Maxim Group

May 2007

Volume 2 Issue 4

Maxim Insight

 

 

 

 

 

 

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In this issue

Year-end Tax Planning

As another income year comes to a close on 30 June 2007, it is important that taxpayers take the time to focus on tax planning and the tax issues that affect their business.

Some of the key tax issues to consider are outlined below.

 

Deferring income

When considering the deferral of income, note the following points:

· As directed by the Arthur Murray principle, taxpayers may be able to defer recognition of income received before year-end for services not yet performed.

· Most taxpayers will not be assessable on interest, dividends or rent until it is received (unless otherwise paid or credited on the taxpayer’s behalf). Therefore, such income may be deferred.

· In general, income may be deferred until the 2007/08 year, significantly delaying tax payments. For example, where taxpayers on a cash/receipts basis of income bill clients on 30 June, assessable income will not arise until after year-end. Conversely, taxpayers on an accruals method may choose to perform services after year-end.

· Royalties and insurance proceeds are typically assessable on a cash basis.

· Work-in-progress of professional practices will not be assessable until there is a recoverable debt (e.g. a bill has been issued).

Maximising deductions

Some initiatives to consider to accelerate deductions are:

· Review debtors and write off bad debts before year-end.

· Realise foreign exchange losses and defer the realisation of gains.

· Bring forward the outlay for deductible expenses.

· Value stock at a lower replacement value or market value, where appropriate.

· Ensure that audit fees are incurred before year-end, based on Taxation Ruling IT 2625.

· Where depreciable assets have been installed for use but are no longer expected to be used, consider ‘mothballing’ the assets to trigger a balancing adjustment event.