Year-End Tax Planning

Below are some issues that may be of some benefit to your particular situation:

Timing issues: Derivation of income and incurring deductions

The deferral of income may be achieved by affecting the time of derivation of income or by bringing forward deductions.

The benefits of deferring assessable income or bringing forward deductions will depend on the circumstances of each taxpayer and their overall anticipated tax position in the current and future income years. Common deductions that can be brought forward:

• Bonuses
• Interest
• Directors Fees
• Training
• Development
• FBT June quarter installment
• Superannuation (must be paid before 30 June not merely incurred)

The impact of your cash flow also needs to be taken into consideration before any expenditure is brought forward or income deferred.

Bad debts

A review of the current debtors list should be conducted at the end of the financial year to write off any bad debts. To ensure a deduction is allowable for a bad debt the debt must be bad, not merely doubtful and physically written off at year end.

Trading stock

Under division 70 of the ITAA 1997 you are able to value stock on hand at the end of the year of income at a value equal to its:

• Cost
• Market selling value
• Replacement value

As a general rule a lower closing value for stock will lower taxable income because if opening value exceeds closing the taxpayer is able to claim an allowable deduction equal to the difference. An accurate stock take must be undertaken at the end of the financial year so any obsolete or damaged stock is able to be written off.

Plant & equipment

A review of the depreciation schedule and matching to plant and equipment on hand can generally bring about additional depreciation deductions or allow you to write off assets that are obsolete or have been disposed of. This should be undertaken at the end of the financial year in conjunction with the stock take.

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About Author Craig Ball

Craig Ball is a Charted Accountant at Bentley Partners with more than 7 years experience gained in mid tier firms in Brisbane, Sydney and Perth. He is passionate about tax and making sure that his clients receive the best available advice. In line with the Bentley Partners philosophy, I believe in planning your activities properly and not just waiting for the end of the year before turning your eye to the share that the ATO wants.