TAXATION - Avoid a tax hangover

Tax planning, what it is and why is it so important? Tax planning is the process of organizing your financial affairs so you can legally pay the minimum tax on your taxable income. The greatest mistake many people and businesses make is in not preparing financial statements prior to 30 June each year so as to calculate their estimated taxable income and thereby introduce measures earlier on to reduce the tax payable. Such tax planning measures could include taking advantage of the Government's incentive for asset write-off, increasing superannuation contributions, writing off bad debts, restructuring the business so as to protect family and business assets and minimise tax payable, buy a negative gearing property and, cash flow permitting, prepayment of expenses.

Tax 101 – What you need to know

TAX INVESTIGATIONS

Receiving a notice of intended taxation investigation from the ATO via telephone or mail can be overwhelming and in some instances cause an uncomfortable level of stress. If an assessment has been issued and your business is unable to pay the assessed amount, the ATO can issue a Garnishee Notice. The effect of a Garnishee Notice is that the ATO can request your banks to forward all monies within the business’ bank account directly to the ATO, leaving your business in a less than ideal financial position..

How can we help?

Appoint Forensic Accounting Group ASAP to deal with the investigation and we will;

• Determine if the ATO followed the correct process or is entitled to issue a Garnishee Notice in the first instance;

• Assist in providing supporting documentation together with legitimate and legal reasons, where applicable, on all issues raised by the ATO;

• Make application to the ATO to waive any penalties they intend to impose;

• Arrange a payment program with the ATO on your behalf to pay any legitimately additional taxes.

NEGATIVE GEARING AND TAX

Negative Gearing is where your borrowing costs and allowable tax deductions associated with your investment, exceed the Gross Income generated from your Investment. Allowable tax deductions associated with negative gearing include:

1. Costs in relation to acquiring your Investment(s) to be deducted over 5 years include - bank application fees, mortgage insurance, brokerage fees, stamp duty on mortgage and valuation fees;

2. Depreciation Costs: Total cost of building (2.5% over 40 years);

3. Fixtures and fittings, furniture, floor coverings, plant and equipment on new investment properties;

4. Accounting fees, advertising, bank charges, interest costs council rates, gardening costs, government charges, insurance, land tax, postage and stationery, property management fees, repairs and maintenance, commission, cleaning costs, pest control costs, telephone costs, water rates, motor vehicle expenses and other costs associated with the property.

PRIMARY PRODUCERS AND TAX

A primary producer carries on a business of primary production, which is defined in the Income Tax Assessment Act as meaning production from;

• The cultivation of land;

• The maintenance of animals or poultry for the purpose of selling them or their bodily produce, including natural increase;

• Fishing operations;

• Forestry operations;

• The manufacture of dairy produce by the person who produced the raw material used in that manufacture;

The following is a list of special tax concessions available to primary producers:

GOODS & SERVICES TAX (GST)

Goods and Services tax (GST) is a broad-based tax of 10% applied to most goods, services and other items sold or consumed within Australia.

MARGIN SCHEME AND GST

The amount of GST payable on a property sale is one-eleventh of the total price. If a property is sold under the margin scheme you will only be liable to pay one-eleventh of the margin, being the difference between the selling price and the value of the property in an approved valuation of the property as at 1 July 2000. The margin scheme can be used if you purchased the property before 1 July 2000 or purchased the property after 1 July 2000 from someone that:

• Was not registered or required to be registered for GST;

• Who sold you existing residential premises;

• Who sold the property to you as part of a GST-free going concern;

• Who sold you the property using the margin scheme.

• You cannot use the margin scheme if when you first purchased the property the sale to you was fully taxable and the margin scheme was not used.

CAPITAL GAINS TAX

All assets acquired since tax on capital gains come into effect on the 20 September 1985 are subject to a Capital Gains Tax, unless specifically excluded. Tax is payable on all capital gains after deducting any accumulated capital losses. The following are examples of assets that are exempt from Capital Gains Tax; residential home, car, personal assets and all depreciable assets used in the business.

From July 2015 Small business will be able to change the structure of their business, for example changing from Sole Trader or Partnership structure to an incorporated entity without incurring capital gains tax (CGT). You can reduce the capital gain on an active asset by 50% (in addition to the 50% CGT discount) if you’ve owned it for 12 months or more.