As the end of financial year approaches, it is important that you take the time to focus on tax planning and tax issues that affect you before 30 June 2020 arrives.
We have outlined some of the key tax considerations below:
Asset Disposals
Consider deferring the disposal of assets that will generate a capital gain until after 30 June. Where there are some assets with unrealised capital losses, consider selling those assets before selling assets with unrealised capital gains. This will allow the capital loss to be used to offset the capital gain.
Company Tax
The company tax rate is currently 30% and 27.5% for businesses with turnover less than $50 million.
Superannuation Contributions
Ensure superannuation contributions are paid into superannuation funds prior to 30 June to ensure a tax deduction for your business in the current year. With the new super stream operating as a clearing house, please allow time for the contributions to be received by the fund.
The ATO clearing fund has advised that they will only process funds paid to them into the relevant superannuation funds if they receive it before the 20 June. Therefore don’t leave this too late if you are using this type of facility – and if you are not using this one – find out the date so you know how to plan around this.
From 1 July 2017, caps on concessional super contributions have been lowered to $25,000 per year irrespective of age. Non-concessional contribution limits (after tax contributions) have been reduced to $100,000 per year.
Single Touch Payroll (STP)
Single Touch Payroll requires businesses to report all wages paid, tax and superannuation information from each pay cycle to the ATO electronically. All businesses, no matter the number of employees, should now be reporting through STP. If you are currently using cloud-based software, this reporting function should already be available. If you are not using a cloud-based accounting software, please contact your TAG Financial Services adviser.
Immediate Write Off for Small Business
The instant asset write off threshold has increased to $150,000 and extended to 30 June 2020.
Businesses with a turnover of up to $10 million can immediately write off the cost of eligible new business assets, up to the following thresholds:
- $150,000 from 12 March 2020 to 30 June 2020
- $30,000 from 7.30pm (AEDT) on 2 April 2019 to 11 March 2020
- $25,000 from 29 January 2019 until before 7.30pm (AEDT) on 2 April 2019
- $20,000 before 29 January 2019
Businesses with a turnover from $10 million to less than $50 million can claim an immediate deduction for assets purchased up to $30,000 from 7.30pm (AEDT) on 2 April 2019 to 30 June 2020.
Businesses with a turnover from $50 million to less than $500 million can claim on immediate deduction for assets purchased up to $150,000 from 12 March 2020 to 30 June 2020.
Small Business Entity Concessions
If you carry on business and your aggregated turnover is less than $10 million or you own net assets of less than $6 million, you may be able to access certain concessions including:
- CGT concessions
- Immediate deductions for certain prepaid expenditure
- Simplified depreciation and trading stock rules
Wages or Dividend
In certain circumstances, it may be beneficial for a business owner to receive fully franked dividends from the company rather than wages. In particular, a dividend may be preferred where the company is in a break-even or loss situation. Discuss this topic with your TAG adviser prior to lodging your Annual PAYG Summary.
Income in Advance
Where you have received income that relates in part or in full to services or goods you have not provided prior to 30 June, record that income so that it can be taken up as income in advance rather than as earned, taxable income. This will defer the recognition of the income until the next financial year.
Delay Raising Invoices
Wherever possible without affecting your client relations or cashflow of your operations, do not raise invoices for work that can be delayed until the new financial year. This will have a direct impact on your bottom line by reducing your sales income for the current financial year.
Valuation of Trading Stock
Businesses can value their stock at the lower of actual cost, replacement cost or market selling value – different methods can be applied to different stock lines. A reduction in the holding value of stock will reduce the profit of the business by the same amount.
Bonuses/Directors Fees
Bonuses/Directors Fees that have been incurred and committed (by minute) to by the business prior to 30 June (and are not subject to discretion) may be claimed as a tax deduction by the business.
Company Loans to Shareholders
Company loans to shareholders (and their associates) may become a deemed unfranked dividend (resulting in additional tax to be paid by the shareholder) if not repaid before the end of the financial year or put on loan terms. These rules also extend to:
- trusts where there has been a loan to a shareholder and the trust owes money to a company, and
- distributions a trust makes to a company, which have not been paid.
These loans either need to be repaid or documented in a 7-year loan agreement (with repayments) to avoid the application of Division 7A rules.
Proposed changes to the Division 7A rules are to take effect on 1 July 2020 and are still in draft legislation and yet to be implemented.
Bad Debts
Analyse your list of debtors prior to 30 June to identify those debtors you consider unlikely to be collected. In order to claim a tax deduction for these bad debts, you need to physically write them off before 30 June.
Trust Distribution Minutes
The ATO now requires trustees to prepare and sign distribution minutes prior to 30 June each year. This requires using estimates and forward planning to predict the best tax result. Failure to correctly prepare a distribution minute will result in tax being paid by the Trust at the top marginal rate. We recommend you contact your TAG adviser to discuss potential strategies for trust distributions.
Appropriate Structuring
One of the most effective and underrated tax planning tools is to ensure that your business operations are correctly structured through the use of companies, discretionary trusts and individual beneficiaries. Call us to discuss whether your current structure is right for you.
Bonuses/Directors Fees
Bonuses and Directors fees that have been incurred and committed (by minute) to by the business prior to 30 June (and are not subject to discretion) may be claimed as a tax deduction by the business.
If you have any questions, please contact us on 03 9886 0800 or via email.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.