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Key Tax Planning Strategies

Prior to 30 June 2020

Increasing the Instant Asset Write Off

As part of the Government's stimulus package, a business with less than $500 million turnover will be able to claim an immediate tax deduction for asset purchases less than $150,000 (excluding GST) purchased after 12 March 2020 until 30 June 2020. Small Business Entity pool balances under $150,000 will be written off. 

For new asset purchases greater than $150,000 or first installed and ready for use after 1 July 2020, a 50% deduction is available in the year of installation with the remainder of the asset's cost depreciated under the usual depreciation rules, which applies from 12 March 2020 to 30 June 2021. However, excludes capital works, water facilities, horticultural plant, fodder storage and fencing.

Make the Most of Small Business Tax Concessions, Available to Businesses With Turnover Under $10 million:

If you have a grouped turnover of less than $10 million, you are considered a Small Business. Tax concessions available to Small Businesses include:

  • Simplified depreciation rules, with an immediate tax deduction available for asset purchases less than $150,000  from 12 March 2020 (capped at $30,000 prior to this).
  • Immediate deduction for prepaid expenditure when payment covers a period of less than 12 months.
  • Immediate deduction for certain costs incurred in relation to establishing a business.
  • Simplified rules for trading stock .
  • A Small Business tax offset for individuals up to a maximum of $1,000, calculated as 8% of the tax payable on any Small 
  • Business net income (turnover under $5 million).
  • A rollover for tax-free changes to business structures .
Please note the eligibility for Small Business CGT concessions is not included and therefore, the previous turnover threshold of $2M or the $6M net asset test still apply.

Prepay Interest on Loans

Taxpayers who have borrowed money for investments can check with their lenders to see if they can prepay interest to gain an early tax-deduction by paying 12 month's of interest in advance as a one-off tax benefit. This is an option for investment loans on properties, margin loans on shares and business loans.

Interest Deductibility on Financing Business Expenses

Interest on the financing of business expenses is tax-deductible in most circumstances. If you are maintaining a line of credit or overdraft to finance your day to day business expenses, the interest will be tax-deductible except in the following cases:

  • Payments from the account are for personal purposes
  • Payments made for the payment of personal income tax (including PAYG instalments)
  • Payments made for personal superannuation contributions

Consideration should be given to external finance if you are currently using your personal funds to finance your business activities and would prefer to use your personal funds elsewhere. 

Superannuation Contributions

Maximise your superannuation deductions before 30 June 2020 by:

  • Ensuring superannuation contributions for employees are paid and cleared by 30 June 2020;
  • If your superannuation balance is less than $500,000 and you've made concessional contributions of less than the concessional contributions cap of $25,000, you may be able to make additional concessional contributions in subsequent financial years for any unused amounts. Unused cap amounts can be carried forward for up to five years. The 2019/20 fiscal year is the first year you can use any remaining cap amounts.
  • If you earn less than $53,564 p.a., you could be eligible for the government co-contribution. The government will contribute 50 cents for every dollar of after-tax contributions you make to your superannuation fund up to a maximum of $500. The full benefit is available for income earners under $38,564 and phases out where adjusted taxable income is between $38,564-$53,564. 

Bad Debts

Review your aged debtors and determine if any debts are bad debts (i.e. not recoverable). If they are, write them off before 30 June 2020 to receive a tax deduction this year. For a debt to be bad, there must be little or no likelihood of recovery, such as when the debtor is in receivership or cannot be traced. Records should be kept to show you have taken reasonable steps to recover the debt prior to writing off. If circumstances later change, you can recommence pursuing the debtor. 

Stock Management

Review your stock and identify any obsolete or unusable stock. Write off these stock items prior to 30 June 2020.

Farm Management Deposits (FMDs)

Investing in Farm Management Deposits (FMDs) can help primary producers to reduce fluctuations in taxable earnings caused by economic and seasonal changes to primary production income. Interest is paid on such FMDs, and they must be held for at least 12 months; otherwise, the tax benefit of investing in an FMD will not be retained. The maximum limit for deposits has been increased to $800,000 per person.  Consider whether FMDs would be useful to reduce this year's taxable income or whether you have any FMDs to withdraw if your income is lower than average.

Capital Gains Tax (CGT)

If you have derived any capital gains from the sale of your investments or business assets this year, consider whether you can offset them by crystallising any capital losses on the sale of other assets (where possible), or be able to use the CGT Small Business concessions. Please contact us to discuss prior to 30 June to minimise or eliminate any potential CGT.

From 9 May 2017, foreign residents no longer qualify for the main residence exemption on disposal of residential property in Australia. However foreign residents who owned their property before 9 May 2017 will be able to sell their main residence before 30 June 2020 and still get the exemption.

Private Health Insurance Rebate Changes

Entitlements to the private health insurance rebate are income-tested, which means that if you have a higher income, your rebate entitlement may be reduced, or you may not be entitled to receive any rebate at all. 

However, many private health funds set the rebate amount as a default at the highest rebate amount, and it is your responsibility to inform your private health insurer if you fall into a higher income bracket. This can be achieved by one of two ways:

  • Login to your private health insurance portal and following the prompts. (This will usually say something like nominate rebate tier.)
  • Call your private health insurer and advise them of your rebate tier that you are eligible for.

Chart showing Private Health Insurance rebate changes prior to 30 June 2020.

Note: The above rebate rates are subject to CPI adjustment each April.

The rebate entitlement is then checked within your income tax return each year, with any balance refunded or over-claim paid back to the Australian Taxation Office. 

When you move into the next tier, the level of rebate and surcharge applicable will change. In view of these changes, consideration should be given as to the financial effect of private health insurance cover. The test is taken when your private health insurance is paid. If you believe you are going to move into the next tier in the next financial year, thought should be given into paying your health insurance premiums now; this will entitle you to your current level of rebate.

Base Rate Entity- Increase in Turnover Threshold

If you're operating a business through a company with a grouped turnover of less than $50 million, from 1 July 2018 you are considered a "Base Rate Entity" and subject to the reduced corporate tax rate of 27.5%. From 1 July 2020, this rate will reduce to 26%. 

If you would like to print this information, please click here for our PDF format. 

Disclaimer
The information provided in this information sheet does not constitute advice.  The information is of a general nature only and does not take into account your individual situation.  It should not be used, relied upon, or treated as a substitute for specific professional advice.  We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.
 

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