With 30 June 2020 fast approaching, it is a great time to consider some tax planning strategies to manage your tax liabilities. There are some excellent tax concessions currently in place to benefit both individuals and businesses.
Outlined below are some of the tax and super planning strategies to keep in mind when closing off 30 June 2020:
Prepare a stocktake or calculate your work in progress as at 30 June 2020 or close to this date. Stocktake includes counting and detailing all products on hand at year end along with its value. Any obsolete stock will need to be written off at year end.
Review the recoverability of your invoices appearing on your aged receivables report for June 2020. Any debtors that you have made all attempts of recovering with no success and you believe are unlikely to pay can be written off by 30 June 2020. These bad debts written off can be claimed as a tax deduction in the 2020 financial year.
The Government increased the instant asset write-off (IAWO) threshold from $30,000 to $150,000 and expanded access to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 31 December 2020.
A key rule to obtain the deduction in the 2020 financial year is that the asset must be installed and ready for use by 31 December 2020. The asset may be new or second hand and you can claim multiple assets.
For motor vehicles the IAWO threshold is subject to the car limit of $57,581 for the 2020 financial year. This applies to passenger vehicles (except motor cycles or similar vehicles) which carry less than 9 passengers or carry a loan less than 1 tonne. Businesses can claim IAWO for other vehicles which includes trucks and machinery.
The key dates and asset thresholds are:
|Date range||Asset Value Threshold|
|7:30pm (AEDT) 04/04/2019 to 12/03/2020||$ 30,000|
|12/03/2020 to 31/12/2020||$150,000|
|1/07/2020 onwards||$ 1,000|
Review your depreciation schedule you have received in your 2019 financial year financial statements or income tax return. Advise us of any assets that have been either disposed or destroyed in the 2020 financial year. These assets will be written off and any remaining balance will be deductible.
As a small business entity (a sole trader, partnership, company or trust who is operating a business and has a group turnover of less than $50million), you may have the ability to prepay expenses and claim an immediate deduction in the financial year in which they are paid. The full deduction for the prepaid expense will be allowed in the current year so long as the prepayment relates to a period of no longer than 12 months ending in the next income year. Some examples of expenses that you make look at prepaying include interest, rent, subscriptions, advertising etc.
Please ensure you have a valid logbook for the 2020 financial year if you wish to use the logbook method to claim motor vehicle deduction. The logbook method requires you to keep a logbook of your car’s usage for a 12-week continuous period in order to determine the business-use percentage of your car. You can use this percentage for up to 5 years to claim a portion of your car’s operating costs such as registration, insurance and fuel; all of which require you to keep receipts.
The ATO are currently reminding businesses to finalise declaration for employee’s 2020 financial year payroll information via the single touch payroll system. The deadline is 14 July 2020. Businesses are not required to provide payment summaries to their employees and lodging a annual payment summary report to ATO.
Single Touch Payroll has extended the exemption for small employees who have close-held employees from 01 July 2020 to 01 July 2021.
Businesses that employ staff need to pay their employee super for the April-June 2020 quarter by 28 July 2020. Businesses can choose to pay the June quarter super prior to 30 June 2020 to bring forward their tax deduction. Please be aware that the payment must be received by the superannuation fund prior to 30 June 2020 in order to claim a deduction. Please refer to our recent Superannuation Countdown article in relation to recommended cut-off dates.
An individual or business owner can contribute up to $25,000 as a concessional contribution (before tax) into their superannuation fund and claim a tax deduction for this in their return (subject to eligibility requirements). With EOFY planning in full swing, you may want to consider making a personal superannuation contribution to reduce your taxable income. If you are making a personal superannuation contribution this year it is important that the payment is received by the superannuation fund prior to 30 June 2020 in order to claim a deduction. Please refer to our recent Superannuation Countdown article in relation to recommended cut-off dates.
Separate to the concessional contribution cap, non-concessional (after-tax) contributions are limited to $100,000 for the 2020-21 financial year.
SMSF trustees should also be aware of the legislation that is slated to pass before the end of the financial year. If passed it will allow people aged between 65 and 66 to make voluntary contributions (previously restricted to people below 65) without meeting a work test. These older individuals will also be able to make up to three years of non-concessional superannuation contributions under the bring forward rule, so it will pay to get advice in order to maximise their contributions.
Start considering the work-related deductions that may be available to you personally. Due to COVID-19 many of us have been forced to work from home creating additional expenses which may be deductible. From 1 March 2020 the ATO increased the standard home office deduction rate from 52c per hour to 80c per hour. This means for every hour you worked from home you can claim an 80c deduction, which covers home office use of telephone, internet, depreciation and utilities expenses.
SMSF related issues
SMSF Trustees also have a number of issues to consider as they focus on how best to position their SMSF in 2020-21, as well as meet their annual regulatory obligations for 2019-20. Below are just a few of these considerations.
A delayed lodgement date of 30 June 2020 is in place for all SMSF trustees as the sector navigates the COVID-19 pandemic. It is important that you, as an SMSF trustee, understand the position of your SMSF at 30 June before taking any actions which could cause you to breach superannuation laws.
The $1.6 million transfer balance cap applies to SMSF members who are receiving a pension. A $1.6 million transfer balance cap limits the amount of tax-free assets that can support a pension. Ensure you are aware of the consequences of excess transfer balances and avoid exceeding the cap.
Different total superannuation balance thresholds exist for SMSF. Ensure you are across your fund’s total superannuation balance which may be relevant for contributions, exempt pension income or transfer balance account reporting.
Your fund’s investment strategy is a key consideration in preparation for the 2020-21 financial year.
It is important to understand that an SMSF’s investment objectives and strategy are not set in stone, with the strategy needing to be reviewed at least once a year and signed off by an auditor.
Before any investment decision is implemented, particularly in a COVID-19 environment, you should examine the impact it will have on the overall portfolio to ensure you are investing in line with your strategy.
For those exposed to property, in some cases with a limited recourse borrowing arrangement (LRBA), there are new considerations. Many SMSF commercial properties (and, to a lesser extent, residential property) will not be receiving full rental payments under their lease agreements because of COVID-19, meaning less income.
All efforts should be centred on negotiating with tenants and using the Government support packages to ensure they will be able to withstand the effects of COVID-19. This includes considering the property relief measures the ATO have implemented and the use of the National Cabinet’s Mandatory Rental Code to plan out rental income for this and next financial year.
To help manage the economic impact of COVID-19, the Government has reduced the minimum drawdown requirements by half on common pensions, such as account-based pensions and market-linked pensions, for 2019-20 and 2020-21. This also occurred after the GFC in 2008, and you will need to consider and amend your pension strategies for these two financial years.
This includes ensuring that the minimum pension has been paid for this financial year. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free.
Where you have been receiving regular pension payments, it’s likely you may have received more than the required minimum payment for this year. Unless you meet contribution eligibility rules, these funds cannot be returned.
It is also important to amend your pension strategies for 2020-21 to reflect the “new” minimum pension standards. Specialist SMSF advice should be sought to help you determine the most effective way to structure benefit payments, please get in contact with us or your adviser to discuss this further.
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