2020 Year End Tax Planning
30 June 2020 is fast approaching so it’s time to consider how to best manage your tax affairs for the 2020 income tax year. It’s been an extraordinary end to the 2020 financial year with many businesses being forced into hibernation due to COVID-19. The number one priority for most business owners right now is cash flow, so tax planning has never been more important.
Like every year, there are important tax planning opportunities and matters to consider in the lead-up to 30 June. This year, some important Stimulus matters also need to be considered in the context of year-end tax planning.
Let’s take a look at a handful of things to consider this year.
Defer income and bring forward expenses up to 12 months in advance
It is always a good idea to try to defer your taxable income to next financial year (except when the marginal tax rate increases). For those operating on a cash basis, simply delay the “receipt” of the income. If you operate on a non-cash basis then you may want to defer your invoicing until next year.
An immediate deduction is available to SMEs for the prepayment of allowable deductions such as lease payments, interest, rent, business travel, insurances and subscriptions up to 12 months in advance by June 30.
Scrap obsolete stock or plant and write off bad debts
Got some old plant or stock that your business simply can’t sell due to COVID-19? Then physically write it off before June 30 and get a tax deduction for it this year. You can value trading stock at the lower of actual cost, replacement cost, or market selling value. This valuation can be applied to each item of trading stock.
Similarly, a lot of customers are facing financial difficulty during this pandemic and simply can’t pay, so for a business to get a tax deduction on its bad debts it must physically write off the debt prior to June 30. Note that the debt must have been originally shown as income for the write-off to be allowed. Put your decision in writing such as a board minute. You also need to show that you have made a genuine attempt to recover the debt to prove that it is bad.
Stimulus payments received – tax treatment
In the last few months, you may be receiving various Stimulus payments – e.g. JobKeeper, Cashflow Boost, Government Grants, etc. The Cashflow Boosts are specifically exempt from income tax, but JobKeeper payments and most Government Grants will likely be assessable. Assessable payments should be taken into consideration when planning your tax instalments for the rest of the year and your overall tax liability position. Jobkeeper Payments are taxable, but are offset by payments to employees so there should be no net taxable income.
Instant Asset Write Off
The instant asset write-off is a tax deduction that reduces the tax liability of your business. You can immediately deduct the cost of a business asset if it costs less than the following amounts and turnover thresholds:
|Aggregated Turnover Threshold||Up to 11 March 2020||12 March 2020 – 31 December 2020||1 January 2021 – 30 June 2021|
|< $10 Million||$30,000||$150,000||$1,000|
|< $50 Million||$30,000||$150,000||$0|
|< $500 Million||0||$150,000||$0|
This measure applies to both new and second-hand depreciating assets. Car write-offs are still subject to the luxury car limit ($57,581 for 2020 financial year).
Accelerated Depreciation – assets purchased and ready for use by 30 June 2021
Businesses with a turnover up to $500 million can purchase eligible assets over $150,000 until 30 June 2021 and claim accelerated depreciation of an additional 50% of the asset cost in the first year of purchase. Existing depreciation rules apply to the balance of the asset cost. This is an extra tax deduction and not a cash back amount. Unlike the instant asset write-off, there is no cap on the expenditure eligible for this measure. This measure is also available to all business entities under $500m aggregated turnover. This may be beneficial if you are planning on purchasing more expensive depreciating assets (i.e., over $150,000) in the near future for which you cannot obtain the instant asset write-off.
When you retire, your superannuation is likely to become an important source of your income. That’s why it’s a good idea to top it up while you are working. But did you know, there are also some excellent tax benefits you can take advantage of right now, like making your own voluntary superannuation contributions?
There are several ways you can get tax benefits from super contributions. Please contact our office to discuss the tax strategies available to your circumstances. It is noted, we can only provide advice regarding the tax consequences and you should also discuss this matter with your financial planner.
Please contact NCA here to discuss your end of year strategies.