Amina Ali
Are your clients looking to kick start the 2013/14 financial year? In the lead up to the new tax season, we’ve pulled together a tax strategy checklist that will help you ensure your clients are paying the correct amount of tax, whilst getting positive tax outcomes and staying in the good books of the Australian Taxation Office.
Whether you’re dealing with individual or business clients, this handy checklist will help you ensure your clients’ money is working as hard for them, as they do for it.
Checklist for Businesses
- Remind your clients about the importance of keeping their business records in good order. Not only will this simplify your job as their adviser and reduce their accounting compliance fees, it will help your clients ensure they are able to act on reliable performance data. If your client has elected to manage his or her own bookkeeping in-house, there’s no beating cloud-based accounting software giant Xero. Their flexible, flat-rate packages will help your clients maintain their books, produce real-time reporting, ensure timely and accurate decision making and help them pre-empt any issues that may arise with ATO data-matching enquiries.
- Revisit your client’s business structure. Is it still appropriate and producing the best results? Have structural considerations continued to guide ongoing business decisions? Take a moment to reflect on alternate structural arrangements. A little bit of time can produce profound results and small adjustments could save your client thousands and may affect his or her access to certain tax concessions.
- Consider, for example, the differences in the Capital Gains Tax (CGT) rollover relief provisions for companies and trusts. A sole trader who wishes to incorporate and transfer their business assets to a company faces no capital gains tax on the transaction. Conversely, no such relief from CGT would be possible if the same sole trader were to transfer his or her assets to a trust structure.
- Consider if leveraging the tax free thresholds of low-income earning family members over the age of 18 will be of benefit to your client. Trust structures are ideal for distributing income in a tax-effective way, but be aware, not all businesses should operate through a trust and compliance risk has increased significantly for trustees.
- Remind business owners with depreciable assets that, from the 2012/2013 year onwards, they can claim an immediate 100% deduction for capital assets that cost less than $6,500. For motor vehicles, the immediate deduction is $5,000 plus 15% of the balance in the first year.
Checklist for Individuals & Employees
- Remind your clients that purchasing private health insurance will help them avoid the 1% Medicare levy surcharge in 2013/14. This applies to individuals whose taxable income is > $84,000 or families with a combined taxable income > $168,000.
- Revisit your client’s investments and debt facilities. Are they in the correct name? Could they be structured differently to produce better tax outcomes? High quality financial planners will regularly review investment and debt structure, but there’s no harm in a second look, a fresh pair of eyes or another professional opinion.
- If your client has high assessable income and otherwise minimal deductions, the possibility of investing in negatively geared assets may be an attractive option. This is an excellent way to reduce taxable income, allowing your clients to claim back some of that Pay As You Go Withholding Tax. The key is to pick the right underlying asset, one whose return on investment and capital growth exceeds the cost of the tax-deductible debt, thereby enhancing your client’s overall wealth.
- If your client owns a rental property, encourage him or her to invest in a professional depreciation report. The report costs around $700 and is fully tax deductible. It almost always pays for itself in the first year with the deductions it generates and will be a source of added value year after year.
Checklist for Your Client’s Super
There are a wide range of tax incentives when it comes to contributing to superannuation. So, if your client can spare the cash in the short term, or he/she is at or approaching retirement, the following options may provide some benefit:
- Discuss the possibility of making a personal superannuation contribution if your client is a high-earning, primarily self-employed individual. As long as 90% or more of his or her income is from self-employment, your client will be able to deduct personal super contributions against other assessable income. The contribution they make will be taxed in the superfund at 15%. Note: This strategy will only be successful if your client’s marginal tax rate is greater than the superannuation tax rate on concessional contributions, currently a flat 15%.
- If your client is an employee in a high tax bracket, salary sacrificing into super is another attractive tax strategy. As with the previous point, this is one way to reduce your client’s effective tax rate while increasing his/her retirement savings. To avoid being hit with excess concessional contributions tax, remind your client to ensure their Superannuation Guarantee (SG) payments do not exceed the $25,000 cap. And keep an eye out – at the last federal budget, this threshold was lifted to $35,000 for people over 60, to be confirmed once the election is held in September.
- If your client is 55-60 years old and still working, he or she may consider setting up a Transition to Retirement Income Stream (TRIS) pension. This will reduce the proportion of earnings in your client’s superfund that are subject to tax, and, depending on their pension composition, they may be able to withdraw some tax free amounts from superannuation to supplement their pre-retirement lifestyle.
Articulating the Value of High Quality Advice
In addition to helping clients identify the options that are best suited to their unique needs, a skilled accountant will also stay abreast of legislative changes, be on the lookout for new ways to improve a client’s overarching financial situation and can provide access to an extended network of likeminded professionals. We always recommend speaking with your clients about the value of advice and the importance of working with a trusted financial adviser.
By Amina Ali, Kearney Group Financial Services