12th June, 2020
COVID-19 is having an impact on most businesses, which makes tax planning more important than ever this year.
Below are some of the main strategies that SME business owners should consider in the lead up to 30 June to reduce this year’s tax liability.
Small businesses having an aggregated turnover of less than $10 million can claim an immediate deduction for certain expenses prepaid by 30 June 2020 including lease payments, interest, rent, business travel, insurances and business subscriptions.
Under the Government’s COVID-19 stimulus package, the instant asset write-off threshold was increased from $30,000 per asset to $150,000 per asset, and extended to businesses with an aggregated annual turnover of less than $500 million.
This measure applies to all purchases made from 12 March 2020 to 30 June 2020 where the asset is used or installed ready for use by 30 June 2020.
Where asset purchases are not eligible for an immediate write-off, an additional 50 percent of the asset cost will be deductible in the year of purchase — existing depreciation rules would continue to apply to the balance of the asset’s cost.
Business with an aggregated annual turnover of less than $500 million can access this investment incentive for new assets acquired from 12 March 2020 to 30 June 2021 -– second hand assets are excluded.
If obsolete plant and equipment is sitting on your depreciation schedule and has not been allocated to a small business pool, it should be scrapped and written off by 30 June to generate an additional tax deduction.
If your business accounts for income on a non-cash basis and has previously included the amount in assessable income, a deduction for a bad debt can be claimed in 2019-20 so long as the debt is declared bad by 30 June 2020.
Your business will need to show that it has made a genuine attempt to recover the debt by 30 June to prove that the debt is bad. It’s preferable that this decision is made in writing (such as, a company director’s minute).
Your business can also claim back the GST paid on debts that have been written off as bad, or where not written off as bad, the debt has been outstanding for 12 months or more.
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The maximum concessional superannuation contribution limit is $25,000 for all individuals including both concessional personal and concessional employer contributions made on behalf of the individual.
In order to obtain a deduction in the 2020 financial year, the contribution must generally be received by the superannuation fund by 30 June 2020.
From 1 July 2019, you can make ‘carry-forward’ concessional super contributions if you have a total superannuation balance of less than $500,000 at 30 June 2019. The unused concessional contributions caps can be used on a rolling basis for five years upon which they will expire.
For example, if $20,000 in concessional contributions was made on your behalf during the 2018-19 year, the $5,000 balance carries forward to the 2019-20 year.
This means you can make concessional contributions of up to $30,000 this financial year without breaching the contributions cap if your super balance was less than $500,000 at 30 June 2019.
Businesses that return income on a cash basis are assessed on income as it is received. A simple end of year tax planning strategy is to delay “receipt” of the income until after 30 June 2020.
Businesses that return income on a non-cash basis are generally assessed on income as it is derived or invoiced. Income may be deferred in some circumstances by delaying the “issuing of invoices” until after 30 June 2020.
Realising a capital gain after 30 June 2020 will defer tax on the gain by 12 months and can also be an effective strategy to access the 50 percent general discount which requires the asset to be held for at least 12 months. The date of the contract is the realisation date for capital gains tax purposes.
All businesses have the option of valuing trading stock on 30 June 2020 at the lower of actual cost, replacement cost, or market selling value. A different valuation method may be applied for each item of trading stock.
For example, where the market selling price of stock items at year-end is below the actual cost price, your business can generate a tax deduction by simply valuing the stock at market selling value for tax purposes.
All businesses are entitled to an immediate deduction for certain expenses that have been “incurred” but not paid by 30 June 2020 including:
Salary and wages — a tax deduction can be claimed for the number of days that employees have worked up to 30 June 2020, but have not been paid until the new financial year.
Directors fees — a company can claim a tax deduction for directors fees it is “definitely committed” to at 30 June 2020 and has passed an appropriate resolution to approve the payment. The director is not required to include the fees in their taxation return until the 2020-21 year when the amount is actually received.
Staff bonuses and commissions — a business can claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June 2020 where it is “definitely committed” to the expense.
Repairs and maintenance — a deduction can be claimed for repairs undertaken and billed by 30 June 2020 but not paid until the next income year.
This article, while written by accredited tax agent and chartered accountant Joe Kaleb of the small business portal Australianbiz, does not constitute professional advice. For advice on your specific situation, MYOB recommends engaging a qualified professional directly. You can start searching for an advisor, here.