Tax planning for 30 June 2021

Traditionally, 30 June each year brings forth a rash of initiatives through which the level of taxation for the current financial year may be reduced. Consult your tax advisor about tax planning for 30 June 2021 as follows:

Timing of Income

Where possible, defer receipt of assessable income until after year end.

Timing of expenses

Where possible, incur deductible expenses prior to year end.

Temporary full expensing

Eligible new assets first held and first used or installed ready for use for a taxable purpose between 7.30pm AEDT 6 October 2020 and 30 June 2022 may be fully expensed ie: immediate tax deduction.

Bad debts

Review debtors and, where debts are unrecoverable, physically write off before year end to claim a tax deduction.

Trading stock on hand

Scrap any obsolete or damaged stock before 30 June.

Superannuation

Ensure payments for employees or by self-employed persons are physically made and received by the fund on or before 30 June.

Pre-payments

Immediate deductions are available for:

• Pre-payment of salary
• Expenses <$1,000
• Individuals, for non business expenses incurred on or before 30 June for the next twelve months –        e.g. interest on rental property

Superannuation rebates

Contributions made on behalf of a low or no income spouse of up to $3,000 can attract an 18% rebate – i.e. $540.

Superannuation co-contributions

The Government will contribute up to a maximum $500 to add to eligible employees’ personal contributions to superannuation funds of up to $1,000, subject to an assessable income (reportable fringe benefits, reportable employer superannuation contributions and salary sacrifice superannuation contributions) limit of $39,837, phasing out at $54,837, subject to age, income and total superannuation balance.

Motor vehicle expenses

Where significant employment or business use of a personal motor vehicle is claimed, maintain a log book for twelve weeks to maximise the tax deduction and keep records of all expenses. The log book must be renewed every five years and can be kept in an electronic or paper format.

Record the financial year end odometer reading.

Plant and equipment

Review your asset schedule to scrap obsolete, worn out, lost or stolen items to maximise your depreciation claim.

Delay the disposal of any plant and equipment likely to be profitable in terms of written down value until 1 July.

Small businesses (turnover <$500m) can claim an immediate deduction for assets acquired, first used or installed ready for use, from 6 October 2020 until 30 June 2022, costing under $150,000 (GST exclusive) through temporary full expensing!

Home office expenses

If carrying on a business from your home, pro rata tax deductions for interest or rent, insurance etc are available but impact on the main residence exemption from capital gains tax.

Directors’/employees’ entitlements

Ensure any 2021/2022 salary packaging arrangements are in place before the commencement of the new tax year.

Bonuses and fees for the 2020/2021 year need to be approved at meetings and in place prior to 30 June 2021 but may be paid in the subsequent year.

Private company loans

Any loans to shareholders or associates during 2020/2021 need to be repaid on or before 15 May 2022 unless a formal loan agreement is put in place, with annual minimum principal repayments and interest.

Sale of investments

Delay the sale until after year end where a gain is anticipated to defer tax for a year.

Crystallise any capital losses in the tax year to offset against any gains made in the same year.

Timing of disposal under a contract for capital gains tax purposes is generally the date of making the contract, not settlement.

Capital gains tax concession

Assets need to be held for at least twelve months to access the 50% discount for individuals and trusts and the 33⅓% discount for superannuation funds.

Ceasing business / sale of business assets

Consider redundancy payments for employees.

Plan “golden handshake” payments for after the tax year end.

Small business capital gains tax relief measures may be available for:

• 15 year exemption
• 50% reduction
• Retirement exemption
• Replacement asset rollover

PAYG payment summaries

Summaries and summary statements for employees are required by the ATO by 14 August, otherwise substantial penalties apply.

Superannuation fund expenses

All expenses of a fund ought to be paid by the fund in order to claim a tax deduction.

Depreciable plant costing $300 or less

Salary and wage earners and rental property owners will be entitled to an immediate deduction if plant for work related purposes costing $300 or less is purchased before 1 July 2021. Some purchases you may consider include:

• Books and trade journals
• Briefcases and luggage/suitcases (*must carry only occupation-specific or safety items, no personal items)
• Calculators, electronic organisers
• Software
• Stationery
• Tools of trade

Clothing expenses

Purchase and pay for work related clothing/expenses prior to the end of the income year, such as:

• Compulsory, non-compulsory (and registered) occupational specific and protective clothing
• Other expenses associated with such work related clothing such as dry cleaning, laundry and repair expenses

Self-education expenses

Consider pre-paying the following self-education items before the end of the income year:

• Course fees (but not HELP fees), student union fees and tutorial fees
• Interest on borrowings used to pay for any deductible self-education expenses

Also, bring forward purchases of stationery and text books (i.e. those which are not required to be depreciated).

Other work related expenses

Employees can pre-pay any of the following expenses prior to 1 July 2021:

• Union fees
• Subscriptions to trade, professional or business associations
• Magazine and newspaper subscriptions
• Seminars and conferences
• Income protection insurance (excluding death and total/permanent disability)

Note: When pre-paying any of the above expenses before 1 July 2021, ensure that any services are provided within 12 months of the payment and before 1 July 2022. Otherwise, the deductions must be claimed over the period of the pre-payment. Any expense under $1,000 is exempt from pre-payment rules.

To ensure you don’t miss out on saving yourself $$$, CONTACT US TODAY for tax planning 30 June 2021.

Motor vehicles provided by employers and FBT

Where an employer provides an employee with a motor vehicle to enable the employee to carry out his or her employment duties, and the motor vehicle is used for private purposes or is deemed to be available for private use, a car fringe benefit arises.

It may be that the private use is limited to work-related travel and any other private use is minor, infrequent and irregular, in which case the private use could be exempt from fringe benefits tax however there are few cars listed as eligible for exemption!

Should such an exemption not be available, then the taxable value of the motor vehicle fringe benefit may be calculated using either the concessional statutory formula method or the operating cost method.

Generally, the concessional statutory formula method produces a better outcome where the motor vehicle has been used mainly for private purposes. Further, this method does not require much in the way of record keeping.

The more significant the business use of the motor vehicle as against private use, the operating cost method is more likely to result in a lower FBT liability.

As an alternative to the provision of a motor vehicle by the employer, and the FBT consequences, it may be that payment of an allowance to the employee through the PAYG system at either a fixed or cents per kilometre rate for use of his or her private vehicle would appeal as an option.

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Concessions for vehicles ‘stored’ at an employee’s home during COVID-19 period

Where a “car” or “motor vehicle” (not a car) is exempt the concessions are not applicable.

To access concessions:

*         Employer must use the ‘operating cost’ method.

*         Employer must elect in writing to use the ‘operating cost method’ before lodging FBT return.

*         An employee garaged the car at their home over all or part of the FBT year.

*         During the garaged period the car was not driven at all or only for maintenance.

*         Odometer records must be maintained to evidence not driven or only briefly for maintenance.

The concession allows operating costs for the period to be excluded if incurred during or attributable to that period and for business use percentage purposes the employer is permitted to ignore the ‘concessional period’.

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Reverse mortgage alternative

Most would be familiar with the reverse mortgage on the home to provide an up-front lump sum with accumulating interest charges and principal to be repaid on sale of the property.

A viable alternative to the reverse mortgage, if an immediate lump sum is not required, could be the government’s pension loan scheme which may be accessed through Centrelink. For those over age pension age a fortnightly payment of up to 150% of the full age pension may be received as financial support at an interest rate presently 4.5%. The payments, together with interest and charges, would be repayable on sale of the secured property as for reverse mortgages!

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Novated lease packages where an employee provides a trade in or cash contribution to reduce amount

Before entering into a car leasing arrangement such as a novated lease with an employee, an employer should first understand the fringe benefits tax (FBT) implications.

FBT implications differ depending on whether the car leasing arrangement is a bona fide lease or a non-bona fide lease.

If an employee provides a trade-in vehicle or cash contribution towards the purchase of the car, it must not reduce the lease payments or residual value.   The ATO now considers this type of novated lease is not a bona fide lease for income tax purposes, nor FBT purposes, hence the ATO still treats the novated lease package as a fringe benefit, but not a car fringe benefit. This means the employee is unable to apply either the ‘operating cost’ or ‘statutory’ methods to reduce the taxable value of the benefit and the impact of the FBT!

Whether the novated lease package is a property or residual fringe benefit, the full impact of the 47% tax will be the unfortunate outcome in these circumstances.

There is a limited exclusion if, for example, the cash contribution simply covers the “on road” costs.

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