Tax Planning for Businesses 2021

As the end of the 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 2021 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 full company tax rate of 30% applies to all companies that are not eligible for the lower company tax rate. Eligibility for the lower company tax rate of 26% depends on whether the company is a base rate entity.

A base rate entity is a company that both:

    • has an aggregated turnover less than the aggregated turnover threshold of $50 million.
    • 80% or less of the assessable income is base rate entity passive income.”

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.

From 1 July 2021, contribution cap changes are changing:

  1 July 2017 to
30 June 2021
From 1 July 2021
Concessional Contribution $25,000 per annum $27,500 per annum
Non-Concessional Contribution $100,000 per annum $110,000 per annum

The ability for a member to contribute is dependent on their age and Total Superannuation Balance (TSB) at the previous 30 June. Total Superannuation Balance will be measured at $1,700,000 from 1 July 2021.

For more information about the changes to contributions, read our blogs on super cap increases and changes to the transfer balance cap.

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.

Instant Asset Write Off for Eligible Businesses

Businesses with an aggregated turnover of up to $500 million can claim an immediate deduction for the business portion of assets costing up to $150,000 provided the asset was purchased by 31 December 2020 and is first used or installed ready for use between 1 July 2020 to 30 June 2021.

The government has also introduced temporary full expensing. From 7.30pm AEDT on 6 October 2020 until 30 June 2023, temporary full expensing allows a full deduction for:

    • the business portion of the cost of new eligible depreciating assets for businesses with an aggregated turnover under $5 billion or for corporate tax entities that satisfy the alternative test
    • the business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover under $50 million
    • the balance of a small business pool at the end of each income year in this period for businesses with an aggregated turnover under $10 million.

To be eligible for the deduction in the year ending 30 June 2021, the asset must be first held and first used or installed ready for use between 7.30pm AEDT on 6 October 2020 and 30 June 2021.

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 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.

If you have questions or need any assistance, please do not hesitate to contact us on 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).