This is an area that tends to trip up entrepreneurs and business owners. But make no mistake, the Division 7A laws are crucial and must be followed to the letter.
The Division 7A laws dictate that loans or payments made to shareholders, or their associates, can possibly be taxed as unfranked dividends.
Greg Nielsen, partner and executive director in tax consulting at Pitcher Partners, says you need to make sure these loans are taken care of by the end of the financial year – a minimum amount of payment from the shareholder needs to be made.
“If you have loan balances at June 30, they represent a potential exposure going forward in that they have the potential to be treated as a dividend.”
Plenty of businesses, especially family businesses, operate through trusts. Taxpayers need to ensure they have all their trust distribution plans finalised before the end of the year.
As Greg Nielsen says, many small and medium business owners have to deal with these issues. If you are one, don’t leave it until the last minute.
“For many small businesses, these are run through trusts and it’s important to make sure they’ve finalised everything before the end of the year.”
“Especially because in some large trust groups you’ll have entries that are generating losses. As part of your planning, businesses in trusts need to think about what their profit and loss positions will be.”
Try and prepay as many expenses as possible in order to claim the deductions. Pitcher Partners partner Ali Suleyman says property investors in particular should watch out for prepayment opportunities.
“You can prepay interest on your borrowings and other rental expenses, such as repairs and so forth.”
“Also with investment properties, you may want to look at depreciation, which is a tax deduction you’re entitled to claim.”
Similar to the instant asset tax write-off, businesses can write off up to $5000 on a new motor vehicle purchase from July 2012. The rest of the vehicle’s value can be depreciated at 15% in the first year and then at 30% subsequently.
Tristan Webb, the national tax director at Crowe Horwath, says businesses thinking about buying a car should consider the write-off.
“It’s probably not a bad idea, if you’re thinking about buying a car, to do so now and even before the election date,” he says.
“It doesn’t matter who wins on September 14, all bets are off. Either new government will probably start winding back on some concessions once they’re in power.”
Last year the government changed the living-from-home allowance scheme. Temporary residents must maintain a home for their own use in Australia in order to claim the concession, and all individuals will need to be able to substantiate expenditure on accommodation and food.
This is the first year in which the new allowance applies. If you’re attempting to claim this allowance, then be sure you’re aware of the new requirements – especially if you need to keep a record of your expenditure.
Businesses often allow employees or executives to use company assets for less than market value. But tax experts say you need to make sure you’re doing this right.
This type of practice is categorised under “deemed dividends”. The dividend is equated to the normal price that would have been paid for the use of the asset.
There are ways to get around this, such as transferring the asset out of the company. But you need to be careful. Tax advisers will let you know the best situation for your own business.
It makes sense you would speak to a tax adviser before your lodge your return. But Stephanie Caredes, tax counsel at the Tax Institute, says plenty of entrepreneurs and businesses don’t talk to their advisers about industry-specific plans or taxes which could either help, or threaten their companies.
As a result, she says, getting last-minute advice is always a good idea.
“Talk to your tax agent and get any other tips they may have, particularly if it’s an agent who is familiar with your situation.”
“They might be able to recommend or make you aware of certain offsets or benefits you may be eligible for you didn’t already know about.”
Here’s one you may not know about – you can claim up to $150 in laundry expenses without having receipts. Good for all that dry cleaning.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
