As we approach the end of another financial year, we have once again faced many challenges brought upon us by the Coronavirus pandemic.
You, as a business owner or individual taxpayer, should now take some time to consider tax and accounting strategies that can be put into place before year-end to minimise or defer some tax burden.
Here are some top tips and key strategies that may put you in a better tax position. Taking the time to do some tax planning may result in a better outcome in your 2021 tax return and start the new tax year on the front foot.
• Ensure your accounting records and bookkeeping are all up to date as of 30 June 2021.
• Ensure you have documentation (eg. receipts) to support each transaction.
• We recommend that forecasts of your future tax bills are prepared so that you do not get any “surprises” when you lodge your 2021 tax return. Particularly if your business is growing or if you have started a new business.
• Accelerate legitimate deductions and defer the receipt of income (hold off invoicing where possible until after 30 June 2021).
• Small businesses can claim an upfront deduction for prepaid expenses (in certain circumstances) instead of spreading it over multiple tax years. Consider prepaying business expenses that relate to a 12-month period or less on or by 30 June 2021.
• If you have received any income in advance (where the good or service has not been provided yet), you may be able to defer the taxing of the income to the 2022 tax year (instead of the 2021 tax year).
• From 7:30 pm AEDT on 6 October 2020 until 30 June 2022, temporary full expensing allows a deduction for new and second-hand eligible depreciating assets and the balance of a small business pool. Aggregated turnover and eligibility criteria apply.
• Write off any bad debts. To claim a deduction for bad debts, the debtor must have been “written off” in your accounting ledger on or before 30 June 2021. Good business practice is to review this regularly and not just at year-end. This may be a more relevant issue for the 2021 financial year due to the Coronavirus pandemic.
• To claim a deduction for employee superannuation, this must be paid before 30 June 2021.
• To claim a deduction for employee bonuses, the bonuses must be committed to or communicated to the employees on or before 30 June 2021.
• Conduct a year-end stocktake and review stock on hand to determine if any stock needs to be scrapped or written off by 30 June 2021.
• Review your payroll records and perform year-end reconciliations. Be prepared for year-end Single Touch Payroll reporting for employees by the ATO due dates.
• Donations to Deductible Gift Recipients should be made on or before 30 June 2021 to claim a tax deduction in your 2021 tax return.
• Ensure the minimum Division 7A loan repayments are made by 30 June 2021 and place any applicable Division 7A loans under loan agreements.
• Reconcile petty cash/float balances to the accounting records.
• Ensure your motor vehicle logbook is current and up to date. If you do not have a current logbook, you will need to start a new logbook for 12 weeks. This will last you for 5 years.
• Declare and pay any company dividends to shareholders by 30 June 2021. Minutes and dividend statements should be prepared and issued.
• Trustees are required to determine the distribution of income to beneficiaries on or by 30 June 2021 in writing (the relevant date is dependent on the trust deed).
• Unpaid present entitlements (UPE) in trusts should be reviewed and any action required taken by 30 June 2021.
• Consider if you require any private health (hospital) insurance particularly if you are close to or over the Medicare Levy Surcharge income thresholds (Singles: $90,000 threshold, Family: $180,000 threshold). Hospital insurance needs to be taken out from 1 July to avoid the Medicare Levy Surcharge for the full year.
• If you wish to claim work-related deductions such as telephone or internet expenses, make sure you have records to substantiate your work-related usage. For example, you can maintain a 4-week diary of your private and work-related usage.
• Work from home deductions – Coronavirus. If you have been working from home due to the Coronavirus, you may be able to use the “shortcut” method for making a home office expenses claim. This method is available from 1 July 2020 – 30 June 2021 at a rate of 80 cents per eligible working from the home hour. Don’t forget to include the claim in the “other work-related expenses” section in your tax return with the description “COVID-hourly rate”.
• You may be able to make concessional superannuation contributions that can be claimed as a deduction in your tax return. These are subject to requirements and annual limits. You should seek financial advice.
• The corporate tax rate for “base rate entities” for the 2021 financial year sits at 26%. For companies that are not “base rate entities”, the corporate tax rate is 30%.
Jobkeeper payments received by businesses are required to be included as assessable income in the income tax return.
ATO “Hit List”
We also bring to your attention a recap of the ATO’s targets for this upcoming tax year.
• Cash businesses and undeclared business income. This is an area that the ATO will continue to focus on.
• Work-related deductions generally. Ensure you have records to substantiate deductions claimed. The ATO now requires itemised details of the deductions you are claiming in your 2021 tax returns. This will make it easier for the ATO to see what you are claiming and to select taxpayers to audit.
• Clothing, dry cleaning, and laundry deductions.
• Home office deductions (particularly rent, rates, and mortgage interest).
• Overtime meal claims.
• Union fees and subscriptions.
• Mobile phone and internet deductions.
• Motor vehicle deductions. The ATO is expecting motor vehicle deductions to decrease now that more taxpayers are working from home.
• Rental property deductions such as holiday homes, upfront repairs, and renovations, incorrect mortgage interest claims.
• Cryptocurrency investors – checking that income, gains, and losses are declared in your tax return.
• Taxpayers with a history of non-lodgement of income tax returns and business activity statements.
The team at EMspire Advisory are trusted, qualified Chartered Accountants and work closely with our clients to achieve the best possible outcomes. So to find out more and assist with your tax planning, please contact us!
Please note that this information is not specific and is general in nature and cannot be relied on as advice. Please contact us for advice specific to you and your circumstances.