Tax Time 2017
With 30 June fast approaching it’s time to have a look at your earnings for 2017 and make any tweaks needed prior to the end of the year. Whether you are a wage earner or run a business, reviewing your position now will make life much easier. To help you enter the 2018FY with more certainty, here are some factors/actions worth considering:
Pay deductible amounts prior to 30 June
Pay any amounts which are deductible before 30 June. Sounds easy but any work-related items need to be paid for prior to year end to be deductible in 2017. Make sure you keep a copy of your receipts, preferrably as a digital copy which wont get lost or fade. Don’t forget things like donations, professional associaion fees, union fees and income protection insurance.
A consideration particularly for those people nearing retirement is that in 2017 $35,000 can be sacrificed into super pre-tax. This will drop to $25,000 in 2018 so the next few weeks are a good time to ensure you maximise your contribution. Remember that any super paid by your employer at 9.5% of earnings under SGC rules also counts towards your total.
Consider the timing of any capital gain
If you have a capital asset which you are considering selling or have sold that great! Trying my best not to be a wet blanket though, there are tax factors to take into account. You might for example be one of the lucky or insightful people who bought bitcoin in 2010.
Assets held for over 12 months get the awesome benefit of the 50% CGT discount and so any gain is halved and taxed your marginal tax rate.
With gains taxed at marginal rates, it is better to realise a gain in a year where other earnings are low. This is due to Australia’s progressive tax rate system.
For example, a $20,000 gain for a high income earner (over $180,000) paying tax at the 49% rate (including medicare and budget repair levy) means an extra tax bill of $9,800. Compare this to an individual who earned $30,000 plus the gain, paying tax at the 34.5% rate (including medicare levy). They would have an extra tax bill of $6,900 making them $2,900 better off than the high income earner.
For the high income earners amongst us the budget repair levy is in it’s final year in 2017. Deferring an asset sale until 2018 would save a high income earner (taxable income over $180,000) 2% of the net gain in tax.
Another way to reduce your overall gain for the year is to consider selling any loss making assets prior to 30 June. This loss can be used to offset the gains made from other capital assets and could reduce your overall tax bill.
For business owners you should by now have a pretty clear picture of your performance for 2017. This includes factoring in any tax which will need to be paid and getting your 2018 budget sorted. If this isn’t the case I would highly recommend getting in contact with your accountant!
The company tax rate for 2017 is 27.5% for business with turnover less than $10 million, down from 28.5% in 2016. The rate is expected to stay here until the 2025 tax year with the ultimate goal of reaching 25%. The reduction will gradually be applied to companies with a turnover of up to $50 million. As a result franking credits on distributions will be lowered to 27.5% from 2017 and will reduce progressively with the tax rate. Further info on the government’s tax cut agenda is available on the ATO website here.
For small businesses which aren’t companies there is a tax offset of 8% up from 5% in 2016 for business with turnover less than $5 million. This offset can save up to $1,000 in tax and the threshold will sit at $5 million for the forseeable future.
Lastly, the $20,000 instant asset write-off can be utilised for assets costing less than $20,000 installed ready for use by 30 June 2017. Scott Morrison announced an extension to 2018 in the May budget so it perhaps isn’t as big of a rush as it might have been. For a small business profit making company this would give a potential tax benefit of $19,999 x 27.5% = $5,500. If taxable net profit is less than $20,000 however the benefits would be reduced. It is worth weighing up several factors prior to making any decision on acquiring new assets.
These are just a few factors to consider regarding your 2017 tax return and are not intended as advice. Other factors not mentioned may apply to your situation and could affect any tax outcome. As always, talk to your accountant regarding any of these or other issues in time to take any action necessary prior to June 30.