Timing of Taxes

[Paul@PFI]

Many posts here concern the benefits of a tax agent and ability to extract value v's DIY.

Always worth considering that sometimes the quantum of tax is unavoidable. However strategies can often address and improve the timing of tax. Deferral of tax strategies can improve cashflow and delay tax payment. These include:

- PAYG Variation so that employer tax withholding is eliminated or reduced altogether. Diligent records and good timing assist this to be done so that unnecessary deductions from payroll are avoided. Tip : Conservative estimates are better than aggressive deductions. This leave some room for a final refund if things change.
- Tax agent lodgement can attract deferral. etax lodgers have until 30 October to lodge. Tax agents can lodge in May 2015. The client can pay as late as that date in many instances.
- PAYG Instalment variations. Taxpayers hate paying quarterly instalments. An annual instalment option may assist some taxpayers. For those that cannot, these can be varied if they are excessive BUT must be done on-time and with accuracy. Review through the year is important and avoids excessive tax is handed over. The ATO wont pay interest and this can tie up cashflow.
- HELP debt strategies.
- Return lodgement deferral so that PAYG Instalments are also deferred.
- Use of companies to defer final tax. Combined with dividend franking strategies, some benefits can be identified.
- Scrapping deductions for post 1997 buildings and improvements where the IP is being demo'd and rebuilt.
- Prepayment of IO loan interest - May offset a windfall cap gain etc
- Super deduction strategies for those who can claim deductions for super.
- CGT timing strategies eg: Claiming CGT losses to offset gains, timing of when a CGT profit occurs etc.

 

[datto]

I think the manner in which income is returned ie cash vs accrual may be beneficial in deferring tax.

Timing of income can be very important. This probally applies more to a business than a property investor.

Try to receive rental income after the end of financial year (say by cheque) and try and do all property repairs before the end of the fin year. This reduces income and maximises deductions.

 

[Paul@PFI]

Datto - Yes good point BUSINESSES can use cash v's accruals in some instances. It sometimes isn't that straight fwd. For example using MYOB/Xero to track receivables and payables may mean the small business eligible for cash basis of income tax isn't eligible as it elects to use accruals through its accounting method. You cant then exclude accrual entries and pay tax on a cash basis.

Then there can be the related party issue. A good example may be a group of contractors. The head contractor has TO of $5m and three of its smaller subbies each has TO (turnover) of $1.8M. All work 100% with each other. They may be unable to use the cash basis since it would be a scheme to defer tax and the ATO might consider the aggregate TO of $5m fails the small business tests. The business can report GST on a cash basis however. My general advice to small business is to get guidance on accounting processes that work for it. Then consider the tax impacts.

One issue to watch with rentals is use of a PM. Its common for their June stmt / payt to be received a few days or a week or two into July. This income is assessable in June NOT when received by the taxpayer. The PM is your agent and for tax purposes can be considered to be the taxpayer. Their annual statement should NEVER be adjusted for cash / accrual timing.

As always personal tax advice is always recommended.