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Time for Tax Planning

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Want to save on tax ...   It's time to act

The purpose of this newsletter is to highlight each of the tax planning opportunities available to you. As the COVID-19 and the related stimulus measures have been a major priority of late, it is now important to act. We will be looking at your situations individually, but you need to act quickly, and we encourage you to schedule a meeting as soon as possible to assess your options and the detail the steps you need to take before 30 June 2020 - call us on 1300 55 22 30.


The end of this unprecedented year is fast approaching, and whilst for many, the last four months of the year has been a financial disaster, being either shutdown completely or partially, others have been more fortunate and have been able to continue with business as usual.

For those who have been adversely affected in the back third of this year, there may have initially been 8 months of profitable trading that still needs to be considered. If profit from a mixed year still exists, it is even more important to conserve every dollar earned by tactical and strategic tax planning. For those with strong trading, failure to take tax planning steps could be costly.

With every possible proactive consideration and action, is the opportunity to either remove or defer income tax for another 12 months.

To assist, we have compiled a list of strategies to consider -

1 - Trustee Resolution

Operating through a discretionary trust requires a pre-determined resolution (before 30 June each year) allocating the profits of the business operations to the eligible beneficiaries. If not in place, the ATO can apply the maximum tax rate for individuals of 45%. Based on our knowledge of your business and your family circumstances, we have prepared the required resolution. Please sign and return for filing with your tax records.

 2 - Deferral of income

Where possible (and where it doesn’t affect your cash flow significantly) deferral of invoicing and receipting of income past 30 June will push that income into the following tax year.  If you account on a cash basis, defer receipts, if on an accruals basis, defer invoicing.

3 - Unearned income

if you received any unearned income, then you should be able to defer recognition of that income for tax purposes (fees received or invoiced in advance).

4 - Prepayment of Expenses

Where possible (and again, where it doesn’t affect your cash flow significantly), if you have expenses due after 30 June which can be paid before 30 June, then that will bring forward those expenses from the 2021 tax year into the 2020 year. This could be expenses such as -

  • Vehicle Registration & Insurance
  • General & Business Insurances
  • Conferences
  • Training
  • Travel
  • Rent
  • Advertising including Directory Listings
  • Subscription and Membership fees to Professional Associations or Trade Journals
  • Printing
  • Stationery & Office Supplies
  • Contractors
  • Interest etc

For small business entities (SBE’s), prepayments of up to 12 months can be claimed in the current financial year.

5 - Purchase capital equipment before 30 June

Capital expenditure for SBE’s made before 30 June will provide a 15% depreciation deduction. Where the expenditure (net of GST) is less than $30,000 (pre 12 March 2020), then this can be deducted in full in the current financial year (subject to car cost limits). Between 12 March 2020 and 30 June 2020, the $30,000 limit has been increased to $150,000 as part of the COVID-19 Stimulus (subject to car cost limits). 

6 - Pay SGC for employees

Superannuation Guarantee (9.5%) obligations are deductible in the year in which they are paid. Technically, SGC is due for payment 28 days after quarter end, so for the June Quarter, this would be due by 28 July 2020.

However, to be deductible in the 2020 financial year, you should make this payment before 30 June 2020, and allow up to 10 days to ensure cleared through to the employees superannuation account. 

7 - Additional Super for yourselves

The maximum amount of deductible superannuation contributions for all taxpayers is $25,000. Super contributions are taxed at 15% in your super fund (subject to high income surcharges), whilst providing a deduction at your marginal tax rate or the company tax rate. 

8 - Additional Super for yourselves - Prior Year Catch-Up

If your concessional contributions for 2019 were less than the allowed $25,000, then you are able to contribute extra as a catch in the current year, or any of the next 4 years (5 year limit before shortfall expires). This can help in a year where income is high or where a capital gain has been realised. 

9 - Stock Valuations

When you hold trading stock at year end, minimising the value will also minimise the operating and taxable profits. It is important therefore to firstly complete a stocktake, but then to assign a unit value per item that will produce the lowest result. The ATO allows you to value trading stock at cost, replacement value or realisable value, and this can be determined on an item by item basis, so you can choose the best method to suit each item. If an item is either damaged, aged or obsolete, then it should be written down or off. An additional potential method to reduce the stock value if an item was purchased in a foreign currency, then an appreciation in the currency would devalue the A$ value of the item and produce a better tax result. 

10 - Bad Debts

If sales are accounted for on an accruals basis, and there is no chance of recovering the debt amount, then a deduction can be obtained in the year that it is physically written off.  

11 - Employee Bonuses and Directors Fees

 If there is a genuine commitment for the payment of bonuses or Directors fees, then they can be accrued to obtain a deduction. 

12 - Work Related Car Expenses

If you haven’t already prepared a log-book, or you can prepare one which generates a higher business percentage, doing so will produce a better tax result. A log-book needs to be prepared for 12 weeks and then is generally valid for 5 years. 

13 - Repair and Maintenance Costs

Where possible, and where cash flows allow, consider doing any Machinery or property repairs. If you are unsure of the distinction between Repairs and Capital Improvements, make sure you check with us to ensure all expenditure will be deductible. 

14 - Capital Gains

If you intend to sell any investments that will realise a substantial capital gain, then consider deferring the sale until after 30 June to push the taxable gain into the following tax year. Note that the critical date on a sale is often the contract date, and not the settlement date. In addition, if you have already realised any large capital gains, but have some unrealised losses on any other asset holdings, consider crystallising the loss by selling before year end, so the loss can be offset to the earlier gain.

 

As always, we are available to help and guide you

Call us - 1300 55 22 30


 

 

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