While planning of any kind has been challenging over the past 12 months, tax time remains a certainty for all businesses. As we move toward the final quarter of the financial year, now is an ideal time to review tax planning opportunities and consider where you might stand to benefit.
Tax planning should be a key element of your business management activities.
Over the past year, many businesses have taken some time to review the way they operate. For many, this has resulted in better, more profitable and streamlined businesses overall. If you are not already taking advantage of Tax Planning, this is another key strategy that can help you make the most of the ATO’s provisions in order to mitigate tax impacts while making the most of other business opportunities.
The time to act is now, as some strategies take time to implement, and your options will be limited once the calendar ticks over to 30 June. Your commitments will be set, and you’ll have little choice but to pay whatever tax is necessary to meet your obligations.
Among this year’s considerations is the Government’s enhanced depreciation measures. The instant asset write-off has been extended to 30 June 2022, with significantly increased thresholds and widened eligibility. The threshold amount for each asset now allows for full expensing (up from $30,000) for eligible assets and applies to businesses with an aggregated turnover of less than $500 million (up from $50 million).
If your business has been making use of small business pool deductions, you could also stand to benefit from the new measures, even if you have not purchased new assets. The small business pool deduction rule is a smart strategy that allows business owners to depreciate the value of their assets at an accelerated rate. Under the new provisions, eligible businesses can now deduct the entire balance of the small business pool from 6 October 2020 to 30 June 2022.
Being aware of these rules and provisions may mean that you can take advantage of other opportunities, such as bringing forward capital purchases that will increase production or create greater efficiencies.
Below are some additional tips that should be included in your 2021 tax plan:
• Write off bad debts before 30 June to claim as tax deductions.
• Pay super before the end of the financial year to ensure it is deductible.
• Top up personal voluntary super contributions (deductible up to $25,000 per year).
• Consider deferring recognition of accrued income to the next financial year.
• Pre-pay some expenses and claim a deduction in this year (up to 12 months of the coming year for businesses with group turnover under $10 million)
• Review your stock and identify any obsolete or unusable stock. Write off these stock items prior to 30 June 2021.
• Declare dividends and reconcile shareholder or director loans.
• Small business owners, like individuals, who own rental properties, can utilise the benefits of a Property Depreciation Report. They can use the report to claim building write-off deductions and the maximum amount of depreciation on their rental properties.
• Small business owners can make the payments for repairs and maintenance (employment, rental property, business) before the end of this income year to get the Tax deductions this income year. This is not to be confused with Capital Improvements which generally need to be depreciated
• Make trustee income distribution resolutions by 30 June (earlier if required by trust deed).
• Review your compliance and reporting obligations including:
• motor vehicle logbooks
• Single Touch Payroll including annual finalisation and reconciliations
• Taxable Payments Annual Report (TPAR)
• JobKeeper reporting obligations
• Home Office Claims - Especially due to Covid-19, ensure you monitor & keep record of the hours you are working from home which will be relevant when calculating your home office claim for the 2021 financial year.
• Taxpayers who have borrowed money for investments can check with their lenders to see if they can prepay interest to gain an early tax-deduction by paying 12 months of interest in advance as a one-off tax benefit. This is an option for investment loans on properties, margin loans on shares and business loans.
An effective tax plan should also involve a review of your business structure to ensure you are achieving the best possible tax outcomes. This should consider factors such as tax efficiency, governance, asset protection, flexibility for change and ease of administration. If you feel your business could be leveraging a more appropriate business structure, we can advise on a restructure that maximises the benefits available to you. This may include the current small business CGT concessions.
Please contact us to discuss the benefits of Tax Planning for making a positive difference in your business outcomes.