It is no surprise that the Coronavirus pandemic has taken much of our attention this year. This does not mean that the 2020 financial year end on 30 June should go unnoticed. Here are some top tips and key strategies that may put you in a better position. Taking the time to do some tax planning may result in a better outcome in your 2020 tax return and start the new year on the front foot.
We also bring to your attention a recap of the ATO’s targets for this upcoming tax year.
– Ensure your accounting records and bookkeeping are all up to date as at 30 June 2020.
– Ensure you have documentation (eg. receipts) to support each transaction.
– We recommend that forecasts for your future tax bills are prepared so that you do not get any “surprises” when you lodge your 2020 tax return. Particularly if your business is growing or if you have started a new business. If your business has suffered a downturn, you may be entitled to a tax refund.
– Accelerate legitimate deductions and defer the receipt of income (hold off invoicing where possible until after 30 June 2020).
– 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 2020.
– If you have received any income in advance, you may be able to defer the taxing of that income to the 2021 tax year (instead of 2020 tax year). Income in advance is where you have invoiced upfront for goods or services that have not been provided as at 30 June 2020.
– Businesses with less than $50 million annual turnover can write off and claim a full deduction for any depreciable assets costing less than $30,000 that are purchased and installed ready for use between 2 April 2019 and 11 March 2020 – eligibility criteria applies.
– Businesses with less than $50 million annual turnover can write off and claim a full deduction for any depreciable assets costing less than $150,000 that are purchased and installed ready for use between 12 March 2020 to 30 June 2020 – eligibility criteria applies.
– The Federal Government announced measures on 9 June 2020 to extend the $150,000 instant asset write off to 31 December 2020. These measures are subject to the passage of legislation.
– 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 2020. A good business practice is to review this regularly and not just at year end. This may be a more relevant issue for the 2020 financial year due to the Coronavirus pandemic.
– Employee Superannuation: to claim a deduction, this must be paid before 30 June 2020.
– Employee Bonuses: to claim a deduction, the bonuses must be committed to or communicated to the employees on or before 30 June 2020.
– Conduct a year end stocktake and review stock on hand to determine if any needs to be scrapped or written off by 30 June 2020.
– 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 2020 to claim a tax deduction in your 2020 tax return.
– Ensure the minimum Division 7A loan repayments are made by 30 June 2020 and place any application 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 one for 12 weeks. This will last you for 5 years.
– Declare and pay any company dividends to shareholders by 30 June 2020. Minutes and dividend statements should be prepared and issued.
– Trustees are required to determine the distribution of income & capital to beneficiaries on or by 30 June 2020 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 2020.
– 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 COVID19, you may be able to use the “shortcut” method for making a home office expense deduction claim in your 2020 tax return. This method is available from 1 March 2020 to 30 June 2020 at a rate of 80 cents per eligible working from home hour. Don’t forget to include 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.
– Superannuation Amnesty: Employers with historic SGC non-compliance can self correct unpaid amounts under the SGC Amnesty. This enables employers to claim deductions for unpaid amounts and avoid incurring ATO administration charges. The Amnesty expires on 7 September 2020 and eligibility criteria applies.
ATO “Hit List”
– Cash businesses and undeclared business income. This is an area that the ATO focuses on every year.
– Overclaiming work related deductions. Ensure you have records to substantiate deductions claimed. The ATO now require itemised details of what you are claiming in your 2020 tax returns. This will make it easier for the ATO to see what you are claiming and 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 telephone deductions.
– Motor vehicle deductions.
– Rental property deductions (such as holiday homes, upfront repairs and renovations, incorrect mortgage interest claims).
– Bitcoin investors: checking that it is declared in your tax return.
– Earnings from the “gig economy” are declared in your tax returns (such as Uber drivers, AirBnB, Airtasker).
– Property and construction.
– Taxpayers with history of non-lodgement of income tax returns and business activity statements.
Please contact us to find out more. The team at EMspire Advisory are experienced accountants, bookkeepers and on-call virtual CFOs in Sydney.
Please note that this information is not specific and is general in nature and cannot be relied upon as advice. Please contact us for specific advice for you and your circumstances.