I always get asked for a tip or two, particularly around tax time each year. So over the next 2 weeks I will provide my top twenty tax tips for 2009. Please note that not all of the tips will be applicable to you or your business and you should consult your own adviser/s to assess your own particular needs before implementing any of them. Remember that effective tax planning should be over 365 days per year, not merely the few weeks before 30 June.
20. Private health care – if you are single & earn over $70,000 (or a couple earning over $140,000) then you should know by now that for 99.7% of us it is probably cheaper to get basic hospital cover to avoid the 1% Medicare levy surcharge. Note that you do not need to get ancillary cover (ie dental, physio, acupuncture, chiro, etc) although I reckon that this is where all the value is with private cover these days.
19. Travel diaries – if you travel more than 5 days interstate or do any overseas travel for business then you need maintain a travel diary to substantiate your claim. The diary must be quite detailed and record dates, places, times and duration of activities and travel. Keep business cards of who you see & if possible, make a presentation/report to your work.
18. Get a great accountant – Great accountants are like quantity surveyors ... they know where the boundaries are. By not using an accountant, you could be paying too much in tax or you could be leaving yourself open to a visit from the ATO auditors. And their fees are tax deductible! If you are looking for one then drop me a line.
17. Medical expenses – there is a rebate for out of pocket medical expenses (ie the gap) over $1,500 – they must be provided by a registered medical practitioner (ie a doctor & not physio or chiro unless referred by them) & also includes prescriptions. In tough times, people generally get sick so if you are close to the $1,500 threshold you may want to bring forward some costs (such as new glasses, visit to the dentist) before 30 June & get an effective 20% discount from the taxman. It may even be worthwhile to register for the Medicare Safety Net.
16. Depreciation schedule – if you have bought a rental property this tax year, and it was built after 1985, then it is definitely worthwhile organizing a depreciation schedule from a quantity surveyor now. It takes about 3-4 weeks to organize & costs around $500-600 but you get the benefits back tenfold with tax savings via increased depreciation claims.
15. Scrap obsolete stock & plant – got some old plant or stock that your business simply can’t sell? Then physically write it off before 30 June & get a tax deduction for it this year.
14. Income splitting – it amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see rich businessman with high income taxed at 46.5% also paying 46.5% tax on interest or dividend income which could be in put in their lower taxed spouse (0% or 16.5%) or company (30%).
13. Write-off bad debts – like obsolete stock, for a business to get a tax deduction on its bad debts it must physically write off the debt prior to 30 June. Note that the debt must have been originally shown as income in order for the write off to be allowed.
12. Defer income & bring forward expenses – it is always a good idea to try & defer your taxable income to next financial year. If you have expenses such as professional membership subscriptions due on 1 July, pay them before 30 June to reduce this year's tax. For those in business you may want to defer your invoicing til next tax year.
11. Don’t spend purely for a tax deduction – there are so people that get caught out at this time of the year in spending money purely to get a tax deduction. Remember that it is a play on marginal tax rates. If you are running a business via a company then you are only getting 30% back. If you want a $100,000 tax deduction before 30 June my accounting practice will gladly invoice you & accept payment. But you will only get $30,000 tax benefit & the transaction has cost the business $70,000. So don’t get caught out by the fancy marketing of retailers in coming weeks. Always think of my A-B-C motto … Absolute Bloomin’ Cash.
Does your business do any tax planning?
Monday, May 25, 2009
Mr Taxman's Top Twenty Tax Tips for 2009 - Nos 11-20
Monday, May 18, 2009
When your business shouldn't bother with the 50% Bonus Deduction
Well the Federal Budget came out last week and most pundits labeled it as a pretty tame affair particularly with respect to businesses. I have to agree.
There was no change for large business and the only significant change for small business was the extension & increase of the Small Business Tax Break – from 30% to 50% bonus deduction to small businesses (ie turnover under $2M) for assets acquired between 13 December 2008 to 31 December 2009.
The media have been raving about how great this measure is for small business. 50% extra deduction. Sounds great doesn’t it? Well I am not that excited for quite a few reasons as outlined below:
1. To enjoy the bonus deduction your business has to outlay extra cash to buy the assets. With times being tough, cash is king. Don’t forget my A-B-C motto of money matters – Absolutely Bloomin’ Cash – a business with poor cashflow is going to struggle in the coming months and years. Why put pressure on your cashflow if you don’t need to? I am predicting alot of businesses will get their cashflow requirements wrong & get into strife, thus putting more pressure on the economy if businesses fail.
2. So let’s say that you want to preserve your cash. And that you want to finance the purchase instead. If you need to finance then you are merely putting more pressure on the business’ balance sheet and future cashflow commitments. And business finance is not cheap these days either despite the RBA reducing the benchmark interest rate significantly in the last year. Haven’t we learnt any lessons from the global financial crisis?
3. Most businesses operate as a company. And the company tax rate is 30%. This means that you are only truly saving 15% (being 50% of 30%) on the ticketed price of an eligible asset purchase. Not 50% that some business people believe. It is only 9% for large businesses as they are only getting a 30% bonus deduction. If my business needs an asset then I am going to look at second hand first because you are saving alot more than 15% from the cost of a brand new asset. You can probably negotiate a discount of that size as well anyway!
4. The industry that is heavily promoting the 50% tax break is the car industry. God knows that this ailing industry needs a helping hand & the 50% deduction will definitely give them more customers in coming months. But remember that you need any car purchase registered in the same entity as your ABN. For small businesses this is a company structure. And we know that when companies have cars owned by them and provided for the benefit of employees and their associates that Fringe Benefits Tax may apply. If the car is hardly used – that is, less than 15,000 kilometres travelled per year – then the FBT rate is 26% of the original cost of the car … every year as well before reducing by 1/3 in the fourth year and beyond that you have the car. Yes the taxman giveth … but the taxman can taketh away too!
By all means if your business desperately needs to buy an asset then by all means go out & take advantage of this great Tax Break. But don’t go out of your way for a 50% tax deduction because it really isn’t as attractive as what you may think!
Is your business going to take advantage of the 50% Tax Break?
Monday, May 11, 2009
$260,000 Jobs - Where Do I Apply?
Last week we saw the announcement of winner of “the best job in the world” up in Queensland. What a great job. $150,000 for six months “work” telling the world how beautiful it is staying on those beautiful tropical islands. What a lucky “you-know-what.”
That was one of the great marketing campaigns. The whole world found out what a lucky country we are living in. But I have found out some info to truly knock your socks off & realize just how lucky.
How would you like a $260,000 job? Don’t think you have a chance? Don’t worry there are 200,000 of them. Got your interest yet? Where do you apply?
Well looking at the reports on the impact of the Federal Government’s stimulus package, that is exactly what has happened in Australia in the past year.
The Prime Minister yesterday announced that an estimated 200,000 jobs have been saved as a result of the two stimulus packages in the past year. Great news headline. When I heard that it sounded great but hang on a minute. I worked out that given the cost of the packages totaled $52 billion, that equates to $260,000 per job potentially saved.
The headline doesn’t look so attractive now, does it? Imagine the cost per job if we find out that only 100,000 jobs have been saved.
With record deficit budgets, perhaps the Government would have been better off doing nothing at all. Instead wait and see if there would have been an 200,000 extra on the unemployment line this time next year and provide extra Centrelink benefits to those people then. Based on current Centrelink rates, the extra unemployment could be carried for more than a decade for the same cost.
Perhaps it would have been better for businesses to have been the direct benefactors of the stimulus packages. After all they are the ones that need to incentivized, via grants or lower taxes, to create more jobs and kick-start the economy again. If you can’t make a decent profit when you run a business, why take the risk in the first place?
As I say there is no point paying someone $900, if they are going to lose their $50,000 job.
What do you think the Government should have done last year? Should they have tried to stimulate the economy?
Monday, May 4, 2009
You may change the tax rules, but we will still find the loopholes!
Aaahh … Federal Budget week. It always brings so much joy to accountants throughout Australia. Why? Because you matter who is in Government & no matter how long they have been in power, they always feel that there is a need to tinker with the tax rules.
FBT, CGT, GST, Simple Super, Simplified Tax System, Consolidation, Personal Services Income, Investment Allowances, Senior Australians Tax Offsets, highest marginal rates, rebates … the list seems to go on & on.
And when they tinker with the tax rules, there is always one common denominator and that is that these changes always bring more work to accountants around Australia.
Legislation changes also seem to provide an opportunity for the “boring number crunchers” to show their “creative flair” to try and create a loophole to get around the tax change. Every year the government changes the tax system and every year there is a new strategy that comes into play to combat. Make no mistake, the rich – or rather their accountants’ - will always find a way to pay as little tax as possible.
Even the $900 stimulus payment has strategies like co-contributing into super to make it worth $2,250. Something simple as a handout has a loophole to make it more attractive and against the grain of its original purpose.
I am seeing a number of accountants about town with a bit of a smirk this week. This is because they have heard all the whispers and leaks of dramatic changes in next Tuesday’s budget by Mr Swan. Changes to marginal tax rates, super surcharges, stopping of imputation credits, and the like. I am not really sure if it will make a lot of difference at the end of the day.
The real winner? Not the Government. Not the poor. Not even the rich. But the accountants’ bank account of course because they get to charge more and more fees as the rich still find a way to pay the same amount as before.
Why does the Government still persist in changing the laws all the time? I don’t know but I reckon they will lose some voters next Tuesday night.
If you want to see accountants cry foul at the budget … and I mean really cry foul & not pretend that they do … make tax returns no longer compulsory and give taxpayers a cheque automatically from the Government based on an estimate of their income and expenses. A budget that takes business away from accountants … I’d like to see that!
