Around this time of year, in the S & W Insight, we usually go through everything you should be doing until year-end. We believe we have trained our clients well, and they do not need full details of what to do but rather just a reminder of the items for them to undertake. You should be proactive in tax planning for the year-end to ensure you do everything you legally can and don’t pay any more tax than you have to.
With the volatile business environment caused by COVID-19, it is imperative that you maintain cash flow and availing yourself of any tax concessions before 30 June will only help you with this.
The basic tax planning strategies you need to review by year-end are as follows:
- Defer income by delaying invoicing
- Bring forward expenditure by incurring the expense before year-end
- Review trading stock for possible write-downs of obsolete lines
- Write off bad debts in the accounts before 30 June
- Prepay expenses if relevant to the size of your business. You can claim prepaid expenses this year if your turnover is < $10M.
- Pay superannuation contributions for yourselves, if relevant, and ensure paid, along with employees’ contributions, before 30 June to get the deduction this year.
- Write off plant and equipment that is not used or has been scrapped.
- Remember, the 2020 financial year is the last year for small businesses to access significant instant asset write-off concessions. Plant and equipment purchased up to 12 March 2020 can be written off immediately if the cost is < $30,000 (for businesses with turnover < $50M). From 12 March (for small businesses with turnover < $500M), plant and equipment can be immediately written off as long as they cost < $150,000. From 1 July 2020, only assets that cost < $1,000 can be written off immediately by small businesses with a turnover of < $10M.
- Ensure loans to shareholders are under control with adequate repayments and loan agreements in place.
- Any bonuses due to employees should be paid before 30 June to get tax deductions this year, or if committed to this year, but based on a profit calculation that can’t be done until after 30 June, minuted in the statutory records that they are to be paid.
- Any Personal Services Income rules issues need to be resolved with the required salary by 30 June.
- Trustees of trusts need to ensure that the necessary distribution minutes are put in place and signed before 30 June, especially if you intend to stream different types of income to different beneficiaries.
- The Single Touch Payroll (STP) framework was to expand from 1 July 2020 to include closely held payees. That has now been deferred until 1 July 2021.
- Have you made capital gains this year? Do you have the ability to crystallise capital losses before 30 June to offset them?
- Can you make any donations before 30 June to get the deduction this year?
- If you wish to change the structure, 1 July is the easiest and cheapest time to start the new structure.
One issue to become law from 1 July 2020 was the significant changes announced a couple of years ago with loans taken from companies subject to Division 7A of the Tax Act. The changes included replacing the current 7 and 25 years loans with 10-year loans (with transitional measures put in place for existing loans), new higher interest rates on the loans and changes to repayment and loan agreement requirements.
If not dealt with by the end of a transitional period, there would also be a catching of existing exempt loans. There would have been significant planning to be done before 30 June 2020 for companies with existing debit loans. With just over a month to go before 1 July, we have no legislation and with Parliament not sitting, little chance they will pass any legislation by 30 June.
We will inform you, but the smart money is on the provisions again, being deferred for at least a year. If, somehow, the law is passed and is effective from 1 July 2020, we will be in contact with the clients where it will be relevant.
This year’s tax planning is significantly affected by the effect of COVID-19. While the above measures are necessary, access to the Stimulus measures provided by the government is the most crucial issue for businesses. In another article in this edition of S & W Insight, we have given you an update on the latest FAQ on the concessions.
Further to this, as a quick reminder on the Stimulus measures, please remember to
- Register for JobKeeper by 31 May if relevant to you. If you expect to be eligible for the measure at any time between 30 March and 27 September, you should register now.
- If registered for JobKeeper, report the employee’s details in the required monthly declaration. See process here.
- Keep work papers on how you decided on why you think you qualify for the JobKeeper concession. We have been told that the ATO will review businesses earlier than first thought to check that businesses are entitled to their claims.
As always, we have contacted all our business clients before year-end to discuss what they need to do.
Meanwhile, the above lists should remind you of any areas you may have forgotten. Please contact us if you wish to clarify something.
Kreston Stanley Williamson
*Correct as of May 2020
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
