The Federal Government has provided businesses with additional support and flexibility to help them navigate the turbulence of the last 16 months. However, this doesn’t mean you will get a pass when it comes to your EOFY obligations.
So, how do you ensure you not only meet your obligations but also take advantage of available tax incentives?
Jacqueline Purcell, CFO Deputy
“Keeping up with evolving tax regulations can be really challenging, particularly following the pandemic. Businesses should lean on the digital tools out there to ensure they’re being compliant and keeping accurate data records. We recommend using software that helps properly calculate, track and record shift-work hours, which ensures pay and tax is correct. Having an accurate representation of this data feeds into your accounting software and then ensures things like STP are correct and automated.
“Digital records are perhaps even more crucial in the current climate as the government rolls out a vast range of tax benefits following the pandemic. For example, businesses will be exempt from paying fringe benefits tax for providing employees with benefits they do not usually provide as a result of the pandemic. This includes a huge range of items over the past 12 months. In this time of uncertainty, businesses need to take advantage of what’s out there.”
“Family trusts are a great vehicle to protect your assets and to minimise tax. It is important to ensure your Trustee Resolution, detailing who the Trust will distribute income to and how much, is prepared and signed prior to 30 June, This means taxation planning must occur to ensure the Trust distributions are reducing your group’s taxes.
“The instant asset write-off allows businesses to fully expense assets that cost up to $150,000 per asset. Motor vehicles are capped at $59,136 per vehicle for the 2021 financial year.
“Superannuation is a common tax minimisation strategy. The super cap is $25,000 per year with any unused contributions from the 2019 financial year allowed to be rolled forward if your super balance is <$500k. The super contribution is taxed going into your super fund at 15%, with the tax benefit outside being individual marginal tax rates which could potentially be 49%.
“Business owners can benefit from incentives such as the Jobmaker hiring credits, the apprentice/trainee subsidies, the research and development incentive and export grants. We recommend speaking with your accountant to see what cash your business could be eligible for.
“The government has extended the tax loss carry-back provisions. If you make a loss this financial year, you can roll the tax loss back to the 2019 and 2020 financial years to offset profit and tax paid in those years. You could be up for a nice tax refund should you have paid tax in the prior years. This was created to support the instant asset write-off and increase investment in capital expenditure.”
Brodie Haupt, co-founder, WLTH
“Tax time for business owners can be very stressful and create a large amount of unwanted pressure towards the end of the financial year. So, to guarantee being in the best possible position, planning is essential.
“In order to claim the most back during tax time, businesses need to ensure that they are on top of all their finances. Business owners need to be up to date with super payments, fully understand their receivables and make the decision whether they are looking to write off any bad debts, completely understand potential deductions and take advantage of some of the asset write-off opportunities available.
“Thorough planning for the end of the financial year will help businesses to alleviate a lot of the strain associated with tax time and assist with starting the new year fresh.”
Thiru Kandiah, principal, RSM Australia
“Minimising tax for people and businesses:
1. Working from home expenses: People can use the shortcut method to claim 80 cents per hour worked or the fixed-rate method to claim 52 cents for utilities plus a percentage of phone and internet costs.
2. Downsizer contribution: People over 65 who sell their home can add $300,000 to their superannuation fund.
3. Carried forward superannuation personal contributions: People who have contributed less than $25,000 (current cap) per annum to superannuation in the past five years can make a catch-up contribution to their superannuation provided their total balance is less than $500,000.
1. Small business immediate asset write off threshold: Small businesses can write off up to $150,000 for assets purchased after October 6, 2020 until 30 June, 2022 as an immediate expense.
2. COVID-19 government resilience grants: Victorian businesses who received these should treat them as non-assessable, non-exempt income.”
Jane Mackarell, Surface Business Group Lead, Microsoft
“The impact of the pandemic has no doubt challenged Australia’s small and medium businesses, with many forced to prioritise survival over innovation and growth. As Australia’s businesses recover from the year that was, this end of the financial year provides an opportunity for SMB leaders to consider the role technology can meaningfully play in the year ahead – from redefining the home office, to boosting employee engagement, performance, and culture.
“This year, the Australian Government has extended its tax incentives for all businesses with an annual turnover under $5 billion, making them eligible for an immediate tax deduction for the full cost of new depreciable assets, whether they have just been acquired, have been just put to use, or are installed and ready for use.
“While, according to recent Microsoft research, almost two-thirds (62 per cent) of Australian small and medium businesses expect to increase their technology investments in the next financial year, more than half (53 per cent) admit they have not used tax deductions on capital assets in the past year.
“With the Australian Government’s newest tax incentives, it’s an important time for business leaders to consider how technology can help bring their aspirations to life and set themselves up for success in the new financial year and post COVID-19. Tax Time has always offered SMBs an opportunity to reflect on their goals for the year ahead, and there is no better time to take advantage of these incentives to make these ambitions a reality.”
“Trusts: If you operate a discretionary trust whether for investments or for trading, don’t forget to prepare your trust distribution minutes prior to 30 June. These minutes determine the allocation the trust’s net income for the financial year, if not completed there is a risk that the default beneficiary or the trustee will be assessed on the total income of the trust.
“Instant Asset writes offs have transitioned to the new temporary full expensing deduction from 6 October 2020 and will apply till 30 June 2023. This allows most businesses to immediately fully deduct expenditure on eligible business assets when then are purchased and installed ready to use. There is no upper limit on the expense and to be eligible your business turnover must be less than $5billion if you are purchasing new assets or less than $50million if you are purchasing second-hand assets. Capital improvements are excluded from these asset purchases and the motor vehicle limits still also apply. If in doubt, double check your eligibility with your tax agent.
“Bad debts: Make sure you review your accounts receivable ledger for any non-recoverable debts and write them off where appropriate – don’t pay tax or GST on money you will never receive.”
Lars Leber, VP and Country Manager, Intuit QuickBooks Australia.
“End of financial year reporting can be a stressful time for small business owners and the COVID-19 pandemic means there will be additional complexities to manage this time around. New rules have been introduced around what you need to pay and what you can claim, as well as changes in tax rates and business income so it’s important that owners and operators put measures in place to help manage the turbulent year.
“Having a support network is crucial. Investing in an accountant or bookkeeper will provide vital assistance on things like accessing government grants and securing government funding. They also help small business owners understand their entitlements and provide guidance on how to access them.
“Small businesses should also use this time to seek out innovative ways to streamline processes as a way to claw back time and find some relief from the strain.
“Building out digital capabilities and making use of software and digital tools is a key way to get on the front foot. Businesses have better oversight of their finances and are less likely to make an error or omission, meaning that tax deductions are maximised and the speed in which you receive funds is increased.”
Erin Adams, Product Compliance and Industry Engagement Manager AU / NZ, Xero
“In response to COVID-19, the Australian government has introduced and extended the temporary full expensing of the business portion of eligible new depreciating assets.
“If you’re a sole trader during 2020-21 and claimed JobKeeper, your payments are considered assessable business income. They must be included in your tax return under the label ‘Assessable government industry payments.’
“Review your accounts receivable to identify unrecoverable debts. If these were previously included in your assessable income, then you may be able to claim a deduction. The rules are complicated, so consult your advisor.
“As well as the usual EOFY purchases such as office consumables, SMEs can claim an immediate deduction for any prepayments where the expense covers a period of 12 months or less.”
Bethany Nyberg, Regional Vice President, Commercial Sales, Docusign
“This tax season has been incredibly complex for many Australian small businesses. As the dust settles on this once-in-a-generation EOFY, now is the perfect time to apply what you’ve learned for next year. My advice is:
Create a paper free office – many organisations are transitioning to hybrid working making physical files more inconvenient to store and manage. Now that e-signature legislation has been expanded, there’s no reason to carry around boxes of paper documents.
Review how you manage your documentation – smart and collaborative document management is a game changer for many SMBs, saving you an average of 2.2 hours per contract.
Streamline your agreements – cash flow is always a challenge for SMBs. The beginning of the new financial year is a good time to think about renegotiating supplier contracts or reviewing subscriptions. The easiest way to do this is to have visibility of all contracts in one place.”
Disclaimer: Dynamic Business does not provide tax, legal or accounting advice. This article has been prepared for informational purposes only and is not intended to be relied on for tax, legal or accounting purposes. You are strongly encouraged to consult your advisors to determine how the information may relate to you or the specifics of your business.
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