Taxable Payments Reporting – Building & Construction Industry
Businesses in the building and construction industry that pay contractors for building and construction services must lodge a Taxable Payments Annual Report with the ATO by 28 August 2016.
If you are charging a management fee to a related entity, it's important to ensure that the management fee amount being charged is commercially reasonable (special rules apply in the case of Services Trusts). The Tax Office is looking very closely at this area, particularly whether a management agreement is in place.
You need to ensure you are charging GST (if required) on inter-entity transactions unless you are grouped for GST.
Review your aged debtors listing for any bad debts and physically write-off before 30 June 2016 from your debtors' ledger. Bad debts are claimed as a tax deduction in the year they are written off. Remember to also claim back the GST.
Repair and Maintenance Expenses
If your business requires any significant repairs to machinery or premises, you may wish to do this before 30 June 2016 to secure your tax deduction for the 2016 year.
You can claim a deduction for repairs to machinery, tools or premises you use to produce business income, as long as the expenses are not capital in nature or an addition/improvement to an existing capital asset.
To repair something generally means to fix defects, including renewing parts. It does not mean totally reconstructing something. You do not have to own the property or item that is repaired.
If your business carries stock or inventory, you must do a stocktake at 30 June 2016. Identify any obsolete stock and scrap it prior to 30 June.
Any stock that has a lower market or replaceable value can be written down and a deduction can be claimed for the decrease in the cost. There are three different methods of valuing stock: cost, market selling value and replacement price. Different methods of valuation may be used to value the same item of trading stock in different income years, and similar items may be valued using different methods in the same income year.
Work In Progress (WIP)
For manufacturing businesses, ensure you have accurate records to record your WIP (costs) at 30 June 2016. Work in progress must include, all direct costs e.g. material costs and direct labour and manufacturing overheads e.g. rent, which is involved in the manufacture of a product which has not been completed by 30 June 2016.
For service businesses, ensure you have accurate records to record your WIP (time) balance at 30 June 2016. You can also review the WIP for any amounts which can't be billed and write off to clean up your WIP records (note this does not affect tax). Generally in service businesses, WIP is not taxable until it is invoiced.
Have you remitted GST to the ATO for all disposals of fixed assets, including trade-ins?
Ensure you include any GST adjustments arising from the fringe benefits tax return, (e.g. GST on employee contributions) and any prior year balancing adjustments in the June 2016 BAS.
If you have made significant gains on sale of CGT assets in the 2016 year and have other CGT assets which are worth less than what you paid for them, you may wish to consider selling them now and realising the loss. Be careful, as you can't sell an asset and then buy it straight back to realise the loss as this would be seen as tax avoidance – known as "wash sales". The loss can be offset against your gains and therefore reduce any CGT. To claim the loss in the 2016 year, you will need to ensure the sale contract is entered into before 30 June 2016. Capital gains are assessable in the year in which a contract of sale exchanges rather than when it settles.
Review your asset register for any assets that have been scrapped during the year. The written down value of these obsolete capital items can be written off, which will increase the tax deduction for the year. If you do not have a copy of the register, feel free to give us a call to obtain a copy.
Accelerated Depreciation For Small Businesses
From 12 May 2015, small businesses (aggregated turnover less than $2 million for 2016) will be able to claim an immediate tax deduction for most new or 2nd hand capital assets bought and used or installed ready for use in the business in the 2016 financial year costing less than $20,000 (excluding GST if the purchaser is registered for GST or inclusive of GST if the purchaser is not registered for GST).
This concession will continue until 30 June 2017.
Loans To Shareholders/Associates
New loans or financial assistance by private companies to shareholders or their associates will need to either have a loan agreement in place (meet minimum interest rate and maximum term criteria) or be repaid (by cash or dividends) before the due date of the company tax return.
The private use of company owned assets is also caught under Division 7A and you may need to ensure a market rate is being charged for its use.
Small businesses (aggregated turnover less than $2 million) can claim expenses prepaid up to 12 months in advance. For larger businesses, this is generally limited to expenses below $1,000 and certain prepayments required to be made by law (eg. worker's compensation insurance and vehicle registration fees).
Small Business CGT Concessions
If you sell your business (or active business assets) or the entity that carries on the business, or are considering selling your business in the future, please contact us prior to entering into any agreement to discuss eligibility to access the specific small business concessions that may apply to reduce or defer the capital gain.:
It is important to note that capital gain is determined at the date the contract was entered into and not settlement date. In a recent AAT case, it was held that the date of the contract for the sale of the business was when the parties signed the heads of agreement and not when the formal contract for sale was executed.