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PREPARING FOR EOFY

The end of the financial year is coming up quickly, but there’s still time to get your tax paperwork sorted for your business.


Below are some of the best strategies for your end of financial year tax planning. Note that this year, 30 June falls on a Tuesday.


INCOME

Revenue Recognition

Income received in advance may be able to be deferred from the 2020 year to 2021. You can also bring forward sales in 2020 where work has been completed by not invoiced until 2021.

Deferral of Revenue

You can defer sales from the 2020 year until 2021 in circumstances where you can demonstrate the work had not been fully completed in 2020.


Interest and Dividends - Interest income is generally recognised when it has been received.


If you have received a loan from a related company or trust, you should consider whether a Division 7A dividend is to be paid to you.


Government Grants - With grants being provided under the current pandemic as well as for the recent bushfires, the way they are treated does vary. Generally, if payments received in relation to continuation of your business are likely to be assessable income for tax purposes.

In some cases, specific laws may exclude the grant or loan from tax such as for the special disaster grants for the bushfire which are specifically non-assessable and non-exempt income. Note that cash flow boost amounts are also non-assessable non-exempt income. However, JobKeeper Subsidy payments are assessable income.


EXPENSES


Deductibility - Check whether expenses incurred are tax deductible - personal, legal or expenses of a capital nature may not be deductible.


Stocktake - Ensure you perform a stock take on 30 June and keep a record of the market selling, cost and replacement values. Use the value which gives you the best tax result saving you tax, or deferring paying tax. Small Businesses with stock movements under $5,000 are not required to perform a stock take.

Pay Staff Super - Pay any SGC super for employees for the April – June 2020 quarter. Note the funds must reach their super accounts before Friday 30 June 2020.*


If you have any outstanding superannuation from between 1 July 1992 to 31 March 2018, take advantage of the superannuation guarantee amnesty. Note you have up until 7 September 2020 to take advantage of the amnesty.

Instant Asset Write-Off - Businesses with a turnover of up to $500 million are entitled to an immediate deduction of the business portion of all assets purchased (new or second hand) and first used or installed ready for use, to the following thresholds:

  • $30,000, from 1 July 2019 to 12 March 2020

  • $150,000, from 12 March to 31December 2020

  • Assets over the above threshold will be depreciated in the pool at 15% for the year you buy them and a 30% depreciation deduction in subsequent years.

For certain new assets, you can use an accelerated depreciation rate of 57.5% when you first add them to the pool. This applies to assets that be new and not previously held by another entity (other than as trading stock) that are:

  • be first held on or after 12 March 2020

  • first used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021

  • not be an asset to which an entity has applied the instant asset write-off rules or depreciation deductions.

Small business entity with an aggregated turnover of less than $10 million can deduct an amount equal to 57.5% (rather than 15%) of the business portion of a new depreciating asset in the year you add it to the pool. The following years, the asset will be depreciated under the general small business pool rules.


For other businesses with aggregated turnover over $10 million but less than $500 million that do not use the simplified depreciation rules, can deduct 50% of the cost in the first year then a further deduction calculated by applying the normal depreciating rules on the balance of the assets cost.


Bad Debts - Ensure you write of doubtful debts before 30 June. Ensure you have made necessary collection attempts before writing off.


Employee Bonuses or Director Fees - Ensure you are committed to paying them before 30 June as evidenced by documentation for bonuses and a resolution for director fees.


Prepayments - Small Business entities can bring forward your tax deduction into 2020 by prepaying expenses for 12 months such as rates, interest etc.


Motor Vehicle - Ensure you have a logbook completed for 12 weeks noting applicable business/personal use. If your logbook is more than 5 years old or your travel patterns have changed materially, you should complete a new logbook. The depreciation cost limit of $57,581 needs to be considered in relation to any purchases where looking to claim a motor vehicle costing under $150,000.


COMPANIES


Company Tax Rate Reduction - From 1 July 2020 the company tax rate reduces from 27.5% to 26%.


Franking Credit changes - due to the above company tax rate reduction, the maximum franking rate that applies to dividends paid by base rate entities will also change. For example, in 2020, the maximum franking rate for a base rate entity that pays a dividend will be 27.5%. While in 2021, the maximum franking rate will reduce to 26%.


Declare dividends to pay any outstanding shareholder loans - Declare a taxable dividend to deal with any advanced funds, expenses paid or asset usage by a shareholder or related party. The alternative is to place such arrangements under a complying loan agreement. Ensure minimum loan repayments are made by 30 June 2020 for complying loans, including declaring dividends required to meet these loan repayments.


Division 7a Loans - Review loans before the end of the year to ensure you don't accidentally trigger a deemed dividend and arrange a complying loan agreement where applicable. If there any dividend is paid as well as documented via a Minute


TRUSTS


Trustee Resolutions

To help ensure income is not taxed unnecessarily at 47%, prepare a resolution before 30 June in accordance with the Trust Deed for all income tax types.


2020-21 Upcoming Deadlines


Single Touch Payroll (STP)

Payments summaries do not have to be provided to employees this year due to STP. Employees will be able to access their Income Statement through myGov. To ensure the correct yearly figures are reported, for payments to employees that have been reported through STP to the ATO, a finalisation declaration needs to be made by 14 July 2020 for employers with 20 or more employees and by 31 July 2020 for those with 19 or fewer employees.



Taxable Payments Annual Report - due to be lodged by 27 August 2020 for the following industries that make payments to contractors. May also apply to businesses in response to COVID-19 restrictions who have offered new or expanded services that include these services, and they pay contractors to provide these services

Applicable industries are:

  • Building and Construction

  • Cleaning Services

  • Road Freight Services

  • IT Services

  • Security, investigation or surveillance Services.


CAPITAL GAINS


Timing of CGT Events


Small Business CGT - you may be able to reduce capital gains where you qualify for the Small Business CGT Concessions.


INDIVIDUALS


Working from Home during Covid-19 - from 1 March 2020 to at least 30 June 2020, you may be able to use the new temporary shortcut method rate of 80 cents for claiming work related deductions you incurred while working from home. You must have incurred work related expenses and your employer must not have reimbursed these costs. You must keep a diary or timesheet of the hours worked. This is an optional method and for some their expenses will actually be higher than if using this method.


Change to the cents per kilometre rate - from 1 July 2020 the rate for claiming the cents per kilometre method has increased from 68 cents to 72 cents per kilometre. A maximum of 5,000 business kilometres can be claimed per year per car.


Please contact HelloLedger if you have any questions at all regarding anything in this article.

0490 033 038



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