Nothing is ever simple with tax. Rather than just one confusing email with several ideas on minimising tax this year, we have sent out three, though hopefully not confusing, and explaining key issues to consider in a bit more detail (Superannuation, Legal changes from 1 July 2016, and Tax Office concerns & hit list).  If you don't have these, give us a call and we'll send you a copy.

This is a little long, but in detail so is understandable and not complicated.  Superannuation must be paid before 30 June to be a deduction this year, some things need to be thought about (stock, log books, accruals and prepayments), and some things we will provide (resolutions for trust distributions, directors fees, and Division 7 loans).

So, here are 12 top tips for EOFY 2016.

1. Superannuation

This is first because it has to be paid by 30 June to be deductible this year.

The maximum concessional (tax deductible) contributions this year are $30,000 (for those under 49) and $35,000 (49 – 75).  Between 65 and 75, to claim a super contribution the taxpayer must pass the work test, which requires 40 hours work over 30 days.

There are also benefits in transferring surplus cash (or even assets) into a fund, where earnings are taxed at a lower rate of 15%.  The annual cap on non-concessional (not tax deductible) contributions is $180,000, but it is possible to bring forward up to three years worth if under 65.  However, the 3 May Budget says the limit for all non-concessional contributions since 1 July 2007 is $500,000.  Even though there is no legislation, it is perhaps best not to exceed this (retrospective) limit.

2. Employee Superannuation

The June quarter SGC payments are not due until 25 July.  However, they are tax deductible this year if paid to the Fund before 30 June.

Also, employers must make contributions after 1 July by electronic means, for example, the ATO's Super Stream.  Funds won't be able to accept them otherwise.  So if you are not set up on this facility, perhaps pay before 30 June.

3. $20,000, Instant Asset Write-off

For businesses with a turnover less than $2m, any individual item purchased where the cost is less than $22,000 including GST can be immediately written-off, in full.  Above this, the asset must be depreciated.  However, the item must be installed and ready for use by June 30.

Next year, businesses with turnover up to $10m will be able to write off the whole amount too, so it could be worth delaying any acquisition until after 30 June.

This measure needs to be considered using common sense;  you are spending the full 100% but the tax benefit is your marginal tax rate, which for a company is 28.5% and most taxpayers 34%.

4. Dividend and Interest Income

Make sure interest and dividends received are declared in this year.  These are taxed when received (even if matured and re-invested), and franking credits must be applied to gross-up the dividend actually received.

5. Defer Income and Capital Gains

Businesses on the cash basis pay tax on income actually received.  A simple end of year tax strategy is to delay receipt of the money until after 30 June.  Businesses on the accrual basis could defer income by delaying the sending of invoices to customers until after 30 June.

Capital gains take their timing from the contract, not settlement, so delay signing until July.  As long as the asset has been held for more than 12 months, the gain is reduced by the 50% general discount, and the tax not payable until May in the following tax year.  The Small Business Concessions could reduce the CGT further, but business turnover must be less than $2m for the year.

6. Manage Capital Gains and Losses

You may have made a capital gain this year.  There may be capital losses from past years that can be offset against the gain, or you could have assets that have an unrealised capital loss, like shares, and reduce the gain with their sale before 30 June.

7. Distributions from Family Trusts

The distribution needs to be documented by 30 June in a Resolution or Minute.  The requirements will be in the Deed.  If not, the trust can be taxed at the marginal rate of 49%.  We hope to have Trust Resolutions set out early next week, for signing and return to us.

8. Trading Stock Valuation

All businesses have the option of valuing trading stock at year end at the lower of cost, market, or replacement value.  You can use any method for any item, and also change from year to year.  If you have obsolete stock, write it off or perhaps use a notional clearance market price.

Ensure you keep the stock sheets;  the ATO can ask to see them.

9. Motor Vehicle Log Books

Review log books to ensure the entries are not older than five years.  The log book is necessary to claim GST, manage FBT, and claim the right percentage of costs for tax.

10. Claim Deductions for Expenses not Paid at 30 June (Accruals)

All businesses are entitled to claim an immediate deduction for expenses 'incurred' (irrevocably committed to paying) even if not paid by 30 June but paid within a reasonable time after the end of the year. Including:

- Wages

Claim for the number of days employees work up to 30 June, but did not pay until the new financial year

- Directors Fees

Claim for directors fees if in a Resolution approving payment.  The director is not taxable until paid or the amount is put into a loan account or drawn

- Staff Bonuses and Commissions

Also deductible if 'definitely committed' to payment, are quantifiable, and should also be in a Resolution

- Repairs

Claim for equipment or vehicle repairs being undertaken

- Plant Write-off

If items are no longer working, scrap them and write the balance off as Depreciation adjustment

- Bad Debts

These must be actually written off before 30 June, some effort having been  made to recover them, and best evidenced in a Resolution.

11. Prepayment of Expenses

Provided the prepayment does not exceed 12 months that ends in the next income year, a deduction can be claimed.  Common prepayments include rent, lease payments, interest, business travel, insurance and subscriptions.  You might do this if next year may not be as profitable, so the deduction may save you more tax this year than next.

12. Division 7A Loans

These are advances to directors or associates, and can be treated by the ATO as an unfranked dividend.  To avoid this, a Loan Agreement must be in writing and in place before the current year tax return is lodged (which we do with the Tax Return).  Loans are repayable by principal and Interest over 7 years.  Another simple measure is to repay the Loan before 30 June.

In the new financial year, we would like to consider the following issues with our business clients; to improve profits and perhaps tax outcomes:

- A review of the business structure to ensure it is still appropriate

- How to achieve the best results from the business, whether profit, cash flow, or tax outcomes, and understanding the business financial drivers.

In all planning, whatever is decided or put into action, it needs to be well considered, the tax treatment be reasonable, and must be supported with evidence.

If something is not clear or you want to know about anything for year end or otherwise, please call us.