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preparing your tax

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EOFY and tax planning for business owners

The End of Financial Year (EOFY) is just around the corner and preparing your tax is not as straightforward as it was in previous years. There are several things’ business owners and taxpayers must consider during this time, and COVID-19 has made the process more confusing. Here are some EOFY obligations you need to be aware of:

Running a business through family trusts

  • For anyone using a trust structure to run their business, it’s important to make sure that they comply with not only taxation law requirements but the terms of the trust deed. It’s the deed that determines how and to whom the income of the trust can be distributed.
  • The trustee of the trust needs to make a resolution, typically in writing, prior to the end of the financial year which states which beneficiaries of the trust are to receive the income and in what proportions. This will then determine the amounts of net income that each beneficiary will be assessed on for tax purposes. 
  • The ATO has certain criteria regarding what information a trustee resolution should contain, and they also require completion of certain relevant items in the trust income tax return to comply with the regulations.

Visit the Trustee Resolutions page on the ATO website for more information.

Instant asset write-off for eligible businesses

  • To take advantage of ‘temporary full expensing’ and get an immediate deduction for the cost of an asset in this financial year, the asset must be first used, or installed ready for use by 30 June 2021. This is in addition to the turnover tests applying to new assets (turnover less than $5 billion) and second-hand assets (turnover less than $50 million). 
  • An asset purchased after 30 June 2021 may still be eligible for the immediate deduction, but it will be in the year ended 30 June 2022.
  • Businesses should also note that the depreciation cost limit for passenger cars, currently $59,136 for 2021 year, still applies even with the ‘temporary full expensing’ rules. 
  • A passenger car is defined as one designed to carry a load of less than one tonne and fewer than nine passengers. The effect of the depreciation cost limit is that the deduction is limited to the business use portion of the cost limit amount, net of GST.

Visit the ATO page on Instant asset write-off for eligible businesses for more information.

Super top up for SMEs 

  • As part of any good tax planning strategy to minimise tax, it is often advised that taxpayers maximise their superannuation contribution deductions where possible. Obviously, employers will already be contributing the minimum superannuation guarantee of 9.5% for its eligible employees.
  • There is the opportunity, however, to contribute additional amounts up to the relevant ‘concessional’ contributions cap of $25,000 to maximise the deduction to the employer’s business. 
  • Alternatively, an employee or self-employed taxpayer can contribute out of their own pocket to superannuation and obtain the deduction as a member contribution. Taxpayers just need to be aware that if the total ‘concessional’ contributions on their behalf exceed the cap of $25,000, they may be liable for excess contributions tax.
  • Superannuation contributions need to be received into the fund by 30 June 2021 to be deductible in this financial year. For member contributions, the fund also needs to provide an acknowledgement of the taxpayer’s intent to claim the amount as a deduction before their tax return can be lodged.
  • Taxpayers should bear in mind that a ‘work-test’ applies to those aged 67 to 74 years in regard to making contributions in the 2021 year. This means that those people need to have worked at least 40 hours in a consecutive 30-day period during the year to be able to claim a deduction for contributions.
  • Note that the employer compulsory super guarantee rate will increase from 9.5% to 10% from 1 July 2021 and the superannuation concessional contributions cap will increase from $25,000 to $27,500. The work test for those aged 67 to 74 years will also not apply from 1 July 2022.

Losses on investments

  • Losses on investments are treated differently depending on whether the taxpayer is holding the asset as a ‘passive’ investment for potential capital growth or are in the business of investing in those assets.
  • The term ‘negative gearing’ is often used to describe a passive investment which is making losses, for example, where finance is used to fund a rental property or share purchases. These losses can be used to offset other income earned by the taxpayer and can therefore help to minimise tax.
  • Buying and selling assets held on capital account are subject to capital gains tax (CGT) with a discount of 50% being available if the item is held for at least 12 months. Note that cryptocurrency falls into this category and taxpayers should make sure they keep a record of their transactions in this area.
  • If the taxpayer meets the relevant criteria of being in the business of buying and selling assets e.g., shares or property, then any income or losses are just treated like any other business. The purchase of the assets would be treated as cost of goods sold and the sales would be assessable income. The value of any assets on hand on 30 June would be treated as inventory of the business.

COVID-19 support programs

  • For those that received any of the amounts available under the stimulus package introduced during COVID-19, the payments are treated as follows for taxation purposes:
    • Cashflow boost – final payments in October 2020, these payments are non-taxable to the employer
    • JobKeeper – final payments in March 2021, these payments are taxable to the employer
    • JobMaker Hiring Credit – applies from 7 October 2020 up to 6 October 2022, these payments are taxable to the employer

Visit the ATO’s page on Government grants and payments during COVID-19 for more information.

Note: Another tax planning strategy to minimise tax is for primary producers to place funds into a Farm Management Deposit by 30 June 2021. An FMD will be deductible to the individual provided their taxable non-primary production income is $100,000 or less and the deposit is not withdrawn within 12 months. The minimum deposit per individual is $1,000 and the maximum is $800,000.

**The information contained in this article is general advice and does not take into account individuals’ personal circumstances. People are encouraged to seek their own financial and tax advice from a qualified Accountant or Registered Tax Agent.

See also: The 2020 Small Business Tax Time Toolkit: easing the pain of preparing your taxes

More on essential tasks at EOFY: business.gov.au

More on tax and small business: ato.gov.au

More on supporting your small business: ato.gov.au

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Liza Byrnes

Liza Byrnes

Liza Byrnes is an Accountant with 25 years of experience in public practice, based in Wagga Wagga. She is also a sessional lecturer with Charles Sturt University in the area of Taxation Law as part of the Bachelor of Accounting degree.

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