Don't forget your own neesd

While financial planners are flat out this time of the year helping their clients, they shouldn't ignore their own end of year financial and business affairs.

At least that is the opinion of Tony Fittler, a partner of HLB Mann Judd, who says financial planners should review their own business position before the curtain is drawn on the financial year to reduce tax and help cash flow.

"Their preoccupation with client affairs often means that their own business reviews don't take place until aft

While financial planners are flat out this time of the year helping their clients, they shouldn't ignore their own end of year financial and business affairs.

At least that is the opinion of Tony Fittler, a partner of HLB Mann Judd, who says financial planners should review their own business position before the curtain is drawn on the financial year to reduce tax and help cash flow.

"Their preoccupation with client affairs often means that their own business reviews don't take place until after June 30 when the annual accounts are finalised," he says.

"By then it can be too late to take any useful action. Financial planners need to assess their own business and investment structures as well as their profitability and how to best distribute income be-fore June 30."

Fittler says financial planners should apply a ten point check list to help in end of year planning for their own business activities.

He says the check list should only be used as a starting point to re-view progress.

Review business structures

A regular review of your business structure is worthwhile to ensure that it is consistent with your business and personal strategies and is still appropriate, particularly if your own situation has changed. Have you added staff or increased your business or financial liabili-ties?

Your exit strategy from your business should also be considered. Small business rollover and retirement rules now have very restric-tive ownership requirements. It may be worthwhile to restructure your business to ensure that you gain full benefit from these concessions if, at some time in the future, you decide to sell the business.

Tax changes

There are a number of tax changes this year that affect both personal and business taxes. Recent fringe benefits tax changes mean that fringe benefits will, from 1 July 1999, be shown on your group cer-tificate. This could have an impact on related areas such as the su-perannuation surcharge.

From 1 July 1999, the superannuation surcharge threshold will include employee fringe benefits making more taxpayers liable to the 15 per cent surcharge.

Health insurance should also be reviewed to take into account the Medicare levy surcharge of 1 per cent which applies to incomes above $50,000 as well as the health insurance rebate. From 1 July 1999 the income test will also include fringe benefits.

On the business front, check changes this year that can affect the status of deductions such as write-off of software.

Income

Financial planners need to know whether they are taxable on a cash basis or on an accrual basis. As a guide, sole traders are more likely to be on a cash basis.

Cash basis taxpayers are only taxed on receipt of monies. But this does not mean that they can defer tax by deferring bankings until 1 July or to agree for their commission to be accumulated or held by someone else.

Accrual basis taxpayers need to be aware of when they become entitled to commission under their client agreements. Taxable income may be different from the amount they have taken up in their accounting rec-ords. For example, fee-based advisers are only assessed when the in-voice is raised for ongoing work and it may be possible to hold off invoicing until July.

Using losses and reducing income

Losses can be realised before the year end to offset against tax li-abilities, particularly capital gains tax on sale of assets. While a financial planning business may not have a number of expensive as-sets, the total value of all office equipment often comes as a sur-prise. It could therefore be worth checking the asset register of your business to see if any assets are still recorded that are no longer in productive use, or have already been disposed of. These should be written off.

Planners who charge fee-for-service should check their debtors to see if there are any bad debts to be written off. Writing off bad debts before year end will ensure you are not taxed on income not received. Prepayment of insurance, interest and rent can also help reduce in-come in the current year.

Save to reduce taxable income

Financial planners encourage self-employed clients to make additional superannuation payments before year end to help reduce a business's pre tax profits. Many also recommend the use of Infrastructure Bonds by high income earners to help reduce their taxable position. Have you considered such approaches for yourself?

Dividends and Bonuses

Pay any bonuses to yourself or staff, and consider franked dividend payments to shareholders, before the end of the financial year. This will also help eliminate or reduce shareholder loan accounts. Divi-dends can also be used to pay income to low income shareholders such as family members. Minimum repayments on shareholder loans should be made before year end, otherwise the loans will be treated as unfranked dividends anyway.

Personal vs business liabilities

Identifying the separate business and personal tax liabilities, and therefore cash flow needs, before the end of the year, is always a good idea. If you have a company, the time of paying the tax may be quite different to last year. If your personal tax includes provi-sional tax, consider whether your income has changed and therefore whether the provisional tax can be varied.

People who work from home can also make claims for an appropriate proportion of their home expenses, such as power and heating.

Most financial planners would be aware that defining home business expenses is an area that needs care. Claiming some expenses can af-fect capital gains tax on your home and it may not be worthwhile.

Allocating borrowings

Careful planning may enable business borrowings to be maximised with a reduction in personal borrowings. Borrowings used to acquire income producing assets are tax deductible, where personal borrowings are not. It is the use of the funds rather than the name of the facility that is important, and care must be exercised to ensure that borrow-ings are clearly used for the acquisition and ownership of income producing assets if the costs are to be offset against income.

Tax documentation

The fringe benefit tax regime requires employee declarations to be completed and other documentation retained in order to reduce the FBT payable. Check that these are in place or you may be exposed to pen-alties. For example, car log books must be less than five years old and annual odometer readings obtained in order to use some of the FBT concessions.

Other employee/self employed deductions will be lost unless the specified documentary evidence exists.

Payments to family members

Again, financial planners would be aware of the benefits of paying salary to a spouse or children to enable additional superannuation contributions to be made and to avoid the superannuation surcharge. Are you considering these issues, and taking action, for your own circumstances?

Ends