It is hard to believe that the end of financial year is almost upon us. Below are some important year end planning opportunities that you might like to discuss with your Tax Agent.
1. Instant asset write-off – assets purchased and ready for use between 12 March 2020 – 30 June 2020
The Federal Government extended the instant asset write-off to all business entities under $500m aggregated turnover (previously $50m) and increased the amount to $150,000 (previously $30,000). This measure applies to both new and second-hand depreciating assets.
Car write-offs are still be subject to the luxury car limit ($57,581).
If you are planning on purchasing depreciating assets soon, it may be beneficial to do so before 30 June to obtain this write-off.
The instant asset write off level for Small Businesses reverts to $1,000 from 1 July 2020 but see below for other options.
2. Accelerated Depreciation – assets purchased and ready for use by 30 June 2021
All other new (not second-hand) depreciating assets purchased between 12 March 2020 – 30 June 2021 will be eligible for a 50% upfront deduction and the remaining 50% will be depreciated at existing rates.
Unlike the instant asset write-off, there is no cap on the expenditure eligible for this measure. This measure is also available to all business entities under $500m aggregated turnover.
This may be beneficial if you are planning on purchasing more expensive depreciating assets (i.e., over $150,000) in the near future for which you cannot obtain the instant asset write-off.
3. Stimulus payments received – treatment
In the last few months of FY2020, you may be receiving various Stimulus payments – e.g., JobKeeper, Cashflow Boosts, Government Grants, etc.
Cashflow Boosts are specifically exempt from income tax, but JobKeeper payments and most Government Grants will likely be assessable.
Jobkeeper top up payments are excluded from your Workcover wages declarations.
4. Superannuation contributions
Employers wishing to get the full tax deduction in FY20 for Superannuation Guarantee contributions, should pay those contributions to the Fund by 23 June 2020.
Individuals wishing to make contributions up to the concessional cap ($25,000) and/or non-concessional cap ($100,000, or up to $300,000 “brought forward”) should do so by 23 June 2020.
The carry forward unused concessional cap is available to apply the first time in this year ended 30 June 2020.
With a superannuation balance of less than $500,000 on 30 June of the previous financial year, you may contribute more than the $25,000 concessional contribution limit for any unused amount from the year ended 30 June 2019. Unused amounts are available for a maximum of five years.
5. Single Touch Payroll exemptions extended to 1 July 2021
In response to the COVID-19 crisis, the ATO has extended the exemption deadline for STP for Small employers with Closely held payees from 1 July 2020 to 1 July 2021.
6. Company Tax rates and dividends
The 30 June 2020 tax rate for companies with turnover of less than $50m is 27.5%. For these companies, any dividends paid during the year and before 30 June 2020 can be franked to 27.5%.
As the company tax rate for such companies is scheduled to reduce to 26% from 1 July 2020, the franking rate will also reduce to 26%. Therefore, dividends would need to be declared and credited before 30 June 2020 to use the higher franking rate.
7. Division 7A loan agreements and minimum repayments
Where individuals and/or trusts have borrowed money from a private company in the year ended 30 June 2019, the loans must be fully repaid or be documented in a Division 7A-complying loan agreement before the due date of the company’s 2019 income tax return. Many companies have had the due date of their 2019 income tax returns deferred as a result of COVID-19, potentially providing more time to repay such loans or enter into a Division 7A-complying loan agreement.
8. Trust Distribution Minutes
Trust distribution minutes should be prepared and signed before 30 June. Distribution planning may be required if you are planning on distributing capital gains and/or franked dividends to different beneficiaries than those who receive distributions of other income.
9. Sale of capital assets
Consider postponing the sale of assets with unrealised gains and bring-forward asset sales with unrealised losses.
10. QBCC Financial Requirements
Ensure your entity’s QBCC minimum financial requirements of Net Tangible Assets and Current Ratio are met by 30 June 2020.
Other key tax planning considerations;
Bad debts must be written off in your accounts before 30 June
Defer invoicing and the receipt of income
Prepay expenses for up to 12 months – insurance, interest, subscriptions. Small businesses (turnover less than $10m) can claim expenses prepaid up to 12 months in advance.
Wages paid to family members must be reasonable for the work performed.
Review valuations of trading stock in the lead up to 30 June. Best practice is generally to value stock at the lower of cost or market selling value.
Loans, payments and debts from Private Companies to their shareholders and associates will require minimum loan repayments to minimise deemed dividend income. Shareholders and entities should consider repaying loans and/or making minimum loan repayments on loans by 30 June 2020.
Self-Managed Superannuation Funds in pension mode should ensure the minimum pension amounts have been paid to members in the year ended 30 June 2020.
If your business is trading through a Discretionary Trust and 2020 has been a large income year, consider the use of a “Bucket Company” to defer taxation.
If you are not reporting to the ATO via STP, you will be required to provide 2020 PAYG Payment Summaries to your employees by 14 July 2020. Your Annual 2020 PAYG Payment Summary needs to be lodged with the ATO by 14 August 2020.
Review your asset register to write off any obsolete or destroyed items.
Staff Bonuses. For accrued staff bonuses to be deductible in the 2020 tax year the decision to pay the bonus and the determination of the bonus must be made and documented prior to 30 June 2020.
Foreign residents – CGT main residence exemption removed. Former Australian residents, may be unable to apply the CGT main residence exemption if they are foreign residents for tax purposes (e.g. expats) when the residence is sold after 30 June 2020.