You hear about tax planning all the time from the likes of us, but for those small-to-medium business owners, 2021 is the year to make the necessary preparations. Much has been going on that will impact the amount of money in your pocket, and you can either let 30 June pass or exercise appropriate control.
Here are just a few of the things you need to be thinking about before 30 June 2021:
Business tax considerations
- Loss carry back regime:
Eligible corporate entities with less than $5 billion turnover in a relevant loss year can carry back losses made in the 2019–20, 2020–21 and 2021–22 income years to a prior year’s income tax liability in the 2018–19, 2019–20 and 2020–21 income years. The law commences on 1 January 2021. If eligible, corporate entities can claim the tax offset in their tax returns for the 2020–21 and 2021–22 income years
- Instant asset write off:
For assets first used or installed ready for use between 12 March 2020 until 30 June 2021, and purchased by 31 December 2020, the instant asset write-off:
- threshold amount for each asset is $150,000 (up from $30,000)
- eligibility extends to businesses with an aggregated turnover of less than $500 million (up from $50 million).
From 7.30pm AEDT on 6 October 2020 until 30 June 2022, temporary full expensing allows a deduction for:
- the business portion of the cost of new eligible depreciating assets for businesses with an aggregated turnover under $5 billion or for corporate tax entities that satisfy the alternative test
- the business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover under $50 million
- the balance of a small business pool at the end of each income year in this period for businesses with an aggregated turnover under $10 million.
- Pay Superannuation on time & before June 30:
Superannuation contributions need to be received by the fund by the 28th day of the month following the quarter end (with significant penalties for late payment). The June quarter superannuation liability is only due by 28 July and is often not paid before year end. However, by paying the June quarter liability before 30 June the amount is deductible in the year it is paid should the fund receive the amount by 30 June.
- Pre Pay annual charges
Review any of your expenditure that is eligible for a discount if paid for the next year. Not only can you take advantage of this saving but depending on the expenditure it can also result in an immediate tax deduction.
- Bad debt write-offs
If you have a non-paying customer and there is a genuine concern regarding recovery of the debt, then some or all of the debt can be deducted in the current tax year provided it is written off before year end and was included as income at an earlier time. It is important to substantiate the reasons behind writing-off the debt prior to year-end.
- Revalue Stock
It may be time to review how your business values stock on hand. Perhaps the value of closing stock used for tax purposes is based on your management accounts that uses the higher of net realisable value or cost. The ATO allows a business to value its closing stock at any of these values: Replacement value, Cost, or Market selling value.
- Start-up costs
Did you start your business venture this year? If so, you’re eligible for a range of deductions relating to the cost of setting up your business – covering accounting, legal, and incorporation costs.
- Employee bonus approvals
Has your business agreed on paying out employee bonuses at the end of the year? Finalizing these with appropriate documentation before June 30 will allow you to claim a tax deduction for current-year bonus amounts; beware, though – this only applies if you have confirmed the amounts in writing before the end of the tax year.
- Review Your Business Structure
If your business has expanded or is experiencing growth, it may be an appropriate time to change your business structure. If you choose to do this, be aware that compliance and taxation regulations will change, along with your business structure. Financial and tax advice is important during this process.
It’s worth noting most COVID-19 stimulus payments such as JobKeeper are coming to an end, although the JobMaker Hiring Credit is still available for each eligible additional employee aged between 16 and 35 who businesses hire until 6 October 2021.
Corporate tax rate has dropped to 26 per cent for small- to medium-sized businesses for the 2020–21 income year, with the rate dropping further next year to 25 per cent. It’s important to keep in mind that this is not confined to small businesses, but any entity below $50 million that does not have a high proportion of passive income.
Trust distribution – Ensure you speak to your dedicated Halkin Business Partner tax specialist to ensure your trust distribution resolutions are in place by 30 June 2021.
Lastly, the exemption from STP reporting for small employers with closely held payees ends on 30 June 2021. Closely held payees include family members of a family business, directors of a company and shareholders or beneficiaries. The exemption recognised payments to these groups tended to be outside the normal payroll process.
How can Halkin Business Partners help?
Our tax professionals at Halkin Business Partners will work with you to tailor a tax strategy for your specific goals and current circumstances. Professional tax advice is an easy way to alleviate financial stress and give your monetary goals a nudge in the right direction. Reach out to our tax professionals to see how we can help.