracket.
With less than a week before the end of this financial year, take stock of your business structure and its functions and make sure you have made the most of the current legislation ahead of 1 July.
Remember that planning is key and consulting with your accountant or adviser will set you up for success to FY2018.
Jamie Bishop is partner of business services at McLean Delmo Bentleys.