Preparing for End of Financial Year Tax Time
Tax planning is always important ahead of the 30 June end of financial year. This year, in the wake of the Covid-19 shutdowns and as many government-driven stimulus packages come to an end, business owners and accountants are still unravelling the impacts for Australian businesses.
This is a broad outline to point you in the right direction. For information on your personal situation, please contact Hood Sweeney Accounting & Business Advisory on 1300 764 200, or send an email and we will be in touch.
To stem the Covid-19 impact on the economy, your business may have received government rebates or incentives such as JobKeeper or state-based grants such as the South Australia Covid-19 Assistance Grant.
It’s worth noting that the state grant is taxable. JobKeeper payments also are taxable, however they are offset by wages payments made to employees. On this basis, there is no net taxable income to the extent you have paid JobKeeper top-up payments to employees.
With the conclusion of the JobKeeper wage subsidy, the government has provided the JobMaker Hiring Credit, a temporary, new incentive for businesses to employ additional young job seekers.
JobMaker Hiring Credit
JobMaker is designed to try and boost the employment prospects of 16 to 35 year olds who were hurt the hardest by pandemic restrictions, including part-time retail assistants, and hospitality staff.
Eligible employers con potentially claim up to $200 per week for eligible employees that are aged between 16-29 and $100 per week for eligible employees aged 30-35. This scheme is running until 6 October 2021 so there is still time to see whether your business might be eligible for this incentive.
Similar to the JobKeeper, all payments under the JobMaker Hiring Credit scheme are assessable as ordinary income. The normal deductions apply for amounts your business pays to employees if those amounts are subsidised by JobMaker Hiring Credits. JobMaker Hiring Credits are not subject to GST.
Farm Management Deposits
Investing in Farm Management Deposits (FMDs) can help primary producers to reduce fluctuations in taxable earnings caused by economic and seasonal changes to primary production income.
If you meet the eligibility criteria, farm management deposits are tax deductible in the financial year they are made, and are taxable income when withdrawn.FMD’s are limited to $800,000 per person and must be held for at least 12 months otherwise the tax benefit of investing will not be retained. Interest is also paid to the owner on the FMDs held.
FMDs are a tax-effective opportunity, however taxpayers must consider whether FMDs would be useful to reduce this year’s taxable income or whether they have any FMDs to withdraw if income is lower than average.
Understanding Your Tax Position
As we have seen, some industries have come out of COVID-19 doing very well and others are still adjusting to the change in social behaviours and norms. This is a very important year to understand where your business is sitting both performance wise, and also for income tax purposes.
If your taxable income for the year ended 30 June 2021 is likely to be lower than the previous year, you may consider varying your June 2021 PAYG instalment (due 28 July) to assist with cash flow. You may also be able to claim a refund of PAYG instalments made in earlier quarters, if you suspect you have paid too much throughout the year.
The corporate tax rate for small business entities with an aggregated turnover of less than $50 million has now been reduced to 26% for the 2021FY. And the small business offset for non-corporate entities has increased to 13% with the cap remaining at $1,000.
Prior to 30 June, review your debtors and write off any bad debts. Bad debts need to be documented prior to 30 June to be an allowable deduction for the year ended 30 June 2021.
Trustees of discretionary trusts are required to document their annual resolution setting out how the income of the trust will be distributed. Failure to make the resolution prior to 30 June may result in the trustee being assessed on the income of the trust at the highest marginal tax rate.
Single Touch Payroll Reporting Options
Single Touch Payroll reporting will be required for closely held payees from 1 July, 2021, at the conclusion of a one-year exemption granted during the Covid-19 pandemic last year, the Australian Tax Office has announced.
The ATO said small employers (those with 19 or fewer payees) can report payments to closely held payees through Single Touch Payroll (STP) in one of three ways:
- Report actual payments on or before payment date
- Report actual payments quarterly, to be due on or before the due date for quarterly business activity statements (BAS); Or
- There is the option to report a reasonable estimate quarterly. That means reporting amounts equal to, or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter.
The ATO said employers can choose which reporting method best suits their circumstances. If you elect to report actual payments, you should report either quarterly or on or before the date of payment.
A closely held payee is an individual directly related to the entity from which they receive payments, such as family members of a family business; directors or shareholders of a company, and beneficiaries of a trust.
Instant Asset Write Off
One of the most popular tax strategies in recent years has been the instant asset write off concession.
If you are looking to buy some new or second hand equipment or eligible business assets it is worth considering bringing forward those expenses and the tax deduction into the 2021 income year.
There has been a number of changes to the amounts and timing for the instant asset write off. We provide a table to assist in determining which threshold applies to your business.
This is a complex area therefore we recommend you contact us to ensure you are getting the maximum benefit of any asset purchases, as the table below may not apply to all circumstances.
Eligible BusinessDate range for when asset first used or installed ready for useThresholdLess than $5 billion aggregated turnoverNew Assets purchased between 6 October to 30 June 2022UnlimitedLess than $50 million aggregated turnoverSecond Hand Assets purchased between 6 October to 30 June 2022UnlimitedLess than $500 million aggregated turnover12 March 2020 to 30 June 2021, providing the asset is purchased by 31 December 2020*$150,000
Income in Advance and Pre-paid Expenses
For certain businesses, there may be income that has been received in the financial year where the work is yet to be completed. An example of this is where income is received based on timing stipulated in a contract, and not based on project completion or work performed. In such cases there may be an opportunity to defer the income until the next financial year in which the work was carried out.
There are also opportunities under the small business rules to pre-pay expenses, such as interest on loans or insurance, before 30 June in order to claim a tax deduction in the financial year. These prepayment rules apply only to amounts that are deductible under general deduction provisions and the expense does not relate to a service period of more than 12 months.
For businesses – pay your June quarter superannuation contributions before 30 June in order to obtain a tax deduction in the 2021 income year.
Please note that, subject to cash flow, the actual due date is 28 July 2021 but it is recommended that payment be made with enough time to ensure the payments are received by 30 June.
Consider making additional superannuation contributions, subject to your personal superannuation concessional contribution cap for the 2021 income year. We recommend you consult with a Financial Planner in order to determine what is most appropriate for you.
Home Office Deductions
With so many businesses allowing employees to work remotely, from their homes, during Covid-19, the ATO has introduced a ‘shortcut method’ to calculating home office expenses from 1 March 2020 until 30 June 2021.This method allows you to claim an 80 cent per hour tax deduction for each hour worked from home.
You can use the ‘shortcut method’ when you are working from home doing your full employment duties, not just minimal tasks, and have incurred additional running expenses as a result.This method covers all of your work from home expenses including phone, electricity, gas, and internet.
You are able to use the previous methods for calculating home office deductions such as the ‘Fixed Rate Method’ and ‘Actual Cost Method’. To claim a deduction for working from home, all of the following must apply:
- You must already have spent the money
- The expense must be directly related to earning your income
- You must have a record to prove it.
Read more here about claiming home office expenses.
Planning For the Future
While looking forward and understanding your business from a tax perspective remains vital, it is just as important to gain a deeper understanding of what the next 12 months month looks like.
It is a great time to sit with your adviser and put together some key goals and objectives that you would like to achieve within your business over the next 12 months.Or even just setting a budget for the next financial year, with sales targets and how you plan to get there.
Keep Good Records
As always, having thorough, organised records allows your accountant to claim all available tax deductions, thus minimising tax where possible.
The ATO also stresses the importance of good record keeping to ensure taxpayers are claiming the correct tax deductible amounts and that those tax deductions can be supported when required.
If you have made donations to causes such as Covid-19 appeals or bushfire and flood relief in the past 12 months, don’t forget these at tax time.
Donations of $2 or more to Deductible Gift Recipients may be tax deductible. Find your receipts and provide them to your accountant.
If you have any questions around your end of financial year preparations, please ring Hood Sweeney Accounting & Business Advisory on 1300 764 200.
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