“Why does a slight tax increase cost you two hundred dollars and a substantial tax cut save you thirty cents?” ~ Peg Bracken
Financial Year 2013 – what do the tax changes bring?
With 1 July 2012 signalling the beginning of a new financial year, there are a number of tax changes and financial strategies that should be considered to make the most of your position in the year ahead.
If you wish to discuss anything in this newsletter, feel free to contact Value Beyond to see how we may assist.
1. Making budgets and planning for the coming year
While the ending of a financial year brings with it the need to review accounts and information in order to lodge tax returns, this also signals the beginning of a new financial year. This is a good time to consider the year ahead and make some plans so that next 30 June does not come around before you realise.
Budgets are essential to understanding what you expect of your business and personal finances, as well as understanding your cash flow so that expenses are not unexpected and any financial strain is minimised.
Reviewing investments, businesses and structuring can provide opportunities for improvement and change which can result in large financial benefits, both this year and over the future financial years.
2. Private Health Insurance
Changes to the Medicare Levy Surcharge and the government’s Private Health Insurance Rebate mean that you could end up paying more tax and more for your premiums.
If your income exceeds $84,000 per year for a single, or $168,000 for a family then you face either a 1% – 1.5% Medicare Levy Surcharge if you don’t have Private Hospital Cover, or your rebate is reduced to 20% – 0% if you do have cover.
A cost/benefit analysis is required to determine if the cost and benefits of private health insurance outweigh the additional tax being charged.
More information can be found here.
3. Small Business depreciation changes
From 1 July 2012, small businesses (turnover < $2 million p.a.) can claim an immediate deduction for assets costing less than $6,500 (excl GST). This threshold is an increase from $1,000 per asset, which represents a significant saving for those businesses looking to invest in equipment.
While the tax savings are significant, as the purchase of additional equipment is an investment decision it must be considered necessary for the business. Spending money on unnecessary items just to save tax is never a good financial decision.
More information can be found here.
4. Changes to superannuation
Following the release of the 2012 Federal Budget, changes to the superannuation caps have reduced the maximum deductible amount that can be contributed to superannuation. The concessional contribution cap (deductible contributions) is now $25,000 per year, and the non-concessional contribution cap (non-deductible contributions) is $150,000 per year.
While this limits the amount of money that individuals can contribute towards their retirement in a tax effective manner, there are other strategies such as utilising the CGT cap, and choosing investments such as owning your own business property in a SMSF.
These strategies need to make financial sense and help you achieve your long terms goals, but they can provide a significant boost to your retirement savings.
5. Changes to the taxation of trusts
There has been much talk about the change in the taxation of trusts following the Bamford case, and the recent legislative changes. Add to that the changes in the ATO’s administrative approach to trust resolutions and you could be mistaken for thinking that trusts are no longer a viable option.
As with any entity structure, the key action is to understand what is required to remain compliant, and plan your strategy around those requirements, making sure you are still achieving your objectives.
There are still plenty of reasons to utilise trusts (see free e-book), so if you have any doubts, contact us to discuss your position.
6. Director penalties for unpaid tax and super
New rules apply which make directors’ personally liable for their company’s unpaid PAYG withholding and superannuation guarantee amounts. In addition, the rules may reduce the director’s entitlement to credits for PAYG withholding where these amounts have not been paid to the ATO.
As the new rules place more responsibility on company directors, the change has highlighted how important it is for directors to keep up to date with the company’s obligations and ensure that the company remains compliant.
This need also highlights the importance of obtaining good advice to ensure that all obligations are met.
7. R & D Tax Incentive
Commencing on 1 July 2011, the new R & D Tax Incentive provides a refundable offset of up to 45% for businesses with a turnover under $20 million, where they have qualifying R & D expenditure.
While there are numerous conditions including registering with AusIndustry and keeping the necessary records documenting the research plan and expenses incurred, the refundable offset may provide much needed funding to enable the project to financially succeed.
8. Giving non-business and non-financial areas of your life priority
“After a visit to the beach, it’s hard to believe that we live in a material world.” ~ Pam Shaw
While our work and business affairs take up a large part of the time we spend each day, this does not mean that we can ignore other aspects of our lives. By taking time out for health, hobbies and holidays, this can release stress, ease tensions, improve relationships, and increase the focus and enthusiasm brought to our work lives.
While money is an important aspect of what motivates our actions, in most cases the desire to improve our financial position is actually to achieve other outcomes such as being able to enjoy our recreation time and to spend time with loved ones.
Why not start doing that today? As they say, there is no time like the present!