It is hard to believe that we are in June already, and with only four weeks until 30 June, we have collated some important tax planning opportunities in the lead-up to the end of the financial year.
Uncapped immediate write-off of assets
Per the budget announcements, this scheme has been extended until 30 June 2021. It allows practices with an aggregated turnover of under $5 billion, to claim an immediate tax deduction for the:
- Business portion of the cost of new eligible depreciating assets
- Business portion of the cost of eligible second-hand assets, and
- Balance of the small business pool at the end of each income year in this period.
However, please note this excludes leased assets, capital works (structural improvements). The depreciation car limit of $59,136 also applies and therefore limits the amount of the deduction on new car purchases.
Tax rates
The company tax rate for the 2021 financial year for business entities such as practice service entities, is 26% and this reduces to 25% in 2022 and 24% in the 2023 financial year.
The 2021 upper limit of some marginal income brackets for individuals (sole practitioners) have also increased as follows:
- The 19% tax band is increasing from $37,000 in 2020 to $45,000; and
- The 32.5% tax band is increasing from $90,000 in 2020 to $120,000.
- The Low and Middle Tax offset of $1,080 has been extended to 30 June 2022.
Superannuation contributions
Practices wishing to obtain the full tax deduction in this financial year for their employees’ superannuation contributions, must ensure that these are paid prior to 30 June 2021. We generally recommend that these be paid by 21 June to ensure that they clear the relevant superannuation funds accounts. Some other things to note are:
- The work test has been extended to age 67 from 1 July 2020, which means that practitioners wishing to contribute to superannuation can continue to do so provide that they work 40 hours is a 30-day period prior to the contribution being made. Please note, that the bring forward rule (allowing you to contribute up to $300,000 of superannuation in year one, but no contributions for the next two years) only applies to the age 65.
- Superannuation guarantee charge is increasing from 9.5% to 10% from 1 July 2021.
- Concessional contribution caps for 2020/2021 remain unchanged at $25,000. However, from 1 July 2021, this increases to $27,500.
- Non-concessional contribution caps for 2020/2021 also remain unchanged at $100,000. However, from 1 July 2021 this increases to $110,000. The bring forward amount will increase in line with this to $330,000.
- If your are salary sacrificing super, you may need to adjust to account for these changes from 1 July 2020.
- If you working for two employers and are over the super guarantee limit, you can apply to reduce the amount of super being paid on your behalf to avoid excess superannuation charge.
Superannuation contributions – catch-up contributions
From 1 July 2018, if your total superannuation balance is less than $500,000 on 30 June of the previous financial year, you may be able to contribute more than the cap and make contributions for previously unused portions of the cap.
The first year this applies to is the 2019/2020 financial year and it is available for up to five years.
Due to the low market at 30 June 2020, during the pandemic, it may be that your total super balance fell below $500,000, which will provide an opportunity that may not have been previously available. It is therefore definitely worth a review.
If your maximum super is already claimed, then it might provide an opportunity for your spouse to increase their superannuation. For example, your spouse has a superannuation balance under $500,000 at 30 June 2020 and made no contributions in the two previous years. They could contribute potentially up to $75,000 in the 2021 financial year and claim a tax deduction.
Loss Carry-Back
2021 is the first year the new loss carry-back measures can be used to provide a refund to companies when they lodge their 2021 tax returns.
Companies with an aggregated turnover of less than $5 billion can choose to carry back their:
- 2020 tax losses and offset it against their 2019 income tax liability, or
- 2021 tax losses and offset it against their 2019 and 2020 income tax liability, noting the amount of refund/offset is limited to the lesser of the amount of tax paid previously or the surplus in the franking account at 30 June 2021.
If no choice is made to use the loss carry-back measures, the loss is carried forward and can be offset against future profits provided either the continuity of ownership or similar business tests are met.
Stimulus payments received – treatment
You may have received various stimulus payments during this financial year, e.g. JobKeeper, Cashflow Boosts, government grants, etc. The tax treatment of these is as follows:
- Cashflow Boosts are specifically exempt from income tax, but JobKeeper payments and most government grants will likely be assessable income.
- Jobkeeper top up payments are excluded from your Workcover wages declarations.
Other planning considerations:
- The deadline for enrolment in STP for small employers with closely held payees (that is, family members) is 1 July 2021. You need to ensure that you have enrolled by 1 July 2021.
- For staff bonuses to be deductible this financial year, the decision to pay the bonus and the determination of the bonus must be made and documented prior to 30 June 2021.
- Wages to family members must be reasonable for the work performed.
- Consider prepaying any large expenses (rent, insurance, subscriptions, interest) to bring the deduction into this year. However, be mindful that you must continue to prepay this expense, or you will have a year without a deduction.
- If you have a Self-managed Superannuation Fund in pension phase, ensure that the minimum pension has been withdrawn.
- Where you have a Trust in your group structure (whether for business or personal investments) ensure that you determine the distribution of the income and sign the Trust Profit Distribution Minute prior to 30 June 2021.
- Write-off any bad debts in your practice.
- Review the asset register for any write-offs.
- Consider postponing the sale of any assets with unrealised gains and bring-forward asset sales with unrealised losses.
