Use Every Strategy

Sydney Morning Herald

Wednesday June 25, 2008

Greg Lomax. Greg Lomax is chief executive of Huthnance Lomax accountants and financial advisors and a licensed financial planner. Email greg@huthlom.com.au.

Act quickly to make sure you get the best outcomes.

THE past six months have delivered some harsh blows to investors, small and medium enterprises (SMEs) and those with loans. While we can't change the course of economic events, we can use tax strategies to ensure the best possible end to the financial year.

With the new reduced tax scales starting on July 1 income should be deferred and expenses brought forward to best take advantage of the cuts. The 15 per cent rate is extended from the current $30,000 to $34,000, and the 30 per cent rate is extended to $80,000 (from $75,000). The 40 per cent rate will apply from $80,000 to $180,000 and then 45 per cent from $180,000.

Following these points could be invaluable to individuals and SMEs, particularly where the owners are also employees.

SUPERANNUATION

The new superannuation deductible limits of $50,000 a year - or $100,000 for those aged over 50, and non-concessional contributions of $150,000 or $450,000 over three years - need to be monitored closely to ensure they are not exceeded. An excess contributions tax of 46.5 per cent can apply if this happens. Check with your fund manager before June 30 about any contributions it has received on your behalf.

There are also new opportunities for the self-employed to gain the full tax deduction on contributions, similar to an employed person. Previously the contributions were only 75 per cent tax deductible.

A spouse superannuation contribution can also receive a tax offset of up to $540 where spouse income is up to $10,800, phasing out when the assessable income exceeds $13,800.

The hot tax strategy this financial year is for those over 55 to start accessing their superannuation benefits and turn their super into a pension fund. There is no tax on the super fund earnings.

Remember, though, the actual pension must be drawn before June 30 - you take between 4 and 10 per cent of the fund balance, depending on your age. If you satisfy a condition of release of super benefits, there is no maximum.

The Government co-contribution to superannuation is $1.50 for every $1 you put in to super. A maximum co-contribution of $1500 applies if your net income is less than $28,980.

The co-contribution is reduced by five cents for each dollar over $28,980 until it phases out at $58,980. The rules have been modified this year to make the self-employed eligible - if 10 per cent of your income is from eligible employment, you qualify for the co-contribution.

SALARY PACKAGING

This is also a very important part of tax planning for small businesses. Not only should you maximise your superannuation contributions but you also should use all available salary-sacrifice opportunities. An employee can package fringe benefit tax-exempt items used for business, such as laptops, personal digital assistants and mobile phones. This means no FBT is payable on the item when reimbursed by the employer.

Remember also the minor benefit exemption for employees has increased from $100 to $300 and now applies to each individual item rather than in aggregate.

PROPERTY DEDUCTIONS

Landlords can improve their tax deductions by ensuring they have taken into consideration capital allowance deductions on building and renovation costs of income-producing buildings. All construction since 1985 could be eligible for the allowance, a deduction of 2.5 per cent a year on the cost. Prepaying 12 months' interest on any loan on the property will enable you to bring forward the deduction and lower your tax this year.

CAPITAL GAINS

In particular you should look at the capital gains you have made during the financial year and consider selling some shares or assets that are showing losses to offset the gains.

HEALTH COSTS

Ensure you are claiming all the rebates you are eligible for, particularly the net medical expense rebate, which allows a 20 per cent rebate for expenditure in excess of $1500.

Make sure you have health insurance if you are single and earn more than $50,000, or a couple and earn more than $100,000, or your Medicare levy will rise by 1 per cent - these thresholds increase from July 1.

THINK TWICE

Be cautious before entering one of the many agribusiness schemes being promoted, as they have attracted keen interest from the Tax Office. Ensure any scheme being considered has a taxation product ruling from the ATO. You should consult a tax adviser on the latest views of the ATO.

GENERAL

Small businesses should look at writing off any bad debts before June 30 this year.

Buy now any supplies or consumables and bring forward repairs, gifts and donations.

The entrepreneurs' tax offset is also available - it allows a cut of up to 25 per cent of the tax on business income for those turning over less than $75,000.

© 2008 Sydney Morning Herald

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