Each trustee should review the deed to ensure all correct procedures have been used in relation to distributing income. Additionally, the reviews should consider if franked dividends can be distributed to low-income beneficiaries to enable an entity to a refund of imputation credits.
Frank Brass, regional director for H&R Block, suggests businesses take careful note of assets being used that are starting to age.
“Review your asset register for any assets that are obsolete and no longer used in the business and dispose of them or scrap them. This will give rise to a balancing adjustment and a deprecation claim.”
Marc Peskett, partner in MPR Group, says those SMEs looking to claim a tax break under the small business investment allowance should consider how that asset is financed. If it is financed through a lease arrangement, it will generally be the lessor that is entitled to the tax break and not the business lessee.
“The lessor may pass on the tax break through reduced lease payments, but this will be subject to commercial negotiation and should be thoroughly investigated to see if there are savings to be achieved,” Peskett says.
“If the lease payments are reduced, the cash flow benefit of the investment tax break for the business lessee will be spread over the term of the lease, which may not suit the lessee if they are in a taxable position.
“Conversely if the business lessee is in a tax loss position then leasing, where the benefits of the tax break are passed on through reduced payments, may be a better cash flow option.”
Frank Klasic reminds businesses that fringe benefits taxes must be kept in mind, but there are some clever tricks entrepreneurs can use to reduce their payments.
“Car log books are not often used by employers in relation to calculating fringe benefit tax because it’s an administrative burden, but what this allows you to do is save on FBT where there is an element of use. Many businesses, because they don’t have adequate records, default to a statutory method and there [are] probably hundreds overpaid there.”
“It is also possible for employees to salary package meal entertainment packages at a lower tax rate than normal income tax rates. If an employee was to salary package that they could package that, plus the FBT tax.”
He also warns businesses that if an employee travels more than five nights outside of the country, there needs to be a diary kept of all activities undertaken. “This is a potentially large exposure to those companies undertaking travel,” he says.
Division 7A laws state that when an individual takes money from an entity, the value of that money or benefit is taxable in the hands of the individual. Chris Hope warns businesses that the ATO is giving these laws increased attention, so there should be special care taken when dealing with Division 7A loans.
“Loans made by a private company or trust to shareholders and/or associates during the 2009 income year that remain unpaid at the earlier of the due date for lodgement…of the 2009 Company Income Tax Return should be covered by a Division 7A loan agreement.”
Several companies would be familiar with Division 7A loan agreements, but Matthew Field, director of enterprise advisers at PKF, says the recent Federal budget has introduced some changes to 7A legislation.
“The Government is now going to look at taxing the use of company assets from 1 July. Previously, if you drew money from a business as a loan, the value of that loan is taxable. What they’re saying now is that if you use company assets, they’re placing a monetary value on those assets and are taxing those as well.”
“The tip here is [that] business owners need to look at what assets they are using otherwise they’ll be hit with tax. It’s catching people by surprise.”
Mark Morris says rental property owners should be aware the ATO is concerned about under-reporting of rental income, and over-reporting of rental deductions.
Nevertheless, rental property owners can claim the following: advertising, bank charges, body corporate fees, cleaning, council rates, electricity and gas, gardening, insurance, interest on loans, land tax, lease preparation expenses, legal costs, pest control, postage and stationery, property agent fees and commissions, repairs, secretarial and bookkeeping fees, security patrol fees, telephone calls and water rates.
Matthew Field reminds businesses that for the 2009-10 year, the tax-free threshold and low income offset result in low-income earners not paying tax on the first $14,000 earned.
“Consider ways of allocating income to any low income individuals in your family group and note the threshold will effectively increase to $16,000 for the 2009/10 tax year.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
