IT'S TAX TIME: How truckies can save
IT'S TAX Time! Transport companies, big and small, are now beginning to turn their attention to filing their annual income tax returns.
Despite the amount of information out there, the team at Deloitte and Alpha Consulting Group often come across companies that are not fully informed of the various income tax concessions available or the careful considerations required around corporate structuring as a means to mitigating against risk and minimising tax.
Here are some tips.
YOU use a lot of capital with depreciation a key tax deduction for any transport operator. Companies regularly get it wrong by not maximising the available depreciation deductions.
The Tax Office allows you to choose between prime-cost and diminishing value methods of depreciation, with both methods ultimately providing the same outcome over the ownership period of a given asset.
However, the diminishing value method allows an entity to obtain greater depreciation deductions in the early years of owning the asset, resulting in significantly lower income tax liabilities upfront.
These savings provide for greater cash-flow at a time when the business is often in the growth stage.
Another common error operators make is failing to maintain two depreciation schedules. Savings can be obtained by using the recording accounting depreciation at the prime-cost method and, for tax, utilising the higher diminishing value depreciation rates.
YOU must ensure you have the appropriate corporate structure, due to the demands of high capital investment requirements, low margins and above average business risk. It is essential that you understand your corporate structure to ensure tax is minimised and the appropriate asset protection measures are in place.
There are many different facets of corporate structuring to consider, from a simple straight-forward analysis of who should be the Director(s), shareholders (individuals/family trust), through to considerations as to whether multiple entities should be utilised within a business group.
Whilst ultimately there is no 'one-size-fits-all' solution when it comes to corporate structure, but, as a general rule of thumb, the key rule is to separate the risk activities of the business (i.e. employees, customers, suppliers) from the assets (i.e. prime movers, trailers, land/depots), as well as intangible assets such as intellectual property (i.e. logo/branding, domain name etc.). You will also need to be careful in how you plan for any final sale/exit strategy in advance, or their could be significant consequences.
Small Business Entity (SBE) concessions
ENTITIES with aggregated turnover less than $10m annually are eligible for a number of different tax concessions. Two key elements of these concessions are:
- Electing to prepare the annual returns on a "cash basis” where appropriate, rather than on an "accrual basis”, which effectively results in income tax not being payable on unpaid invoices as at 30th June; and
- Prepayments not being claimed as tax deductible. SBE's are eligible to apply '12-month' rule for prepaid expenditure where the prepaid cost does not exceed beyond 12-months. In practice, this could apply to items such as vehicle registrations, insurance premiums, rent, driver training courses and assist with minimising the tax burden.
For larger operators with in excess of $10m in annual revenue, certain prepayments can still be claimed provided they are 'excluded expenditure' which relate to expenses required by lay such as worker's compensation premiums, vehicle registration and CTP insurance premiums.
Job costing for tenders/quotes
ALL TOO often transport operators will price a specific work quote/tender based on similar rates for existing customers or simply "a hunch”. With the ever increasing competition and compliance requirements in the industry (COR, NVHAS) it is more important than ever to have a clear grasp on your cost structure and to tailor it individual runs where feasible. Alpha Consulting Group's exclusive costing system, which has been developed over the past 30 years, can help Transport Operators in setting freight rates, submitting tenders and analysing the profitability of particular customers and contracts.
Fuel tax credits
Away from income tax, fuel tax is also a hot topic, given the ability to go back four years to recover under-claimed credits. There are opportunities for refunds for fuel used in certain activities (e.g. auxiliary equipment, off a 'public road' etc.), and also the upcoming toll road litigation! Chris Sant, who has a national role in Deloitte's Fuel Tax Specialist Team, says that "now the best time to consider the refunds available for trucking companies, given the likely outgoings at this time of the financial year”.
- If you have any questions in relation to income tax or fuel tax, the team at Deloitte and Alpha Consulting are more than happy to assist, with Chris Sant (Deloitte - 0404 382 854) and Chris Leeson (Alpha Consulting Group - 02 8853 6600) being the go-to contacts.