With the reduction in the company tax rate from 1 July 2015, the 2014/15 Federal Budget changes to the top individual tax rate and the indexation of the superannuation thresholds it is a good time to plan ahead for the 2014/15 tax year.
We will provide a more comprehensive article on business tax planning in the lead up to 30 June 2015.
1. Reduction in Company Tax Rate
1.1 Deferring Large Contract Income
With the reduction in the corporate rate to 28.5% effective from 1 July 2015, companies will want to defer their 2014/15 income if possible. This tax planning avenue applies particularly for companies with non-cash/credit card sales or services income.
For example, contracts can be structured so that the services or goods provided can be derived in mid-July 2015 rather than before 1 July 2015.
An additional benefit is deferral of June 2015 BAS payments.
1.2 Deferring Capital Gains
Planned sales of the businesses, or of major assets such as buildings, can best occur in July/August 2015. The small business CGT concessions may be available to eliminate a capital gain if aggregated sales turnover is less than $2.0m, or the net asset value is less than $6.0m. However, if the vendor or vendor controller is approaching age 55, or the small business retirement concession has already been used or is insufficient to absorb the whole capital gain after the 50% reduction, and the 50% discount if an individual or trust carries on the business or owns the related business asset, a deferral of the sales contract time may be in order.
1.3 Accelerating Larger Deductions
2014/15 revenue expenses can be accelerated. Major expense items such as advertising or promotion campaigns, extensive building repairs, as opposed to building extensions or improvements, and major equipment overhauls should be planned and contracted in advance so the tax-deductible contract point, before payment is due, occurs in May and June 2015 rather than in the latter half of the 2015 calendar year.
2. Superannuation Contribution Limits
2.1 New $35,000 Limit
The top tax-deductible concessional contribution threshold has been raised to $35,000 per employee, or self-employed contributor, from 1 July 2014. In addition, the age threshold has been reduced to persons age 49 and over on 30 June 2014, i.e. to people turning 50 in the 2014/15 income year.
2.2 Increased $30,000 Threshold
The lower tax-deductible general concessional contribution limit for individuals not eligible for the higher limit has been raised from $25,000 to $30,000 effective from 1 July 2014.
2.3 Super Guarantee (SG) Requirements
The SG rate has increased to 9.5% from 1 July 2014 and has been legislated.
The quarterly SG maximum salary and wages threshold have been raised from $48,040 to $49,430 per quarter from 1 July 2014.
SC super contributions remain payable by 28 July in the month following the end of the quarter.
If SG contributions are paid in advance, for example due to cash flows or tax planning reasons, the employer can allocate these additional SG contributions towards the SG obligations of later quarters which start within 12 months of the day on which the payment is made.
3. Paying Fringe Benefits to Employees
Fringe benefits provided before 31 March 2015 attract a 47% FBT rate, including the additional 0.5% for Medicare levy, rather than the increased 49% rate to apply from 1 April 2015.
Thus taxable fringe benefits should be considered before 1 April 2015.
4. Paying Dividends to Top Rate Shareholders
With the top individual marginal tax rates rising to 49%, including Medicare levy, from 1 July 2014, and applying for three years, company franked dividends should ideally be reduced so as to keep shareholder taxable income, including franking credits, to less than $180,000 for the 2014/15, and the next two income years.
However, if a higher level of dividends are to be paid, then franked dividends paid before 30 June 2015 will carry a 30% franking credit rather than the lesser 28.5% credit to apply from 1 July 2015. The change in the franking credit rate does have a substantial impact on the total tax for larger dividends paid.