Quicklinks
Use the links below to quickly navigate the checklist:

1. Bad debts

•   Review all outstanding debts before 30 June 2011.
•   Physically write off all bad debts by 30 June 2011.
•   Prepare minutes approving any write off of bad debts.

2. Capital protected borrowings

•   Review interest deductions for capital protected borrowings as the capital protected portion will be non-deductible.

3. Car expenses

•   If claiming actual expenses, check that log book is current (maintained within the past 5 years).
•   Check log book details are accurate.
•   Make sure odometer readings are taken at 30 June 2011.
•   Ensure all relevant receipts are retained.

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4. Ceasing business or selling business assets

•   Consider whether any small business concessions or other rollover opportunities are available.
•   Consider paying redundancy payments or long service leave to employees.
•   Consider deferring retirement payments until after 30 June 2011 if the retiring employee will be on a lower marginal tax rate in the following year. However take care to ensure this will not jeopardize the employee’s ability to make personal superannuation contributions in the following year (10% test).
•   Are expenses still incurred after the business ceases? Are they still deductible?

5. CGT small business concessions

•   Consider if the small business CGT concessions are available for disposals in the 2011 income year or whether steps can be put in place to enable access in future years (i.e. can the basic conditions can be satisified including business turnover test < $2 million / maximum net asset test < $6 million). 

6. Children

•   Consider whether there are ways of allocating income to children in the family group to take advantage of their effective tax free threshold of $3,333 (based on the recent Federal Budget announcement, this will not be possible in 2012).

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7. Closely held trusts

•   Affected trusts and beneficiaries must ensure that all the necessary tax file number information is held by the trustee by 30 June 2011 to avoid any potential PAYG withholding tax obligations for the trustee. 

8. Debt/equity rules

•   Review all shares, loans and other financing instruments issued and determine whether they are treated as debt or equity for taxation purposes. For example, service contracts with remuneration contingent upon profit may be regarded as a financing arrangement.
•   Consider whether payments made on financing instruments issued to the entity are deductible debt deductions or non-deductible dividends.

9. Depreciation

•   Scrap all obsolete items by 30 June 2011.
•   Review the effective lives of assets held – are the effective life details issued by the ATO appropriate or should rates be self assessed? Consider reassessment of effective life if the asset is used excessively.
•   Consider delaying disposal of depreciable items for a profit until after 30 June 2011.
•   Consider bringing forward the disposal of depreciable items for a loss to 30 June 2011 or earlier.

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10. Director’s and employee entitlements

•   Conduct shareholder meetings prior to 30 June 2011 to approve director’s fees and bonuses in order to obtain a deduction for the 2010/2011 year.
•   Ensure arrangements for employee bonuses based on 2010/2011 results are in place by 30 June 2011.
•   Ensure that 2011/2012 employee salary packages that include fringe benefits and/or employer superannuation contributions are in place by 30 June 2011.
•   Review the status of all workers to ensure they are correctly treated as employees or contractors prior to 30 June 2011.  

11. Entrepreneur’s Tax Offset

•   If aggregated turnover is less than $75,000, consider whether the entity (individual or company) is eligible for the Entrepreneur’s Tax Offset (ETO) (based on the recent Federal Budget announcement, the ETO will be scrapped in 2012).

12. Foreign transactions

•   Do you (or you and your associates) own >10% of the shares or units in a foreign company? If so, the Controlled Foreign Company rules will need to be considered.
•   Have foreign exchange gains and losses been correctly recorded under the Forex Realisation rules?
•   Has non-resident withholding tax been withheld and remitted where dividends, interest and royalties have been paid to non-residents?

13. Gifts

•   Donate gifts to tax deductible charities by 30 June 2011. However, be sure to check that the payment is made to a “deductible gift recipient” (DGR) endorsed by the Australian Taxation Office.

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14. Home office expenses

•   Expenses relating to electricity and heating can be claimed at the rate of 26 cents per hour.
•   Depreciation may be claimed on home office equipment. 

15. Imputation

•   Consider how the benchmark franking percentage rules apply, particularly where companies are considering paying dividends that are not fully franked.
•   Determine whether a company’s franking account is in deficit and whether a liability for franking deficit tax will exist at 30 June 2011.
•   Where a trust is a shareholder and receives dividends, determine whether the trust is a fixed trust (beneficiaries have a vested and indefeasible interest in trust corpus) – if not, the 45 day rule may not be satisfied unless a family trust election has been made.

16. Individuals

•   Review salary packages - Review salary packaging arrangements to ensure they are still appropriate.
•   Low income & minor resident thresholds - Consider whether there are ways of allocating income to low income individuals in the family group.
•   Lost superannuation - Taxpayers with superannuation funds spread over a number of accounts may want to review their various accounts and transfer small holdings to a primary superannuation fund.
•   Consider refreshing PAYG Variations effective for 2011/2012 prior to 30 June 2011 so that they can take effect from 1 July 2011.
•   Be aware of the potential application of the Flood Levy to income earned in 2012.  The flood levy will not apply where the individual was affected by a natural disaster in 2010/2011 and received the Australian Government Disaster Recovery Payment.

17. Loans from private companies

•   Ensure all loans, payments and debt forgiveness arrangements are reviewed to ensure that the impact of the Division 7A deemed dividend rules are effectively managed.
•   Review all unpaid present entitlements owed by trusts to ensure that the impact of the Division 7A deemed dividend rules are effectively managed.

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18. Loans from trusts

•   Ensure all loans, payments and debt forgiveness arrangements involving trusts are reviewed to ensure that the impact of the Division 7A deemed dividend rules are effectively managed. 

19. Losses

•   Check to ensure that companies/trusts wishing to claim a deduction for prior year losses satisfy the company loss/trust loss rules. 

20. Non commercial losses

•   Consider whether certain deductions and losses are required to be quarantined due to the non-commercial loss provisions.

21. Other business related costs

•   Business related costs that are not otherwise deductible or included in the CGT cost base or depreciation cost of an asset are generally deductible over five years.

22. Personal Services Income (PSI)

•   Is there an entity that an individual works for that receives income mainly for the reward or personal efforts or skills (e.g. consulting work) of the individual? If, yes, can the PSI tests be satisfied?

23. Prepayments

•   Consider prepaying deductible expenses by 30 June 2011 (if expenses are not subject to the prepayment rules referred to in the Notes section below).

24. Repairs

•   Try to incur expenses for repairs by 30 June 2011. However, the expenses must not relate to improving an asset, substantially replacing an asset or initial repairs to an asset recently acquired.

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25. Sale of investments – CGT Issues

•   Where CGT assets will be realised for a gain, consider delaying the sale contract until after 30 June 2011 (unless losses exist that may be lost in future years due to the application of company/trust loss rules).
•   If assets are held for less than 12 months and are held by individuals, trusts or superannuation funds consider delaying the sale until the 12 months has passed to take advantage of the general CGT Discount.
•   Consider whether there are any CGT rollovers available in relation to any potential capital gain, for example, scrip for scrip, transfer of assets on marriage breakdown or transfer of assets to wholly owned company.

26. Small Business Entities

•   Consider whether the entity is eligible to be treated as a Small Business Entity (SBE) (where turnover is less than $2 million). 

27. Superannuation

•   Ensure superannuation contributions have been paid to the relevant superannuation funds by 30 June 2011.
•   Make superannuation contributions based on concessional contributions limits ($25,000 for persons under 50 years and $50,000 for persons 50 years and over).
•   Ensure Superannuation Guarantee Contributions (9% of employee’s gross wage) are paid by 28 July 2011 (but preferably by 30 June 2011) to avoid SGC penalties.
•   Consider establishing a transition to retirement income stream as part of your 2012 salary packaging arrangements.

28. Thin capitalisation

•   Consider whether interest and other debt deductions will be limited as a result of the thin capitalisation debt to equity ratios not being satisfied.
•   Consider whether the de minimus rules apply: interest amounts of less than $250,000 + foreign assets constitute 10% or less of the taxpayers combined total assets (outward investors).
•   Review all entities to determine whether they are affected entities.
•   Calculate the value of assets, liabilities and equity to determine the maximum debt levels of the entity.

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29. Timing of expenses

•   Expenses will be deductible if incurred by 30 June 2011. To be incurred, the taxpayer must have a presently existing liability.

30. Timing of income derivation

•   Determine whether a receipt is income or capital in nature.
•   Consider whether cash or accruals method of accounting is the most appropriate method of income recognition.
•   Consider whether it is possible to defer the receipt of certain income until after 30 June 2011.
•   If losses exist, is it possible to bring forward the receipt of certain income prior to 30 June 2011 to recoup losses, particularly if the losses may not be available in future years?

31. Trading stock

•   Consider whether trading stock should be valued at the lower of cost, market selling value or replacement price.
•   Consider scrapping any unwanted stock by 30 June 2011.

32. Trust distributions

•   Review trust deeds to determine whether the trustee is required to make a determination of the distribution of a trust’s net income by 30 June 2011 and ensure the determination is documented by that time otherwise the distribution may be regarded as ineffective.
•   The Trust Deed should be reviewed to consider how trust income is to be determined and to which beneficiaries particular classes of income can be distributed.
•   Where the trustee determines that a distribution to a corporate beneficiary is to be made but actual payment will not occur immediately, the ATO may regard this as the provision of “financial accommodation” or an “in substance” loan by the company for Division 7A purposes where the funds are used for trust purposes and are not held on “sub trust” for the sole benefit of the company.

33. Year end cut-off

•   If the books of account for the business close before or after 30 June 2011, a tax adjustment may be required unless the taxpayer has an approved substituted accounting period.

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NOTES

1.  Bad debts

A deduction for bad debts may not be available if there has been a change in ownership or control of a company or trust (unless certain tests can be passed by the entity).

2.  Capital protected borrowings

The non-deductible portion will depend on when the loan was made:

• before 13 May 2008 – excess of RBA indicator variable rate for personal loans
• on or after 13 May 2008 – excess over RBA indicator variable rate for standard housing loans (note: in the 2010 Federal Budget the Government announced its intention to change this to the excess over RBA indicator variable rate for standard housing loans plus 100 points.)

3.  Car expenses

No additional notes.

4.  Ceasing business or selling business assets

No additional notes.

5.  CGT small business concessions

No additional notes.

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6.  Children

Minors are effectively taxed at a rate of 45% for most unearned income without any tax-free threshold. However, as minors can also access the low income threshold, their effective tax-free threshold is $3,333 (based on the recent Federal Budget announcement, this will not be possible in 2012).

7.  Closely held trusts

From 1 July 2010 all distributions from closely held trusts (including family trusts) are subject to tax file number and PAYG withholding provisions. Under these rules, beneficiaries are required to provide the trustee with their tax file number. Failure to do so will mean that the trustee will be required to withhold tax from the distribution at a rate of 45%.

8.  Debt/equity rules

A non-share capital account needs to be established in a company if instruments other than shares are issued by the company and are treated as equity.

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9.  Depreciation

General Rules

Where a depreciable item costs less than $1,000, a business taxpayer can allocate the assets to a low value pool. Assets allocated to a low value pool will:

• depreciate at a diminishing rate of 37.5%;
• be depreciated at a diminishing rate of 18.75% in the first year; and
• go into the low value pool (unable to pick and choose).

The replacement cost of certain items (those with a short life and that may be subject to breakage or loss) costing less than $100 each may be claimed as an outright deduction.

Depreciation for SBE taxpayers

Items of plant costing less than $1,000 qualify for an immediate deduction. Items of plant costing $1,000 or more can go into an automatic pooling facility:

• General small business pool – assets with effective life under 25 years – depreciated at a diminishing value rate of 30%
• Long Life small business pool – assets with effective life over 25 years – depreciated at a diminishing value rate of 5%

Non-business assets used to derive non-business income

Immediate deduction for items valued at less than $300 (non-business taxpayers):

• for income producing assets used predominately for non-business use;
• must not be part of a set of assets that cost more than $300; and
• not substantially identical to other assets in total cost more than $300.

10.  Director’s and employee entitlements

No additional notes.

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11.  Entrepreneur’s tax offset

Benefit includes offset of up to 25% of the taxpayer’s income tax liability that is attributable to the net small business income for the year. The offset phases out where aggregated turnover is between $50,000 and $75,000 (based on the recent Federal Budget announcement, this will be scrapped in 2012).

12.  Foreign Transactions

No additional notes.

13.  Gifts

No additional notes.

14.  Home office expenses

Taxpayers should maintain a diary for four weeks substantiating the home office expenses.

A portion of mortgage interest, rent and insurance will not be deductible unless the taxpayer is carrying on a business from home and the area is separate and distinguishable from the private living areas. Note that claiming these items may have an impact on the ultimate sale of the property.

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15.  Imputation

Where the franking deficit exceeds 10% of the franking credits for the company in the year, the company’s entitlement to a tax offset for the franking deficit tax is reduced by 30%.

If shares are not held “at risk” for at least 45 full days, the franking offset may not be available (except for individuals with franking offsets of <$5,000 in the year or where a family trust election is made).

16.  Individuals

Low Income & Minor Resident Thresholds

As a result of the tax-free threshold and low income offset, taxpayers (other than minors) with income below $16,000 do not pay tax.

Minors are effectively taxed at a rate of 45% for most unearned income without any tax-free threshold. However, as minors can also access the low income threshold, their effective tax-free threshold is $3,333 (based on the recent Federal Budget announcement, this will not be possible in 2012).

17.  Loans from private companies

Loans from a company to shareholders or their associates will be a Division 7A deemed dividend unless:

• the loan is repaid by the earlier of the lodgement or due date for the company tax return; or
• the loan is made under a written loan agreement and on commercial terms by the lodgement date; and
• has minimum benchmark interest rate; and
• has a repayment term of no more than 7 years, or 25 years for registered mortgages over real estate.

The benchmark interest rate is prescribed by the ATO every year. In subsequent years, if minimum repayments are not made by the end of the year, the payment shortfall will be deemed to be a dividend.

A Division 7A deemed dividend is unfranked (except in certain circumstances).

From 1 July 2010 certain payments, including the right to use assets  and debt forgiveness by a company to a shareholder, can also be a deemed dividend.

Division 7A and UPE’s

During 2010 the ATO issued Taxation Ruling TR 2010/3, which provides the ATO view of the application of Division 7A to unpaid present entitlements of corporate beneficiaries of trusts.

In simple terms, the Ruling takes the view that, where a company beneficiary of a trust has an unpaid present entitlement to income of the trust, that entitlement can, in certain circumstances, represent a “loan” for Division 7A purposes which can result in a deemed dividend being assessed under Division 7A (if the other criteria for the imposition of Division 7A are satisfied).  Some arrangements referred to in the ruling are only loans from 16 December 2009.

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18.  Loans from trusts

Loans from trusts will be a deemed dividend where:

• the trust has made a distribution to a company that remains unpaid; and
• the trustee makes a loan to the company’s shareholder or associate.

For Division 7A purposes, the loan will be deemed to have been made by the company. Loans will not be deemed dividends if they are repaid or put on a commercial footing before the earlier of the lodgement or due date for lodgement of the trust tax return.

Certain payments, including the right to use assets and debt forgiveness by a trust to a shareholder, can also be a deemed dividend.

19.  Losses

No additional notes.

20.  Non commercial losses

For individuals and partnerships (that include an individual) with adjusted taxable income less than $250,000, business losses are quarantined and only deductible against income from that or a related business unless one of the following tests is satisfied:

• assessable income from the business of $20,000 or more;
• profit in three out of the past five years;
• real property of $500,000 or more used in the business;
• other assets of $100,000 or more used in the business; or
• exercise of the Commissioner’s discretions.

Since 1 July 2009, taxpayers with adjusted taxable incomes of over $250,000 are no longer able to use excess deductions from unprofitable business activities to reduce their salary, wages or other income even if they pass the tests referred to above. Taxpayers in this category will be required to quarantine their losses unless the Commissioner exercises his discretion favourably, allowing the taxpayer to offset the losses against other income.

Certain concessions exist for taxpayers involved in primary production and certain professions such as artists, writers etc.

21.  Other business related costs

No additional notes.

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22.  Personal Services Income (PSI)

The PSI rules can limit the amount and type of deductions an individual or personal services entity can claim. Where the personal services entity satisfies the criteria of a personal services business, the PSI rules will not apply.

To satisfy the PSI rules the following tests must be considered:

• the results test; or
• where more than 80% of PSI income is not received from one source and one of the following tests is satisfied:
• unrelated clients test
• employment test
• business premises test

Where more than 80% of PSI is derived from a single source, a determination may be requested from the ATO.

General Rules

Where expenditure provides benefits after the end of the current year, prepayment rules spread a pro-rated deduction over the period of the benefit. The prepayment rules do not apply to “excluded expenditure”, which includes:

• salary;
• expenditure under $1,000;
• expenditure of a capital or private nature; and
• amounts required to be paid by law or a court.

Prepayments for SBE’s and non-business individuals

Separate concessional prepayment rules apply to SBE’s and individuals not carrying on a business including:

• 12 month rule – immediate deduction for expenditure incurred before 30 June 2011 where the eligible service period does not exceed 12 months and the service period expires in the 2011/2012 income year; and
• Other prepayments deductible over the period of service.

23.  Prepayments

No additional notes.

24.  Repairs

No additional notes.

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25.  Sale of investments – CGT issues

Timing of disposal under a contract for CGT purposes will generally be the date of making the contract.

Caution should be exercised where capital losses are crystallized against capital gains just before 30 June 2011. Certain anti-avoidance provisions exist that may result in the capital loss being denied if the taxpayer does not lose effective control of the loss assets or they are replaced with substantially identical assets.

You cannot use the general CGT discount where you enter into an agreement within the initial 12 month period to sell the asset once the 12 months has passed.

26.  Small Business Entities

Benefits can include access to:

• CGT small business concessions;
• simplified depreciation rules;
• simplified trading stock regime;
• 100% deduction for certain prepaid expenses;
• Entrepreneur Tax Offset; and
• two year amendment period.

27.  Superannuation

Contribution limits are based per employee, not per employer.

28.  Thin capitalisation

Thin capitalisation rules apply to reduce deductions for interest and other debt deductions if the taxpayer:

• has a foreign investment
• has a foreign owner; or
• is a non-resident investor.

If the affected entity’s debt exceeds the maximum allowable debt, a proportionate amount of the entity’s debt deductions are disallowed.

29.  Timing of expenses

Provisions are generally not deductible. Some accruals are not deductible. Most prepayments are not deductible. Interest incurred after a business has ceased may be deductible.

30.  Timing of income derivation

No additional notes.

31.  Trading stock

Identify any obsolete stock – special valuation rules apply.

SBE Rules

For small business entities, simplified rules provide that, where the difference between the value of trading stock on hand at the start of an income year and the reasonably estimated value at the end of the year is $5,000 or less an SBE can choose not to:

• value each item of trading stock on hand at the end of the income year; and
• account for any change in the value of trading stock on hand.

32.  Trust distributions

No additional notes.

33.  Year end cut-off

No additional notes.

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