Year End Tax Planning for 2020
Leading up to 30 June the question on everyone’s lips is "How can I save tax?" Even in such unprecedented times as COVID-19 there are still many businesses thriving & looking for solutions for tax savings.
As part of the Government’s COVID-19 support packages it was announced that small business entities will be eligible for an immediate deduction on any assets they purchase costing less than $150,000 when purchased between 12 March 2020 & 30 June 2020. The threshold was previously $30,000 and any asset costing more than $30,000 had to be depreciated, so this is a significant increase and from 1 July 2020 the threshold will reduced to $1,000. If there are any assets within your business that need replacing now is the time to consider it.
There are also accelerated depreciation rates for New Assets purchased/first used or first installed for use on or after 12 March 2020 up until 20 June 2021 (there are some exclusions so please seek advice). The depreciation rate is effectively half of the existing rate that would apply under normal circumstances, plus an additional 50%. For example if a new asset was to be added to a General Pool the depreciation rate would ordinarily be 15% in the first year, therefore half of this plus 50% would give rise to a claim of 57.5% of the asset value in the first year (between 12 March & June 2020).
You should review your Trade Debtors ledger and consider if any will not be recoverable and write off any Bad Debts before 30 June.
Review your stock levels and make an adjustment for any obsolete stock that has no value – it may either be broken or no longer have any resale value.
If you are self-employed consider making a superannuation contribution. Ensure these are cleared with your superannuation fund before 30 June and you inform the fund that they are concessional member contributions. Beware there are caps on how much you can contribute in this manner so please seek advice before you contribute any lump sums.
If you have employees, make the payment for the June quarter super before the 30 June, as superannuation contributions are only tax deductible on a cash basis and must be cleared with the fund before the 30 June to be eligible for the deduction in this year.
Cash flow permitting delay invoicing your customers until the following financial year. This unfortunately doesn’t avoid tax, it is simply a delay tactic.
The ATO allow for some expenses such as rent and interest to be prepaid 12 months in advance, so again cash flow permitting if you can pay for your next 12 months rent prior to 30 June you will be entitled to a deduction in this financial year.
Bring forward any necessary repairs to equipment. If you know your motor vehicle is in need of a service bring it forward to before 30 June to get the deduction in this financial year.
Your business profitability & available cash funds will determine if any or all of these strategies are suitable for your business. It is advisable to do a quick review of your financial reports and determine the business’ profitability.
It is also important to be clear that any of these strategies only reduce your taxable income for the current tax year – you do not save this amount in tax but instead get a tax benefit depending on the tax paid at your income levels. For example if you are an individual and your income is between $37,000 & $90,000, you are falling into the 34.5% tax bracket (including the Medicare levy) which results in an ultimate saving is $345 for every $1,000 you spend. Therefore, considering your cash flow before implementing any of these strategies is a key priority.