Last minute tax warnings on investment allowance, offshore income, super and company loans

With less than three full working days until the June 30 deadline, entrepreneurs who are yet to finalise their tax affairs are being warned to look out for issues around the Government’s special investment allowance, the Tax Office’s amnesty for undeclared offshore income and repayments on company loans.

Under the Government’s investment allowance, announced in the 2009 May budget, companies could access tax breaks of up to 50% on assets worth over $1,000 in the 2010 tax year if they had committed to buy the asset before December 31, 2009 and installed it by June 30.

But Sue Prestney, principal at MGI Melbourne and spokesperson for the Institute of Chartered Accounts on SME affairs, says the ATO will be looking to ensure that the asset is actually installed and ready for use.

“The investment allowance ties in with the depreciation rules, and an asset cannot be depreciated until is actually installed ready for use,” Prestney says.

Of course, the definition of “installed” will depend on the asset involved. For example, a motor vehicle will probably be considered to be installed if has been handed over in working order, although the ATO will be looking for something more concrete for other forms of plant and equipment.

“This is really aimed at machinery and equipment, as some machinery can take quite awhile to install. If it’s just sitting in a box and not actually working in the business, it won’t be considered to be installed.”

Offshore income

Another ATO crackdown currently underway involves an amnesty for taxpayers who have not declared income from offshore. People who have earned income from overseas and not declared it have until June 30 to come forward; if the overseas income is under $20,000 there will be no penalty and if it’s over $20,000 there will be a 10% penalty.

Miss the amnesty and the penalties increase to as much as 90%, plus possible prosecution.

The ATO said last week more than 4,000 people have already come forward.

Super guarantee

A quick and easy last-minute tip for entrepreneurs from Prestney is to ensure you’ve paid the quarterly superannuation guarantee payment by June 30 to ensure you can claim a tax deduction in the 2010 year.

“If you are prioritising payments before the end of June, make sure you prioritise this one.”

Division 7A loan matters

Recent changes in the area of trusts has left many taxpayers facing the prospect of having to make large repayments on company loans that the ATO previously allowed as “unpaid present entitlements”.

If you have a company loan, Prestney says you only have days to make minimum repayments – or face a hefty tax bill.