As the end of the financial year approaches it is important to consider likely taxation implications that may arise as a result of the past 12 month’s hard work. This would normally involve preparing projected financial results to the 30 June 2005, based on financial performance to date and using these results to estimate and plan for future taxation obligations.

In considering any taxation obligations that may come to light, it may be possible to minimise tax through some simple tax planning techniques. These include, but are not limited to, the following:

1. Superannuation contributions
Where a person is self employed (ie. satisfies the requirements of being an eligible person and has less than 10% of their assessable income from employment) and makes a superannuation contribution to a complying superannuation fund, a deduction is available for the first $5,000 plus 75% of the excess, subject to the following limits:list
With the removal of the work test requirement for making superannuation contributions, a non working spouse who receives taxable income via trust distributions will also be able to use the above superannuation deduction thresholds.
Where medical practitioners operate through medical practice companies, employer contributions can be paid on their behalf by the company. As these contributions are employer contributions, sums paid are fully tax deductible to age based limits.

It is important to remember that where a tax deduction is claimed for a superannuation contribution, the contributions are taxable to the superannuation fund. The superannuation fund will pay a 15% contributions tax on any amounts claimed as a tax deductions by a self employed person or an employer of the member. If the member’s adjusted taxable income is greater than $99,710, then Superannuation Contributions Surcharge is imposed on the fund up to a maximum rate of 12.5% (2004/05). The recent Federal budget proposed that the Superannuation Contributions Surcharge will be abolished from 1 July 2005.

Superannuation can provide significant tax savings as part of the year end tax planning strategies and ought to be considered in the light of tax concessions available upon earnings and retirement pensions.

2. Prepaid expenditure
Taxpayers who are eligible and have elected to enter the Simplified Tax System (STS) can pre-pay expenditure for up to 12 months and claim an immediate deduction. This provides an opportunity to defer income tax to a later income year by prepaying expenditure such as rent, interest and insurance. If a business taxpayer has not elected to be in the STS system, then any prepayment of expenses beyond 30 June 2005 will need be apportioned and claimed as a deduction over the period to which expenditure relates. Individuals who are not carrying on a business still have the opportunity to prepay expenditure, even where they are not part of the STS system, eg. interest on rental property loans.

3. Overhead expenses
Business expenditure on overhead expenses such as repairs, consumables, stationary and advertising material may also be incurred and paid for before 30 June 2005 (STS taxpayer) to obtain a taxation benefit.

These suggestions provide a guide to some tax planning opportunities that can be used before 30 June 2005. As is the case with all taxation matters, every taxpayer’s situation is different and we would recommend you consult a qualified accountant to assist with your year end tax planning opportunities. The key is to prepare projections and plan your likely tax position well before the 30 June 2005.

In reference to our previous article on service trusts in the February 2005 edition of GPSpeak, the Australian Taxation Office has now released a draft taxation ruling TR 2005/D5 – “Income Tax: deductibility of service fees paid to associated service entities: Phillips arrangements”. Although this ruling is only in draft format, any taxpayers using service trusts as part of their business structure should carefully review this ruling to assess the possible impact on their likely tax position before the 30 June 2005. We also note that the draft ruling has retrospective application.

Russell Franey is a partner at Thomas Noble & Russell Chartered Accountants. For further information, phone Russell, Peter Morrow or Gavin Tulk on 6621 8544.