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Great Small Business Questions in May 2013

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22 / May / 2013

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Ok big count down till the end of year tax time what do we need to put into place to reduce tax?  Is it a good time to replace machinery ,plant motor vehicles.   If so is it better to lease, buy, borrow, HP business loan?  Mark

If your plant & machinery, tools & equipment, etc. need replacing (or are getting close to it) then before 30 June is a good time to buy so you increase tax deductions & reduce tax payable. This year, depreciable items costing $6,500 or less are immediately written off – this is a huge boost over the former $1,000 threshold.

For motor vehicles, there is an upfront deduction of $5,000 + depreciation of 15% in the 1st year and 30% each year thereafter. Another great boost.  I don’t believe you should get a new car for the sake of a tax deduction, but if it’s racking up the K’s & starting to cost a bit in servicing & maintaining it, then sure.

Depending on your cashflow needs & availability you may need to finance that purchase. The interest on finance is deductible. Over the life of the various forms of finance your deduction will be much the same, it’s the timing that differs.
A lease is a flat deduction equal to the monthly lease payment over the term of the lease. There’s no depreciation (and for that matter you won’t get that upfront $5,000 deduction), as you do not technically own the vehicle – the lease company does.  With a lease you claim the GST on each lease payment.  With a HP or business loan you depreciate the vehicle & claim the interest on the finance, as you own the vehicle. In this instance the deductions are higher in the early years & peter off over the term of the finance.  With a HP or loan you can claim the GST upfront, which is another bonus.

At what point should you start to salary sacrifice into super? What are the benefits / drawback to doing so?   Kelli

Superannuation is taxed at 15%, so there is a tax saving in salary sacrificing to super after you earn $44,500 – that is the point where the individual marginal tax rates reach 15%. Earnings over that will be taxed at a rate over 15% to the individual.

The benefits in salary sacrificing are that it is:
– still tax deductible to your employer, so no Fringe Benefits Tax apply
– a boost to your retirement savings
– tax is only 15%

The drawbacks are that you:
– have less disposable income (so do a budget to work out how much money you need in your hand to live)
– cannot access the money once it is in super until you retire, after age 55
– cannot contribute more than $25,000 in total to super in each year (so you need to make sure your normal SGC contributions + the salary sacrifice do not exceed this).

All of the above is based on current tax rates & laws.

What kind of tax if any should we expect to pay on cash inherited?  Allison

There is no inheritance tax in Australia, so you will receive the cash tax free. If you invest this cash you will pay tax on any earnings the investment makes. For example if you put it on a term deposit the interest earned would be included in your taxable income and taxed at normal marginal rates.

My Aunt in England has me as the beneficiary of her estate including her house. Am I subject to paying capital gains tax on her property in Australia and/or Engand? Any other tax implications of inheriting cash from England?  Sheree

There is an Inheritance Tax in the UK, so the transfer of the property to you may incur this tax if its value is above the relevant threshold. You will need to get advice from a UK lawyer or accountant on that.

You will inherit the property at the same cost base as your Aunt had.  You will pay capital gains tax in the UK on any subsequent sale of the property. Again, you will need to speak to an accountant in the UK as to what their capital gains tax rules are and if there is any main residence exemptions. The cash will come into Australia tax free & if you invest it you will pay tax on an income you earn on that investment at your normal marginal rates.

I need help to find and transfer lost super.  Antoinette

SuperSeeker is a free, online search tool that shows you details of any super accounts that have received contributions in the past two financial years, any lost super reported to the ATO and any super money the ATO hold on your behalf. You can also use SuperSeeker to transfer your super online.

Go to http://www.ato.gov.au/content/33301.htm.  You will need your tax file number handy to do the search.

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