The following tax planning checklist provides a general list of major issues that should be addressed
Deferring Assessable Income
Application of Arthur Murray Principle to receipts
Review contracts for the provision of services to determine whether income from such contracts can be regarded as only being derived as and when the services are rendered
Accruals of interest, rent and other regular contractual payments
Consider the basis on which interest or income is derived and the scope for income deferral.
Sale and work in progress
Consider the deferral of sales until the next financial year
Realization of assets
Consider the postponement of the realization of any assessable gains such as capital or foreign exchange gains until after year end. Consider delaying the disposal of an asset that would have recouped depreciation. Consider the CGT depreciation rollover relief where possible.
Realization of foreign exchange gain
Consider the deferral of realizing foreign exchange gains until after year end.
Insurance proceeds
Consider the timing of lodgment of an insurance recovery claim, subsequent negotiation with the insurer and final payments.
Trading stock - valuation
Consider the benefits of revaluing trading stock.
Accelerating Deductions
General
Have the outgoings sought to be deducted been properly 'incurred'?
Prepayments
Has an immediate deduction been claimed for prepaid expenses that are
-less that $1,000 (GST exclusive)
-required to be made by court order or law
-made under a contract of service e.g. salary and wages
-capital or private in nature
-incurred by an STS taxpayer, or is non-business expenditure incurred by an individual taxpayer, with an eligible service period of no more than 12 months.
Realization of Assets
Consider realizing assets that will produce capital or revenue losses which can be used to offset capital or revenue income in the income year.
Superannuation Contributions
Ensure superannuation contributions up to age based limits are actually paid by year-end.
Employee Bonuses
Ensure that staff bonuses are quantified and documented prior to year end to enable a deduction to be claimed for bonuses accrued (Merrill Lynch v. FCT).
Foreign Exchange Losses
Ensure that foreign exchange losses are crystallized before year end so that a deduction can be claimed.
Capital Allowances
Check whether assets costing less than $100 can be immediately written off. Check if there are assets costing $1,000 or less (other than a horticultural plant) that can be allocated to a low-value pool.
Trading Stock Write-offs
Determine whether items or lines of trading stock should be scrapped or have become obsolete.
Black Hole Expenditure
Determine whether expenditure incurred by a business on or after 1 July 2005 that is not deductible, amortized or capitalized under any other provision, could be deductible pursuant to s 40-880 of the ITAA 1997.
Bad Debts
Check whether any debts can be written off as bad debts. Where there is a change in the ownership or control of the company or trust, check that the entity passes the same business test. Ensure that all necessary steps required to write off a debt are completed prior to year end.
Gifts, Donation or Contributions
Check whether deductions have been claimed for gifts or contributions that were made to 'Deductible Gift Recipients'.
Capital Gains Tax
CGT Discount
Check whether the capital gains made by the taxpayer, where the disposed assets have been held by the taxpayer for at least 12 months, are eligible for the CGT discount.
Small Business CGT Discount
Consider whether the taxpayer is eligible to utilize any of the following concessions.
-the small business 15-year exemption
-the 50 percent active asset reduction
-the small business retirement exemption
-the small business rollover relief
Individuals
Salary Sacrifice
Ensure that salary sacrifice arrangements have been considered in light of TR 2001/10.
Low Income Tax Offset
Check whether the taxpayer is eligible for the full low income tax offset. If so, the taxpayer would not be liable to pay tax until their annual income exceeds $10,000.
Trusts
Family Trust Election
Determine whether any Family Trust Elections are required to be made for the purposes of loss recoupment, satisfying the 45-day holding period rules or allowing a loss company to satisfy the continuity of ownership test.
Companies
Dividends
Check whether the taxpayer has a deficit franking account balance at year end. If there is a deficit franking account balance:
-consider deferring any franked dividends to the next financial year
- check the liability for franking deficit tax
Ensure that the 45-day rule has been considered in relation to dividends paid/received by the company.
Fringe Benefits Tax
Ensure that in-house benefits provided are less than $1,000 to minimize FBT liability. Ensure that minor fringe benefits provided are less than $300 to minimize FBT liability.
Losses
If the taxpayer has tax losses to be recouped, ensure that the continuity of ownership test (COT) or the same business test (SBT) has been passed.
Division 7A
Check whether loans from provide companies to shareholders or associates of shareholders would be deemed as payments of unfranked dividends unless established on excluded loan terms. Check to ensure that a private company did not make payments to or forgive debts of shareholders or associates of shareholders which are not excluded under Division 7A. Ensure that pre-4 December 1987 loans are not refreshed.
Tax Compliance
Research and Development
Ascertain whether the taxpayer may be eligible for the R&D tax concession.
Superannuation Guarantee – 'ordinary times earnings'
Consider whether all required Superannuation Guarantee contributions have been made for the year.
Transactions at risk under ATO Compliance Program
Arrangements which are contrived and artificial in their method of execution.
Arrangements involving limited or non-recourse financing associated with a round-robin flow of funds.
Use of non-recourse or limited recourse loans which limit the parties' risk or actual detriment in relation to debts/investments.
Arrangements where the taxpayer is not subject to significant risks when the tax benefit is taken into account because of the existence, for example of a 'put' option.
Little cash outlay associated with borrowing of funds under a capitalizing debt facility.
Mechanisms for winding up or exiting an arrangement before net income is generated for an investor.
Use of tax exempt entities, especially charities, to wash income.
Transactions involving tax havens.
Transactions between related or unrelated parties which are not at arm's length.
Transactions which do not occur at market value.
Financial arrangements made on unusual terms; e.g. interest rates above or below market rates, security for loans of little value in comparison to the principal amount, repayment of loan substantially deferred until the end of a length repayment period.
Arrangements where the transaction or series of transactions produce no economic gain or loss, e.g. where the whole scheme is self-cancelling.
Arrangements which lack economic substance and are not rationally related to any useful non-tax purposes, for e.g. inter-group or related party.
Fee structures aimed at circumventing the prepayments provisions in the tax law, particularly structures to exploit the $1,000 excluded expenditure threshold.
Liability limited by a scheme approved under Professional Standards Legislation.
Copyright - 2009 MJC & CO. Pty Ltd
The information contained in this site is general and is not intended to serve as advice. No warranty is given in relation to the accuracy or reliability of any information. Users should not act or fail to act on the basis of information contained herein.
