Around this time of year, in the S & W Insight, we usually go through all the things that you should be doing running up to 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 planning for the year end to make sure you do everything you legally can to make sure you don’t pay any more tax than you absolutely have to.
With the volatile business environment caused by COVID-19, it is imperative that you maintain cashflow and availing yourself of any tax concessions prior to 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 prior to year end
- Review trading stock for possible write-downs of obsolete lines
- Write off bad debts in the accounts prior to 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, for small businesses, the 2020 financial year is the last year to be able to access the 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 their cost is < $150,000. From 1 July 2020 only assets that cost < $1,000 can be written off immediately by small businesses with turnover < $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 issues with the Personal Services Income rules 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 prior to 30 June, especially if you intend to stream different types of income to different beneficiaries.
- 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?
- Are there any donations you can make prior to 30 June to get the deduction this year?
- If you wish to change structure, 1 July is the easiest and cheapest time to start the new structure.
One issue that was to become law from 1 July 2020 was the significant changes announced a couple of years ago in relation to loans taken from companies that were 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. There was also going to be a catching of existing exempt loans if not dealt with by the end of a transitional period. 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 keep you informed, but the smart money is on the provisions again being deferred 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 affected greatly by the effect of COVID-19. While the above measures are important, the access to the Stimulus measures provided by the government is the most important issue for businesses at the moment. In another article in this edition of S & W Insight we have given you an update of the latest FAQ’s in 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 make sure you report the employee’s details in the required monthly declaration. See the link below for the process here.
- Keep workpapers on how you arrived at the decision on why you think you qualify for the JobKeeper concession. We have been told that the ATO will be actioning reviews of businesses earlier than first thought, to check that businesses are entitled to what they claim.
As always, we have, and will be, contacting all our business clients prior to year end to talk them through what they need to do.
In the meanwhile the above lists should remind you of any areas you may have forgotten. Please feel free to contact your client manager should you wish to clarify something.
Kreston Stanley Williamson Team
*Correct as of May 2020