Tax Planning Preparation
Firstly to maximise the current year benefits we recommend the preparation of a preliminary estimate of your taxable income for the year ending 30 June 2017 to identify opportunities, maximise profits for the coming year and assist in cashflow management. “Planning” is the process of thinking about and organising activities required to achieve a desired outcome. This is when we discuss your desired ‘goal’ and help you achieve it! It also provides us with the opportunity to provide you with a ‘mini health’ check on your medical practice and forward plan your tax affairs.
It is important to understand that tax planning not only requires consideration of income and deductions for the year. It is an opportunity to ensure you are up-to-date with tax governance given recent ATO activity within this area. This means satisfying requirements including making elections within the time requirements and the preparation and maintenance of appropriate documentation such as trust minutes.
To assist you in this process, Pitcher Partners has a comprehensive year-end tax planning toolkit.
On 9th May 2017, the Federal Government announced Australia’s 2017-18 budget and has focussed on two main areas; to promote jobs and growth and address specific problems in the tax system.
While it has provided some opportunities for our medical clients it has reduced the superannuation concessions which will lead to the need to explore other strategies for future retirement savings. Given some changes will occur from 1 July 2017, there is only a short window of opportunity to act!
Changes in tax rates
With the further reduction of company tax rates (from 28.5% to 27.5% from 1 July 2016) for medical practices with a turnover of less than $10 million it is an opportune time to consider (or reconsider) restructuring trust business operations into a company. We are finding many of our medical practitioners are currently reviewing their current structure to ensure they are best structured to maximise their profits. The changes in corporate tax rates has been a key driver to facilitate this process. With the government committed to reducing the company tax rate to 25% for all companies by 2026-27, we expect to see this become a recurring review process in future years.
On a personal level there are changes in individual income tax rates and the removal of the temporary budget repair levy of 2% (effective 1 July 2017). These changes create a set of circumstances in which those paying the top personal tax rate receive the greatest net benefit!
Concessional Superannuation Contributions are contributions you can make to your super fund and claim as a personal tax deduction. From 1 July 2017 the maximum amount of Concessional Superannuation Contributions will be reduced to $25,000 regardless of age. Therefore, for the 2017 financial year the current rates still apply, if you are 49 years of age or over you can still contribute up to $35,000 and up to $30,000 if you are under the age of 49. This amount is tax deductible but is only available until 30 June 2017. As part of tax planning preparation thus far, we are finding many of our medical practitioners taking advantage of this higher contribution. It is important to understand that the contribution is only deductible once received by the superannuation fund (luckily we have ample time to organise) – if you have not yet considered this - don’t leave it to the last minute!
Non-Concessional Superannuation Contributions are where a deduction is not claimed. Currently the maximum Non-Concessional Superannuation Contributions is $180,000 p.a. or $540,000 over a 3 year period for those under 65 years of age. From 1 July 2017 this will decrease to $100,000 p.a. or $300,000 over 3 years. Individuals with superannuation balances of more than $1.6 million will no longer be able to make non-concessional contributions after 1 July 2017. They will however, still be entitled to make concessional contributions of up to $25,000 p.a.
Because the new rules apply from the 1 July 2017, the current rules still apply for the 2017 financial year. This provides our medical practitioners with great opportunity to maximise their limit of $180,000 or $540,000 under the ‘bring forward rule’ for those under 65. But they must make this contribution before 30 June 2017. This will also be the last opportunity for individuals, with super balances of more than $1.6 million to make non-concessional contributions before 30 June 2017.
In addition to the above, there were further superannuation reforms and changes to the small business tax concessions. Further information can be found in our Pitcher Partners Federal Budget 2017-18 Update.
It is impossible to outline all of the tax planning considerations and all budget announcements. The items above cover some of the key considerations that we believe our medical clients should pay heed to. If you have not started your tax planning preparations we strongly recommend you do! If you need assistance, any Pitcher Partners’ representative would be more than happy to sit with you prior to 30 June 2017 to work through your desired ‘goals’ and forward plan your tax affairs.
DISCLAIMER: The information in this document is general in nature and does not constitute financial product advice.