Key Tax Planning Strategies

Prior to 30 June 2021

Full Expensing of Depreciating Assets 

The Government has made changes to the depreciation rules, allowing businesses with a turnover less than $5 billion to immediately write-off the full cost of eligible assets acquired from 7.30 pm 6 October 2020 and first used by 30 June 2022, with no threshold limit on the cost of the asset. Small and medium businesses, with turnover less than $50 million, are also able to immediately write-off second-hand assets. 

Businesses with turnover less than $500m who use the simplified depreciation rules (Instant Asset Write-Off and Small Business Pooling) do not have the option to opt-out of full expensing rules on an asset-by-asset basis, they can only choose to opt-up of the rules entirely for all assets.

Make the Most of Small Business Tax Concessions, Available to Businesses With Turnover Under $10 million, Expanding to $50 million Turnover

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

  • 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 (available for medium sized businesses from 1 July 2021)
  • 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.

The Small Business Entity (SBE) turnover threshold will be increased from $10 million to $50 million. This gives businesses with aggregated turnover less than $50 million access to the below small business tax concessions. 

These concessions will be delivered in phases:

  1. From 1 July 2020, these businesses will be able to immediately deduct certain start-up and prepaid expenses
  2. From 1 July 2021, these businesses will be entitled to use the simplified trading stock rules

Company Loss Carry-Back

A temporary tax relief allows eligible companies, with an aggregated turnover of less than $5 billion, to carry back tax losses incurred in the 2020, 2021 or 2022 financial years, to be used against profits taxed in a previous year, 2019 or later. 

These companies will receive a refundable tax offset in the year they made a loss, if they elect to use this mechanism when they lodge their 2020-21 or 2021-22 tax return. The losses carried back must not be more than earlier taxes profits and must not result in a franking account deficit.

Any tax losses that are not fully offset against previous taxed profits, or not elected to be used, will be carried forward as normal.

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 2021 by:

  • Ensuring superannuation contributions for employees are paid and cleared by 30 June 2021,
  • 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, 
  • If you earn less than $54,837 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 $39,837 and phases out where adjusted taxable income is between $39,837-$54,837.

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 2021 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 2021.

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 is $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.

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.

Private Health Insurance Rebate Changes prior to 30 June 2021 table.

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, you may considered a "Base Rate Entity" and subject to the reduced corporate tax rate of 26%. From 1 July 2021, this rate will reduce to 25%. 

Contact our office to discuss your circumstances and options available to save on tax.

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

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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