Preparing for the financial year ahead

AccomNews Wednesday, August 19, 2015

0 4 minutes read

The start of a new financial year should encourage new strategies to be developed for the year ahead. Currently all the key drivers are in place for success in small business, interest rates at historically low rates for now and the foreseeable future with moderate unemployment and inflation rate.

So why aren’t we outperforming in our business?

I suggest the one missing piece of the puzzle is consumer confidence. In the accommodation sector (particularly the leisure market) business performance lives or dies based on consumer confidence. Despite the recent political uncertainty arguably behind us, we are still operating in an environment of relatively low consumer confidence, quite likely as a result of the uncertainty surrounding an economy operating in a post-mining boom environment.

However, it’s never too early to focus on financial strategies in order to minimise tax, reduce risk and be prepared financially for the year ahead. Effective tax planning is something that should be considered year round and, by making it a priority, could result in you paying less tax and reducing the cost of doing business irrespective of the level of consumer confidence. By preparing and updating a forecast of income and outgoings, businesses can identify times when money may be short and plan accordingly.

Following are some fundamental guidelines that can help ensure your business is prepared for the financial year ahead.

Managing CGT liability

If you are thinking about selling an asset this year for a profit, you may want to consider the available strategies to minimise capital gains tax that include:

Utilising the CGT small business and retirement concessions
Match gains and losses where possible to avoid carrying forward a capital loss
Defer a disposal to a subsequent income year
Defer a disposal to ensure the asset has been held for at least 12 months to potentially benefit from the 50 per cent discount

Maximising superannuation for over 50s

From 1 July 2015 the level of tax concessional superannuation contributions that you can make will be the same as the previous year.

For taxpayers under the age of 49 years, their concessional limit is $30,000 per year. For taxpayers aged 49 years or older on 30 June 2015, a contribution of up to $35,000 per year can be made in concessional contributions. Under the superannuation rules, the concessional cap is indexed in line with movements in average wages and increases in $5000 increments.

So now is the time to start planning how you can maximise your tax concessional contributions through different strategies if you haven’t already done so.

Commence a transition to retirement pension

From the age of 55 you can commence a transition to retirement pension from your superannuation fund. Delaying this transition could mean that you miss out on benefiting from the total franking credit refunds and the opportunity to convert taxable investment income in your superannuation fund into tax free earnings. If you are still working, the pension you initiate can be restricted to a retirement pension, or unrestricted if you have no plans to work again.

Withdrawal and re-contribution

If you have already started a pension, it may be worthwhile to consider a withdrawal and re-contribution strategy to enhance the tax fee component of your superannuation. This option provides advantages where you anticipate beneficiaries inheriting a portion of your superannuation.

Maximising your investment property claim

Property investors could guarantee more cash in their pockets this financial year by maximising property depreciation deductions.

A qualified quantity surveyor can carry out an inspection of an investment property and prepare a depreciation report which can then be used in a tax return. The property investor can claim the depreciation of the investment property against taxable income and in turn result in the property investor paying less tax.

When these assets are not classified correctly, money is lost in the early financial years following the purchase. Often the obvious assets are identified and depreciated with the more inconspicuous items are sometimes overlooked. This often results in them being combined with capital allowances and claimed at 2.5 per cent instead of the much higher rates based on their effective life. That may mean a significant difference in the deduction for the property investor.

Estate planning strategies

Estate planning is more than just having a will. It is about ensuring that a person’s estate is passed on to their beneficiaries in the most tax effective and financially efficient manner possible when they are gone. Getting early advice on setting up an estate plan can help you to achieve peace of mind in knowing that your wealth will be passed on in the most tax effective way and ensure it is carried out according to your wishes, which is often a problem with a simple will.

An estate plan maximises your assets and takes into account other non-financial matters, such as the care of dependent children, medical treatment and accommodation if you are incapacitated. It also considers your charitable, community and cultural requirements. If you pass away without a will, your assets are distributed by following a standard statutory formula and it is likely that distribution will not play out the way you would have liked. For those who do have a will, it may only cover what to do with your personally owned assets and other considerations like superannuation, trusts and business assets may have been left out.

In developing an effective action plan for dealing with your estate, the following considerations should be made:

How will your business wealth be dealt with?
How should your superannuation be dealt with after your death?
Who is to receive your gifts and legacies and when should they be given?
Who will be appointed executors of your will?
Who will control your non-estate wealth holding entities, including family trusts?

An estate plan is something that should be considered, no matter how young or old you are.

Outlook for the year ahead

Two significant small business tax announcements in the recent federal budget should start to take effect over the next 12 months.

You may recall the government announced an effective 5 per cent cut in tax rates for small business, together with an accelerated depreciation write-off of up to $20,000 on business assets. Combined with record low interest rates we expect these measures to flow through to improved consumer confidence which can only be good news for the accommodation sector.