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Ensure the money is repaid. (In this case no documentation
or interest payments are required to avoid being caught in the
Division 7A net.)
Declare a dividend and treat the amount as income. (In this
case, the dividend may be franked if applicable.)
Enter into a complying loan agreement.
What should a private company do regarding a loan to
shareholders or their associates from past financial years that
are undocumented and sufficient repayments have not been
Banister says the company should make sure that a complying
agreement is in place, and bring interest and capital repayments
up to date. And then the shareholder who received the money
from the company should “go cap in hand” asking the tax
commissioner to exercise his discretion to provide relief from
5. CHECK YOUR PRIVATE USE OF
PRIVATE COMPANY ASSETS
Be aware of the possible consequences when using private
company assets for private purposes – you could be caught with
a big tax bill plus penalties.
Deemed dividends now arise under Division 7A for the
personal use of private company assets by their shareholders or
associates for free or for less than market value.
Banister says that a difficulty with the private use of company
assets is calculating the market value of this usage. “For
example, it’s going to be hard to find a benchmark for the use of
a Ferrari or private yacht that is owned by the family company.
You have to pay for the usage as you go.
“T here may be a credit loan account that is owing to the
individuals using it and they might charge against that loan [for
private use of company assets].”
6. SPLIT INCOME WITHIN YOUR FAMILY
Often, this tax-cutting strategy typically involves holding non-
super investments either jointly with a lower-earning spouse or
in the name of that spouse.
Another popular method is for a discretionary trust to direct
investment income and capital to lower-earning family members.
Significantly for income-splitting strategies, the Federal
budget announced that children under 18 will no longer be
eligible from July 2011 for the low income tax offset on their so-
called unearned income (such as dividends, interest and rent).
This means that unearned income paid to children — perhaps
through family trusts — will be subject to the full penalty rates
applying to minors.
Under existing law, the offset enables children to receive the
first $3333 in unearned income without paying tax. But from July,
children can receive only $416 without paying tax.
7. DON’T BOTHER TIMING THE
PURCHASE OF YOUR NEXT WORK
As announced in the budget, small businesses can claim
an immediate $5000 tax write-off for vehicles bought from
July 2012. There is the possibility that this may convince some
businesses to postpone buying their next utility or car.
Indeed, the Government also proposes from July 2012 an
immediate tax write-off of all assets valued under $5000 —
up from $1000 at present. Again, this may encourage some
businesses to delay some purchases if practical.
Banister says some motor traders are concerned that the
budget measure to provide small businesses with an immediate
$5000 write-off for their vehicles will persuade many to postpone
purchases for 13 months. But he is unconvinced.
“ I f you are a small business that needs to upgrade your
vehicle now, this would surely override the minor tax benefit by
deferring the purchase,” Banister says.
8. ALWAYS CONSIDER ELIGIBILITY FOR
SMALL BUSINESS TAX CONCESSIONS
Banister suggests that small business owners keep a close
watch on their eligibility for the raft of small business income tax
and capital gains tax concessions. And, where appropriate, take
action to remain eligible for the concessions.
The prime test for eligibility is having a turnover of under
$2 million for the current tax year. However, if your business
does not fall within this threshold, business owners may still be
eligible for highly valuable small business CGT concessions if net
assets included in the test do not exceed $6 million.
9. DON’T FORGET THE BASICS
Among the basic end-of-year tax strategies is to defer income
until the next tax year and to accelerate deductions into this tax
year where possible.
Ways to accelerate deductions include prepaying interest,
undertaking last-minute repairs and maintenance to business
or investment properties. And small businesses can claim
immediate deductions for certain prepaid expenses.
Interestingly, the flood levy for 2011–12 — generally applying
to individuals earning more than $50,000 — may encourage
a few owners of unincorporated small businesses or trusts
to maximise their income this financial year when less tax is
paid by the shareholders or beneficiaries. And some might
simultaneously consider deferring deductions until next financial
year because of their increased value with the flood levy.
However, Prestney does not think that a strategy of bringing
forward income because of the flood levy will be tax effective.
She believes most SMEs would probably have to borrow the
money to pay the extra tax this financial year. “ T hat’s going to be
more expensive than paying the flood levy. The numbers don’t
10. WRITE-OFF BAD DEBTS
Check through your list of debts and check whether any
should be written-off.
Under the accruals method of reporting income, bad debts are
generally deductible. However, bad debts must be written-off in
the same income year in which the deduction is claimed.
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