2015 tax tips for small business

Small businesses should check to see what they're eligible for and, if necessary, seek professional advice

By Paul Drum

Check eligibility for small business tax regime

SBEs include individuals and partnerships, companies and trusts that carry on a business with an annual turnover (excluding GST) of less than $2 million. Turnover is also aggregated to include the annual turnover of certain affiliates and entities connected with the SBE.

While meeting the $2 million turnover test automatically entitles SBEs to choose certain concessions, such as simplified rules for both tax depreciation and trading stock, it is important to note that additional eligibility tests apply to some claims, like the small-business CGT concessions.

Maximise depreciation deductions

SBEs will  get an immediate tax deduction for nearly all purchased individual assets that cost less than $20,000 from 7.30pm AEST on 12 May 2015 to the extent it is used for an income producing purpose.

For business assets first used, or installed and ready for use prior to that time, an immediate deduction can be claimed if the asset costs less than $1,000 to the extent it is used for an income-producing purpose.

For businesses registered for GST, the $20,000 threshold (and for assets purchased prior to 7.30pm on 12 May 2015, the $1,000 threshold) is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.

A depreciating asset that is not immediately deductible (an asset costing $20,000 or more from 7.30pm on 12 May 2015 or an asset costing $1,000 or more prior to that time) will be automatically depreciated at a flat rate of 15 per cent in the year it was bought to the extent the asset is used for income-producing purposes, and is used or installed ready for use by 30 June 2015. This will be the case regardless of the date the asset was acquired during the year. The adjustable value of such an asset can be depreciated, on that basis, at 30 per cent in subsequent years.

Checklists: Professional year-end tax resources from CPA Australia

In addition to the above accelerated depreciation for SBEs, primary producers will, be able to immediately deduct capital expenditure on fencing and water facilities such as dams, tanks and pumps from 7.30pm on 12 May 2015. For capital expenditure on these items, prior to this time, primary producers will typically write-off such expenditure over the effective life of such assets (30 years for fencing and three years for water facilities).

From the same time, primary producers will be able to depreciate capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed over three years. For capital expenditure on these items prior to this time, primary producers will typically write-off such expenditure over the effective life of such assets, which can be up to 50 years.

Take advantage of the tax rate cut for small business from 1 July 2015

The proposed reduction in the company tax rate from 30 to 28.5 per cent for companies that are SBEs, and the proposed introduction of a five per cent small business tax discount on the income tax payable on business income received from an unincorporated entity that meets the SBE test, capped to $1,000 per individual, provides a number of tax planning opportunities.

In particular, eligible businesses can bring forward expenses into this financial year (to receive a higher deduction for such expenses), and delay revenue into the next financial year (as revenue will be subject to a lower tax rate). 

As always, care should be taken to ensure that any actions do not breach the tax general anti-avoidance rules or any specific provisions such as the tax prepayment rules.

SBEs should seek professional advice to understand how they may legitimately benefit from the reduction in income tax, if eligible.

Seeking professional advice when starting a business

The government is proposing that from 1 July 2015, the professional expenses associated with starting a new business, such as legal and accounting fees, be deductible in the year those expenses are incurred rather than deducted over a five-year period as is currently the case.

If you are in the process of establishing a business, you should, if possible, only seek professional advice after the new financial year commences (but obviously you should always seek that advice).

Review salary sacrifice arrangements

Employees can consider salary sacrifice arrangements under which their gross salary may be foregone to obtain either a packaged car for fringe benefits tax (FBT) purposes, or they can make additional superannuation contributions.

Subject to complex transitional rules, a 20 per cent flat rate applies when calculating a car fringe benefit under the statutory-formula method, regardless of how many kilometres the vehicle travels annually. However, there may still be some tax savings in packaging a car under these rules compared to the cost of funding all your car expenses from your net salary.

In addition, under these rules employees who predominantly use a car for work-related travel may be able to obtain tax savings by calculating the FBT paid on the car under the operating-cost method rather than funding their car expenses from their after-tax salary.

Advice should also be obtained from a CPA Australia-registered tax agent as to whether such salary sacrifice arrangements would be tax effective.

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 2014/2015 by 30 June at the latest.

If a valid 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 on any taxable income derived by the trust.

A trustee must be able to show how an effective resolution was made through draft minutes, file notes or an exchange of correspondence documented before year end. However, the trust's accounts do not need to be prepared by 30 June.

As a corporate trustee needs time to notify its directors that a meeting must be convened to pass and record a resolution, such a notice should be sent out well before the 30 June deadline.

Stream trust capital gains and franked dividends

Broadly, trustees of discretionary trusts can stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts. The trustee must document this resolution before 30 June and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.

These streaming rules are complex and taxpayers should consult their CPA Australia-registered tax agent if they require advice on how these rules work.

Private company loans

Income tax law can potentially treat a payment or a loan by a private company to a shareholder or an associate (like a family member), or the forgiveness of a shareholder’s or associate’s debt, as an unfranked deemed dividend unless an exemption applies.

The most common exemption is 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 whether or not the loan is secured.

There are various things a private company can do before its 2014/2015 income tax return needs to be lodged to minimise the risk of a shareholder or an associate deriving a deemed dividend for 2014/2015. Depending on the circumstances, these strategies may include repaying a loan, declaring a dividend or entering a complying loan agreement before the return needs to be lodged.

You should consult your CPA Australia-registered tax agent if you believe such a deemed dividend has arisen for the year ended 30 June 2015.

Prevent deemed dividends in respect of unpaid trust distributions

An unpaid distribution owed by a trust to a related private company beneficiary that arises on or after 1 July 2014 will be treated as a loan by the company, if the trustee and the company are controlled by the same family group. In these circumstances, the associated trust may be taken to have derived a deemed dividend for the amount of the unpaid trust distribution in 2014/2015.

However a deemed dividend may be prevented if the unpaid distribution is paid out, or a complying loan agreement is entered into before the company's 2014/2015 income tax return needs to be lodged. Alternatively, a deemed dividend will not arise if the amount is held in an eligible sub-trust arrangement for the sole benefit of the private company, and other conditions are satisfied.

Trustees and beneficiaries should consult their CPA Australia-registered tax agent on the full implications of these very complex rules if applicable.

Write-off bad debts

Businesses can only obtain income tax deductions for bad debts when various conditions are met.

A deduction will only be available if the debt still exists at the time it is written off. Thus, if the debt is forgiven or compromised before it is written off as bad in the accounts no deduction will be available. The debt must also be effectively irrecoverable and written off in the accounts as bad in the year the deduction is claimed. The bad debt must have been previously brought to account as assessable income or lent in the ordinary course of carrying on a money-lending business. Certain additional requirements must be met where the creditor is either a company or trust.

Super guarantee

If you are an employer you are required to contribute 9.5 per cent of your employees' salary to the super fund of their choice under the superannuation guarantee (SG). If you're substantially self-employed you could claim a tax deduction for your personal contributions.

SMSFs and employer contributions

From 1 July 2014, employers with 20 or more employees are required to pay superannuation contributions electronically. All employers will have to meet this requirement from 1 July 2015.

Superannuation funds, including SMSFs, need to have processes in place to receive employer contributions from larger employers. Importantly, SMSFs will have to obtain an electronic service address from a SMSF-messaging provider and give this to their contributing employers. The ATO website has all the details.

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