Businesses like to review their tax position at the end of the income year and evaluate any year-end strategies that may be available to legitimately reduce their tax. Traditionally, year-end tax planning for small businesses is based around two simple concepts (i.e., Accelerating business deductions and deferring income). This year, consideration will obviously also need to be given to the impact of the COVID-19 pandemic on specific businesses.
The following are a number of areas that may be considered for all business taxpayers.
Accelerating expenditure
This is where a business taxpayer brings forward expenditure on regular, on-going deductible items.
The following may act as a checklist of possible accelerated expenditure:
- Repairs
- Consumables/spare parts
- General Office expenses including stationery and printing
- Advertising
- Rent
- Lease Payments
- Training Courses & Seminars
- Business Subscriptions
- Fringe benefits: any benefits to be provided, such as property benefits, could be purchased and provided prior to 1 July 2020
- Superannuation: contributions to a complying superannuation fund, to the extent contributions are actually made and received by the fund (i.e., they cannot be accrued but must be paid by 30 June and received by the fund, we recommend paying these contributions on or around June 20 to ensure they are tax deductible in the current year)
- Salary or wages and bonuses: the accrued expense for the days that employees have worked but have not been paid as at 30 June 2020
- Interest: any accrued interest outstanding on a business loan that has not been paid
- Commissions: where employees or other external parties are owed commission payments
- Fringe benefits tax ('FBT'): if an FBT instalment is due for the June 2020 quarter, for example, but not payable until July, it can be accrued and claimed as a tax deduction in the 2020 income year
Plant & Equipment Deductions
Any equipment purchased during the year is ordinarily subject to a gradual write off via the depreciation system. This year we have several other options that are of benefit to us:
- Equipment purchased between 1 July 2019 and 12 March 2020 can be immediately deducted if it cost less than $30,000 (GST exclusive)
- Equipment purchased between 13 March 2020 and 30 June 2020 can be immediately deducted if it cost less than $150,000 (GST exclusive)
A NOTE OF WARNING, THIS THRESHOLD REVERTS TO $1,000 AS AT 31 DECEMBER 2020 UNLESS NEW LEGISLATION IS PASSED. IF YOU NEED SOMETHING BUY IT SOON.
Bad Debts
Debtors/Accounts Receivable should be reviewed prior to June 30 and any amounts you will not be collecting should be written off.
Remember in your planning that the JobKeeper payments you have received do form part of your businesses taxable income. The Cash Flow Stimulus you have received in regards to PAYG Withholding on your Activity Statements is not however taxable.