Tax Planning Guide
Imagine what you could do with tax saved?
• Reduce your home loan
• Top up your super
• Have a holiday
• Deposit for an Investment Property
• Upgrade your Car
Here’s a guide to the strategies you can use to minimise
your business tax.
Is Your Business a “Small Business” Entity?
Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected / affiliated with you) of less than $10 million and be operating a business for all or part of the 2020 year.
Reduction in Company Tax Rates for Small Businesses
The company tax rate for businesses with less than $50 million turnover is 27.5%. This will decrease to 26% in the 2021 Financial Year and 25% in the 2022 Financial Year.
Instant Deduction for Asset Purchases
The recent assistance packages have expanded deductions for asset purchases, plus new accelerated depreciation laws.
From 12 March if your business has a turnover under $500 million (up from 50 million), business assets purchased up to the amount of $150,000 (up from $30,000) excluding GST will be immediately deductible:
To utilise in the 2020 tax return you need to buy these assets and use them or have them ready for use before 30 June 2020.
Remember this is not a write off. You are only bringing forward the deduction. Unnecessary expenses are rarely good.
The government recently announced it will extend this until 31 December 2020 (not yet law). From 1 January 2021, this will only be available for small businesses with an aggregated turnover of less than $10million and the threshold will be $1,000.
Pay June quarter Employee Super Contributions Now
Pay June quarter super contributions this financial year if you want to claim a tax deduction in the current year. The next quarterly superannuation guarantee payment is due on 28 July 2020. However, some employers choose to make the payment early to bring forward the tax deduction instead of waiting another 12 months.
Don’t forget yourself. Superannuation can be a great way to get tax relief and still build your personal wealth. Your personal or company sponsored contributions need to be received by the fund before 30 June to be deductible.
Tools of Trade / FBT Exempt Items
The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.
If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased.
Defer Investment Income
If possible, arrange for the receipt of investment income e.g. interest on term deposits until 1 July.
Bring Forward Repairs, Consumables, Trade Gifts or Donations
Pay above items BEFORE 30 June. This can include marketing materials, consumables, stationery, printing, office and computer supplies.
Spend the money now and get the deduction this year.
Repairs & Maintenance
Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June.
Realise Any Capital Losses & Reduce Gains
Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses – that is, sell the asset and lock in the capital loss. These need to be genuine transactions to be effective for tax purposes.
Delay until 1 July where possible the sale of assets (generally the contract & not settlement date) that will increase your overall net capital gains.
Motor Vehicle Log Book
Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2020. You should make a record of your odometer reading as at 30 June 2020 and keep all receipts/invoices for motor vehicle expenses.
An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
Investment Property Depreciation
If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.
Private Company (“Div 7A”) Loans
Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2020. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.
Year-End Stocktake / Work In Progress
If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2019. Review your listing and write-off any obsolete or worthless stock items.
Talk to us about your different options for valuing Stock, and how they affect your tax payable.
Write-Off Bad Debts
To be a bad debt, you need to have brought the income to account as assessable income and given up all attempts to recover the debt. It needs to be written off your debtors’ ledger by 30 June. If you don’t maintain a debtors’ ledger, a minute confirming the write-off is a good idea.
Small Business Concessions – Prepayments
“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2020 and obtain a full tax deduction in the 2020 financial year.
Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2020 for all Discretionary (“Family”) Trusts. Please see us for more information about these resolutions.
Raise Management Fees between Entities by 30 June
Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties then the transfer pricing rules need to be considered and the ATO’s documentation expectations will be much greater. This is an area under increased scrutiny.
This is general advice only & does not take into account your financial circumstances, needs & objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant at JKR Accounting. Information is current at the date of issue and may change.
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