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EOFY 2021: Tax and cash flow planning

The end of the financial year is an important time to consider a number of tax planning initiatives to help minimise your tax liability and increase any potential refund. Timing is a traditional hallmark of tax planning, so keep in mind that 30 June falls on a Wednesday this year.

While there are a number of tried and tested tax planning and cash flow planning strategies for business, the COVID-19 economic stimulus initiatives that began in FY 2020 and continued into FY 2021 demand further attention.

Here's our top list of tax planning and cash flow planning strategies for 2020-2021:

EOFY PlanningFor business

  1. Plant and equipment  scrap obsolete plant and equipment by 30 June 2021.

    Also, the instant asset tax write-off increased to $150,000 from 12 March 2020 and extended to 31 December 2020 - as well as being accessible by businesses with an annual turnover under $500 million during that period. Remember that any eligible assets under the scheme needed to be purchased by 31 December 2020 and installed and ready for use by 30 June 2021.

    Additionally, from 06 October 2020 (7:30pm AEDT) until 30 June 2022, the ATO is allowing temporary full expensing for eligible businesses and certain business assets. Deductions are allowed for:

    » the business portion of the cost of new eligible depreciating assets for businesses with an aggregated turnover under $5 billion or for corporate tax entities that satisfy the alternative test.
    » the business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover under $50 million.
    » the balance of a small business pool at the end of each income year in this period for businesses with an aggregated turnover under $10 million.

    Luxury Car Tax still applies for motor vehicle assets acquired under the instant asset write-off and temporary full expensing schemes.

    It's best to speak with your Adviser at The Peak if you're considering either measure for business tax-deductibility as business and asset eligibility can be complex.

  2. Pre-pay deductible expenses – if you have expenses that are tax-deductible, consider paying them before 30 June in order to bring forward your tax deduction to the current financial year.

    This could include any equipment repairs and maintenance work, replacement parts and consumables, vehicle maintenance or repairs and tyres, income protection insurance etc. Uniform and protective work-wear costs, certain work from home expenses (especially under the cloud of COVID) and legitimate self-education expenses are also eligible business deductions

  3. Write off bad debts before 30 June and ensure you document these actions. Read our Tax Deduction for Bad Debts blog for tips about the correct way to write-off a bad debt.

  4. Employee superannuation guarantee contributions – adequate cash flow permitting, pay your workers' April-June quarter super the week prior to 30 June. This will trigger a tax-deduction in the 2020-2021 financial year. If these super pre-payments include employee salary sacrifice contributions, care is needed to ensure the concessional contributions cap is not exceeded.

    Calculating the super guarantee (SG) liabilities on employee wages that included JobKeeper payments can also be complex, as SG will apply in some situations and not in others – if you have any doubts, contact your adviser at The Peak Partnership. 

    Employee superannuation guarantee (SG) contributions will also increase from 9.5% to 10% (minimum) on 01 July 2021, meaning small businesses will need to forecast increased staffing cost and cash flow impacts.

  5. Know your business economic stimulus entitlements – this is probably the most critical advice for business owners in the current economic environment. The Federal and State Governments' numerous financial concessions and assistance packages have ended or are ending, meaning pay-back time will kick in. Understanding where your business stands with any financial incentives or concessions that were taken up during COVID will be critical this tax time.

  6. Maintain good records – there is nothing more frustrating than not being able to find receipts and payment records when tax time arrives. The Peak Partnership's free mobile app is an ideal solution for recording expenses and maintaining your vehicle log book.

The stimulus measures that continued in FY 2021 to combat COVID-19 means there are far more cash flow impacts to monitor. These include measures your business may have utilised after 01 July 2020, such as loan repayment deferrals, JobKeeper subsidies, deferral of tax debts including Activity Statements, obtaining refunds of prior PAYG tax instalments, Payroll Tax deferrals etc. 

For example, first interest repayments for the Queensland Rural and Industry Development Authority (QRIDA) COVID-19 Jobs Support Loan are beginning to fall due, so businesses need to factor these amounts into overall cash flow. 

Taking up some or all of these options could amount to large payments that need to be managed and paid later in the year.

We can help you work through a cash flow plan to show you the impacts of these measures on your finances when payments fall due.

PERSONAL PLANNING

  1. Pre-pay deductible expenses – if you have expenses that are tax-deductible, consider paying them before 30 June in order to bring forward your tax deduction to the current financial year.

  2. Planning to retire, or stop working? – if so, consider deferring your plans to stop working until early in the next financial year. Any lump sums you receive from your employer such as payments for accrued annual and long service leave, will be taxed in the financial year in which they are received. If your tax rate is likely to drop in the 2022 financial year, deferring leaving work may result in a lower rate of tax being payable.

  3. Tax deductible superannuation contributions – from 01 July 2017, claiming a tax deduction for personal superannuation contributions got easier. Tax deductions are now available to a much wider group of taxpayers. However, contributions are subject to limits and can generally only be made by people under the age of 65, unless they continue to work. Speak to us about this opportunity.

  4. Maintain good records – there is nothing more frustrating than not being able to find receipts and payment records when tax time arrives. The Peak Partnership's free mobile app is an ideal solution for recording expenses and maintaining your vehicle log book.

  5. Private health insurance – having your own private health insurance may deliver a number of benefits including:
    a. being eligible to receive the private health insurance rebate;
    b. avoiding the Medicare levy surcharge; and
    c. avoiding the lifetime health cover loading if private insurance is not taken out before turning 30 years of age.

In Summary

Effective tax and cash flow planning this EOFY will be more important than ever, particularly for businesses facing uncertain trading conditions. In these unique times, our best advice is to seek professional advice – our Accounting and Financial Advisers are across all the latest updates to taxation, employment, superannuation and more.

If you have questions, or if you'd like us to review any aspect of your business or personal tax planning, feel free to contact our advisers at The Peak Partnership.

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