Tax planning is now more important than ever given the impact of COVID-19. The last thing you need in these uncertain times is to pay more tax that you are legally required. Many tax planning strategies require action before 30 June.
Below are our top tips to improve your tax position for 2020.
Maximise contributions to your own superannuation each year (for both you and your spouse). This is the best tax planning available. You are literally getting a tax deduction for investing in your own future. Most people can claim a deduction for personal contributions they make into their super account up to your contribution cap. You are free to make a personal contribution at any time during the year (provided it is received by your super fund by 30 June) and claim a tax deduction in your tax return, which can be useful towards the end of the financial year if you have not reached your concessional contributions cap of a total $25,000.
Carrying forward your concessional contributions cap (for low balance members)
The super rules were changed to allow low balance members (under $500,000) to use any of their unused concessional contributions cap on a rolling basis for five years. This means if you do not use the full amount of your concessional contributions cap in a particular year, you can carry-forward the unused amount and take advantage of it up to five years later. Any amount not used after five years expires.
This means you may be entitled to make additional deductible contributions over and above $25,000 this year to catch-up any missed contribution amounts in prior years to boost your super balance and potentially reduce tax.
If you are an employer, superannuation is deductible in the year the contributions are received by the superannuation fund. If possible, pay your team’s superannuation so it is received by their superannuation fund prior to 30 June to ensure the business receives the tax deduction this year.
Instant Asset Write-Off
Under instant asset write-off eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.
Instant asset write-off can be used for:
- multiple assets if the cost of each individual asset is less than the relevant threshold
- new and second-hand assets.
When purchasing new assets to access the instant asset write-off, there are several dates and thresholds to consider now:
|Eligible businesses||Date range for when asset first used or installed ready for use||Threshold per Asset|
|Less than $500 million aggregated turnover||12 March 2020 to 30 June 2020||$150,000|
|Less than $50 million aggregated turnover||7.30pm (AEDT) on 2 April 2019 to 11 March 2020||$30,000|
|Less than $10 million aggregated turnover||29 January 2019 to 7.30pm (AEDT) on 2 April 2019||$25,000|
Limits – Motor vehicles
If you purchase a car (a passenger vehicle, except a motor cycle or similar vehicle, designed to carry a load less than one tonne and fewer than nine passengers) for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. You cannot claim the excess cost of the car under any other depreciation rules.
All businesses should review their debtors list prior to 30 June 2020. Any debts that are not able to be recovered should be written off as bad debt on or before 30 June 2020. Be realistic, if they have not paid before COVID-19 it is unlikely they are in a better position now. Write it off.
Stock on hand
Businesses that own stock should ensure a stocktake is completed on 30 June. Stock can be valued at cost, market value or replacement value – whichever is lower. The different valuations can make a significant difference to your tax outcome. All you need to do is complete the stock take, and we will advise on the best valuation method for tax treatment.
Consider bringing forward expenditure. Depending on cashflow, you may choose to bring costs forward into the 2020 year to reduce tax payable
Interest deductions for prepaid interest are generally available for interest expenses associated with investment income (as well as some other eligible expenses).
Small Business Prepayments: 12-month rule
If you are a small business with aggregated turnover of less than $10 million per year, then prepaid expenditure may be immediately deductible under the 12-month rule. This rule can generally be applied to deductible expenses such as Rent, Insurance, Lease Payments, Interest, and other business expenditure.
As with all planning, it is best to start early, so all options can be considered and budgeted.
We can help
At Solve Accountants we are here to help you build a better future. We are experienced in assisting with all you tax planning needs to ensure you pay no more tax than required. If you would like to discuss further or need help please contact us now.