By Adam Tims, Partner, Martin O’Connor & Partners
Inside Racing – June 2007
Why all the fuss about 30 June?
For most horse enthusiasts 30 June is just another day. Leave the New Years’ Eve festivities to those boring accountants and look forward to 1 August. However, if planned properly, you could be increasing your wealth by making some careful financial decisions before 30 June. For instance, there may be opportunities to legally defer or minimize tax payable. This is especially important now given the favourable change to individual tax rates announced again in last month’s budget, relevant to next year. We take a look at what may be relevant to you before 30 June 2007.
- Avoid deriving income which will be assessable;
- Incur expenditure which will be an allowable deduction;
- Examine the potential to negatively gear investments;
- Examine the potential for diverting income;
- Undertake repairs to property used for income producing purposes which are fully deductible;
- Paying dividends to take advantage of the refund of excess imputation credits;
- Making deductible superannuation contributions;
- Investing in tax effective managed investment schemes (“MIS”).
There may be some horse breeders/traders that have made sizeable gains this year given the recent bullish horse sales market across Australia. For those anticipating a large taxable income, some lesser-known tax planning/deferment strategies to consider include;
1. Farm Management Deposits Scheme
Governments of both persuasions have, over the years, allowed primary producers various means to shift income from good years to bad years. The current Scheme is known as “Farm Management Deposits”.
Subject to a number of eligibility restrictions (only applies to individual taxpayers), a primary producer is allowed a deduction for the amount deposited in a farm management deposit. The minimum is $1,000 and the maximum $400,000.
When all or part of the Farm Management Deposit is withdrawn by the Primary Producer, the amount is included in the taxpayer’s assessable income.
2. Purchase of Broodmares 12 years of age or older.
The purchase price of broodmares 12 years of age or older may be written down to $1 at the end of the financial year. Therefore there is an opportunity to reduce taxable income if older broodmare(s) are purchased before 30 June. It should be emphasised that the commerciality of such a purchase is more important than the availability of the tax concession.
3. Simplified Tax System (STS)
Entering the (STS) is generally only available to taxpayers with “STS average turnover” of less than $1 million (changing to $2 million from 1 July 2007.) For those eligible, the STS provisions can offer a tax benefit upon entry as trading income only needs to be included in assessable income when it has been both derived and received. There may also be some prepayment opportunities within the STS regime such as making payments on lease financing of horses.
Summary
The implementation of certain tax strategies is obviously dependent on available cashflow. Also, extreme care should be taken in years where a taxpayer has a low estimated taxable income, as it may be preferable to defer incurring certain expenditure until the following year. Now is the time to calculate your estimated 30 June 2007 tax position and manage the situation accordingly.
As always we strongly recommend that you discuss this matter with your accountant as the circumstances and end tax result may differ on a case- by –case basis. This article is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific professional advice. No responsibility for loss occasioned to any person acting on or refraining from action as a result of this article can be accepted.