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It’s not something you normally highlight on your calendar. Unlike birthdays, the

end of the tax year doesn’t involve the exchanging of gifts, but financial

experts argue that getting your fiscal affairs in order can be worthy of

celebration. Tracey Porter reports

The numbers game

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FOR NEARLY 30 YEARS, GRAHAM Middleton has rifled through mountains of paper receipts and unformulated Excel spreadsheets to help leading veterinary practices stay on side with the tax man.

But Middleton, the founding partner of Victorian accountancy firm Synstrat and author of several tomes including 50 Rules for Financial Success as a Veterinary Surgeon, says the problem with end of financial year (EOFY) advice from a veterinarian’s perspective is that it usually arrives too late to be of any use.

“If [vets] haven’t structured their businesses to share income with spouses when purchasing or starting a practice, it is too late to contemplate it prior to a 30 June year-end, particularly as restructuring often triggers capital gains tax considerations.

“If they haven’t structured their practices to enable retention of some earnings in order that personal taxable income can be smoothed over several years, it’s not going to be practical to achieve several years later at short notice.”

However, he says, there are still plenty of things veterinarians can do to get their finances up to speed ahead of the 2014-15 EOFY—not least of which involves planning for the days ahead.

SUPERANNUATIONExperts agree that raising superannuation contributions up to the permitted tax-deductible limit is a great way to save costs.

RSM Bird Cameron director Pat Flanagan, whose area of specialty includes succession planning for veterinary practices, says currently the minimum superannuation business owners must pay is 9.5 per cent of an employee’s ordinary time earnings. However, business owners can generally claim a tax deduction for superannuation contributions that are paid on time.

Recently, the contribution limits for superannuation were raised up to $30,000 and $35,000 for those aged under 50 and over 50 respectively.

Flanagan says vets should always consider contributing the maximum levels of both concessional and non-concessional superannuation “as superannuation is, generally speaking, the most tax-efficient vehicle available”.

TRUSTSJohn Rowe, the owner of Sydney brokerage firm Vet Finance, says tax concessions vary depending on whether the entity is set up as a sole trader, partnership, company or trust. While there may be some common benefits in tax planning, he says it’s important to remember some entities may also have limitations on what they can claim or carry forward depending on turn over.

However, Flanagan says that savings can also be made by vets who operate their business via a trust, providing trustees decide how the profit will be distributed prior to 30 June.

He says it’s important this decision is recorded and signed off before the end of the financial year as vet

practice owners can find any profit is taxed at the top marginal rate of 47

per cent if appropriate steps are not taken prior to the EOFY.

“By being proactive, you can ensure that you know of the obstacles that lay on the road ahead and you can even take steps to

ensure these obstacles are less significant and easier to navigate past.”

HEALTH COVERMost small- to medium-sized enterprise (SME) owners know that if they have a taxable income of $90,000 (single) or $180,000 (joint) and are without health insurance, they will be required to pay the Medicare levy surcharge. However, Middleton notes, it is a little-known fact that an individual is not required to have extras cover as basic hospital cover will suffice.

He says those in the vet sector should be aware that whereas hospital cover pays out 96 per cent of private hospital costs on average, this falls to 52 per cent of costs rebated against extras expenditure such as dental, optical or physiotherapy.

Middleton suggests vets consider reviewing their health insurance regularly and if it includes extras cover then consider the actual claims made over its duration.

“The fact is that on average, funds skim off 22 per cent of the fees paid for ancillary cover. If paying a fund 22 cents in the

“Superannuation is, generally speaking, the most tax-efficient vehicle available.”Pat Flanagan, RSM Bird Cameron

Tax time tips in brief1. Keep in regular contact with your

accountant who will review and be across your financial situation.

2. Pre-pay interest on investment properties or lease agreements on equipment and cars. Pre-pay expenses where possible.

3. Maximise superannuation contributions for yourself before 30 June and pay staff entitlements. Contributions must be receipted by your super fund, not just paid; otherwise the tax deductibility of the contribution may be disallowed for that year and fall into the next financial year.

4. Review your bad debts before 30 June and write off any you are unlikely to recover.

5. Watch stock levels—obsolete/out-of-date stock may be able to be written off.

dollar to recycle 78 cents of benefit to you sounds like a pretty poor deal for most, then it’s true. Most poker machines have a higher payout percentage.”

SUCCESSION PLANNINGRowe, who has been in the financial services industry since 1981, says many vets are working to get out of their business but struggle to find a way to plan for it.

He says a good succession plan creates a smooth transition from the old owner to the new with minimal disruption to the business and clients. It is generally better to sell one’s practice to an internal vet as opposed to bringing in a new purchaser, Rowe says.

“A run-down practice will not realise one’s full capital gains [but] working hard for the last five years of your working life, expanding and developing your business is more likely to maximise your return.”

AREAS TO AVOIDNever buy an investment asset such as a rental unit just because an agent or a property spruiker talked up the tax benefit, says Middleton.

There are always better financial options available to vets than buying investment units or houses. He says that the same is true of hobby farms.

“You may like to watch the cattle or sheep grazing in the meadows, or enjoy the smell of freshly baled hay but, financially speaking, hobby farms are black holes into which health professionals pour their profits.”

Flanagan says that where tax optimisation is the goal, it’s best to invest in the areas of the business that will provide prompt tax deductions. Therefore the areas of spending to avoid would be capital expenditure or pre-payments where the deduction will be delayed to later years.

“Capital expenditure such as asset purchases or renovations will be treated as assets of the business and a deduction will only be claimed as the asset depreciates in value. Where pre-paid expenses extend beyond the next year, or for larger purchases, part or all of the tax deduction

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will be deferred,” he says.Rowe says many business owners tend

to panic towards the EOFY and commonly look for as many tax deductions as possible. But this does not always work in the vet’s best interests, he says.

The buying/financing of cars and equipment in June is not necessarily going to obtain those tax deductions one is looking for given there is little, if any, interest or depreciation. The real benefit is therefore obtained in the following tax year. The best advice for tax planning is to start early and be in regular contact with your accountant and finance broker. “Proper planning will provide better results.”

Avoid making ‘panic purchases’.