EOFY and Tax Planning Strategies
As the end of the Financial Year draws close, ensure you're talking to your accountant about strategies for EOFY and ahead to 2021.
After the rollercoaster of the past quarter, now's the time to do some essential tax planning for yourself and your business. With the end of the financial year just a few weeks away, we've collated some general EOFY tax planning strategies that you still have time to implement.
Running a Business? Look at Your Income and Expenses
Consider deferring income until after 30 June
If your business is expecting a lower income for 2020/21 compared to the previous tax year, it may be worth considering deferring income until after 30 June – provided that your business cashflow can do so.
Ensure you are up-to-date with any requirements for claiming deductions for 2019/20
Examples of the deductions you may be able to make include:
- Employer and self-employed superannuation contributions must be paid and received by your super fund before 30 June. Ensure that any extra contributions fall within the $25,000 contributions cap.
- Assets first used or installed and ready for use before 30 June will enable you to claim depreciation.
- If your business has less than $10 million turnover, you can claim pre-paid expenses up to 12 months in advance. Larger businesses are generally limited to expenses less than $1,000.
- Ensure that you've documented any wages paid to your spouse or other family members and ensure they are reasonable for the work that has been done.
- Bad debts must be written off before 30 June.
Claim the Small Business Instant Asset Write-off
The small business instant asset write-off has been extended to 30 June 2020 and allows business with a turnover of less than $50 million to write off certain assets costing less than $30,000.
Buying and disposing of assets
If your business is intending to make major asset purchases or replace capital equipment, it's worth speaking to your accountant about timing, as this can have a substantial impact on your tax.
If you plan to sell assets, timing is also important – consider delaying the sale of assets that may realise a profit and bring forward sales that will result in a loss. Any obsolete assets should be removed from the asset register before 30 June.
Before you buy or sell any assets, speaking to your accountant can help ensure you get the timing right, based on your company's tax position.
Capital Gains Tax
Small business owners need to be aware that there is a proposed condition for small business GCT concessions if the CGT event involves certain rights or interest in relation to the income or capital of a partnership. Speak to your accountant to understand how this may impact you.
Fringe Benefits Tax
The FBT rate for the year ending 31 March 2020 is 47%.
Personal Income, Deductions and Tax Offsets
If you have term deposits, consider setting their maturity date after 1 July, provided that you have the cashflow to do so.
Consider realising capital losses if you have already realised capital gains on other assets during 2019/20. If you have unrecouped capital losses or expect that your income will be substantially higher in 2020/21 compared to 2019/20, consider realising any capital gains now. Again, seek the advice of your accountant first.
If your income is likely to reduce in 2020/21, either because you're retiring or anticipating a reduction in your income, it's possible that deferring income to after 1 July may be beneficial, as you'll be in a lesser tax bracket.
Arrange for deductible donations to be grouped in the higher income year, if you expect substantially higher or lower income in 2020/21 compared to 2019/20. Make all donations in the name of the higher income earner.
Income Tax Changes – Individuals
The income tax thresholds remain unchanged for the 2019/20 year, however Australian resident individuals whose income does not exceed $12,600 are entitled to the new low and middle income tax offset.
Medicare Levy Low-Income thresholds will also be increased from 1 July 2019, as follows:
- Threshold for singled is increase from $21,980 to $22,398;
- Threshold for single seniors and pensioners is increased from $34,758 to $35,418;
- Threshold for seniors and pensioners is increased from $48,385 to $49,304.
For each dependent child the family income threshold increases by a further $3,471 up from $3,406.
Moving to-or-from Australia
If you are relocating to Australia or moving overseas for an extended period of time, seek tax advice to ensure that you are able to plan for any issues relating to residency – this is a complex area of Australian tax and we highly recommend seeking a suitably qualified tax specialist to ensure your assets and income is appropriately considered.
Removal of CGT Main Residence Exemption for Foreign Residence
The Capital Gains Tax main residence exemption will be denied to foreign residents effective from 7.30pm (AEST) May 9, 2017. The transitional period for dwellings owned before May 9, 2017 can be sold on or before 30 June 2020 and continue to be eligible for the CGT exemption.
Personal Superannuation Contributions
If your superannuation balance is less than $500,000, you will be able to make catch-up contributions by utilising any unused concessional contribution cap, which can be accessed on a rolling basis for five years.
Opt-in Insurance for members with less than $6,000 balance.
Insurance within superannuation will only be offered on an opt-in basis for accounts with balances below $6,000 and for new super accounts belonging to members under 25 years of age.
Legislation has been enacted to prevent employers from using employee salary sacrificed amounts to reduce their minimum superannuation guarantee.
Super Guarantee Non-Compliance
Subject to the passage of legislation, from 24 May 2018 to 6 months after receiving royal assent, there will be an amnesty period to encourage employers to self-correct past super guarantee non-compliance without penalty.
Other Tax Planning Considerations
Trustees should ensure that any documentation required for end of financial year is completed before 30 June, particularly where capital gains or franked distributions are due to be paid to beneficiaries.
Family discretionary trusts may need to make a family trust election if the trust has unrecouped losses or has beneficiaries whose total franking credits for the year may exceed $5,000.
Single Touch Payroll Framework Expands
The Single Touch Payroll reporting framework is expanding from 1 July 2020 to include closely held payees. A closely held payee is one who is directly related to the entity from which they receive payments, for example:
- Family members of a family business;
- Directors or shareholders of a company;
- Beneficiaries of a trust.
Seek advice for End of Financial Year
We highly recommend seeking the advice of your accountant before enacting any of the planning strategies outlined above, as your accountant is best placed to consider how they may apply in your particular circumstances. Please contact us on 02 9957 4033 for more information.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.