2017 Tax Planning Checklist: Income Issues

Deferring Assessable Income

The ability of a taxpayer to defer income will depend on the taxpayer’s business and the type of income derived.
How much your business could benefit from year-end tax planning can be determined only by preparing interim accounts for the year to date. May to early June is the time to do this. The message that may well emerge is that, rather than accelerating your revenue and deferring costs, your business may be better served by doing the opposite in the final quarter.

Settlement Discounts

In circumstances where a settlement discount period expires post year end, the amount to be included in a vendor’s assessable income upon receipt of the sales proceeds is the discounted price of the goods, whilst a purchaser of trading stock, subject to a settlement discount, may only claim a deduction for the discounted price of the goods.

Where an account is not settled within the prescribed time and the discount is no longer available, the amount of the discount must be included in the vendor’s assessable income, whilst the purchaser can claim the full expenditure as a deduction.

Bad Debts Recovered

Where a debt has been written off as a bad debt and claimed as a tax deduction, and that debt is subsequently paid, you must bring the amount paid to account as assessable income in the year of recovery.

Deferring Livestock and Produce Sales

Primary producers can defer livestock and produce sales until after 30 June. However, you need to assess whether you will suffer price reductions because of the decision to defer sales.

Income Splitting

Income splitting can be highly tax effective, especially if investments have been placed in the name of a lower income earner. This can be applicable where a spouse is not working and the income in the spouse's hands would therefore be taxed at a lower rate.

Interest Earned

You need to declare interest earned on bank accounts, loans, etc.

Employee Share Schemes

If you are a member of an employee share scheme, you should ensure that you receive details of any income that has been earned from the employee share scheme that relates to you as an individual and that the income is included in your income tax return. Employers are not required to withhold PAYG tax from the earnings of an employee share scheme. The responsibility for reporting any income from employee share scheme rests with the individual taxpayer.

Qualifying Employee Share Schemes

Scheme formed before 1 July 2009
Any discount on the shares is subject to taxation.

If the scheme qualifies under the Employee Share Scheme Rules, the employee can choose when they include the discount in their assessable income.

If the employee elects to include the discount benefit in their tax return for the year of receipt of the benefit, they are eligible for an exemption of the first $1,000 of the discount.

Scheme formed after 1 July 2009
The discount on Employee Share Scheme is taxed either upfront or on a deferred basis.

For "qualifying" schemes, if the employee is earning less than $180,000 taxable income plus reportable fringe benefits, reportable superannuation contributions and total investment losses, then the employee can claim a $1,000 exemption from the inclusion of the assessable discount.

Scheme formed after 1 July 2015
The integrity provisions introduced in 2009 remain as does the $1,000 up front tax concessions for employees who earn less than $180,000 per year.

Employee Share Schemes interests provided at a small discount by eligible startup companies will not be subject to up front taxation if they are held by the employee for at least three years. Options under certain conditions will have taxation deferred until sale.

A startup company is one with aggregated turnover of less than $50M, unlisted and incorporated for less than ten years.

Please contact your professional accountant for any further advice you require on the operation of Qualifying Employee Share Scheme.

Government Grants

A grant from a government department is most likely paid to you on the basis that it is taxable income and therefore you need to disclose in your taxation return the receipt of the government grant. If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all the government grant funds have been expended on tax-deductible items prior to 30 June.

You need to be aware that, if you have received a government grant which is assessable income and the expenditure that you have committed the government grant towards is of a capital nature, e.g. a new building, then there will be taxation consequences on the receipt of the government grant which you will need to consider in your income tax planning.

If you have any queries on the treatment of government grants, it is recommended that you seek advice from your professional accountant.