END OF YEAR TAX ISSUES
To minimize taxable income it is timely to review the following before 31 March 2009:
Retentions
Retentions on building contracts are generally taxable in the year the contractor becomes legally entitled to receive them. Therefore if retentions are outstanding at year end, they usually do not form part of your income for tax purposes for that year, and are therefore only taxed when they become due. This can result in a significant deferral of income.
Bad Debts
Taxpayers and clients should be reviewing their debtor's ledger to determine which debts are bad. These debts need to be written off prior to year end to enable a tax deduction to be claimed. Just because a bad debt is actually written off, this does not mean taxpayers can no longer pursue recovery of that debt.
Repairs and Maintenance
Generally no deductions are allowed for a repairs and maintenance reserve. It may be worthwhile undertaking repairs and maintenance prior to 31 March to obtain a full deduction. Deciding whether expenditure on an asset is deductible as repairs and maintenance or should be capitalised is often a difficult decision. Please contact us if you require any assistance in this area.
Trading Stock
You should be undertaking a valuation of trading stock at year end. Trading stock is generally valued at the lower of cost or market selling value (if lower).
For valuation of small amounts of trading stock, taxpayers are no longer required to value their closing stock or include any change in the value if:
- Their turnover is $1.3m or less for the year; and
- They reasonably estimate their trading stock on hand at balance date is less than $5,000.
They may simply use the same figure for closing stock as the opening stock. This method of valuation is optional.
Where you have slow selling or obsolete stock a line-by-line valuation writing down below cost is acceptable if market selling value is lower than cost.
Consumables Aids
The cost of consumable aids may generally be claimed as a deduction in the year in which the goods are paid for or are delivered. The deduction is available even if the goods are on hand at year end.
Consumable aids are articles or materials which (without becoming component parts of a finished product) are used in the manufacture or production of goods from which a taxpayer derives assessable income and are either completely or almost completely consumed or become unusable or worthless after being once applied in the process.
The amount claimable is limited by the accrual rules to $58,000 per taxpayer. If the total value exceeds $58,000, then all must be bought in as stock on hand and is therefore taxable.
Please contact us if you require further clarification on any of the above.
BUSINESS TIP
The new 90 day employee trial period allows you to agree a trial period of up to 90 days. You agree on a period of notice, and can basically give notice without reprisal at any time in the 90 day period. To qualify you must have fewer than 20 employees. A specific employment agreement is required.
