Times are tough so every dollar saved counts. Last week I provided the first ten of my top twenty tax tips for this financial year. This week I now provide you with my Top Ten Tax Tips for 2009. Remember that tax planning should be 365 days per year not just one month. These strategies are just as useful on 1 July.
10. Tax effective investments - These investments have copped a lot of bad press in recent weeks thanks to Timbercorp & Great Southern debacles, but you shouldn’t assume all are guilty by association. They generally have 100% tax deductibility (look for ATO Product Ruling). Unlike investments in shares or properties, if you invest say $50,000 in these types of investments you will get a tax deduction for $50,000. Will help with levelling out the tax on any capital gains made. Returns in this sector over the past decade have been better than other asset classes and would sit nicely in any diversified portfolio.
9. Education Tax Refund -Don’t miss out on this new tax rebate which gives a 50% refund on certain education expenses up to $750 expenditure for each primary school child and $1,500 for each secondary school student.
8. Realise capital losses - With the slump in the stock market this year, it is an opportunity to reduce the tax on gains made earlier in the year by selling a few non-performing shares. ATO was warned against "wash sales" where you sell shares & buy them back straight away. For those with self managed super funds (SMSFs) it is a great chance to transfer these shares into a lower taxed environment & potentially only pay 10% tax on future gains.
7. Keep your receipts - With the ATO increasing their audit activity this year yet again it is important that you keep your receipts. The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!
6. Prepay interest - Prepaying interest 12 months in advance before year end on your rental property or margin loan is an excellent strategy for those that will have a lower income next year due to factors such as maternity leave or redundancy.
5. Salary sacrifice/contribute into super - For those under 50 years of age you can contribute up to $50,000 per year into super & only pay 15% tax. This figure increases to $100,000 if you are over 50. Ultimately it is your money and you can build up your net wealth quicker instead of paying up to 46.5%. A great tax deduction for those in business.
4. Car log book - If you use your car for work purposes, then the best method to claim for it is the log book method. Purchase a log book from the newsagent, fill it out for 12 weeks & keep all costs associated with the running of your car including petrol, rego, insurances, servicing, repairs, lease payments, batteries, tyres, etc. You can start your log book now and roll it over into the next tax year. The hard work is worth it as deductions can be in the thousands and you only need to do a new log book every five years unless you change your job or car.
3. 30%/50% investment allowance - If your business needs to get some new equipment then take advantage of this great tax break of an extra 50% deduction for small business (or 30% for large businesses). Be careful that this is not a 50% cash rebate. You need to multiply the deduction by your marginal tax rate to get the cash flow benefit. Beware of potential FBT for cars purchased via companies and don’t just spend or get into further debt for the sake of a tax deduction. Also note that even if you order & pay for it this year, you only get the tax deduction in the financial year that you first get use of the new asset. Eg if delivery is on 1 July then tax deduction is in 2009/10 year not 2008/09.
2. Super co-contribution - If your (or your spouse’s) income is under $30,342 and you contribute $1,000 post tax into your super fund the government will match it with a further $1,500. It amazes me how few people actually take advantage of this great benefit. Free money!
1. Action - Ok you have got some great tax strategies, now it is time to take action. I get frustrated when people say “oh yeah, I remember you telling me that but I just didn’t get around to it” or “I forgot”. Wrong answer. Use the Nike Principle and just do it! You will be surprised how many slackos there are that simply miss out on easy money despite how simple these strategies are.
Friday, June 5, 2009
Mr Taxman's Top Twenty Tax Tips for 2009 - Nos 1-10
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?
