Year-End Tax Planning

With 30 June 2021 fast approaching, it’s time to consider whether any tax planning action is required prior to year end.

We will be contacting you soon if we identify beneficial tax planning strategies relevant to your circumstances. If you have specific concerns about your tax position for the 2021 tax year, or are aware of a particular income event that you haven’t told us about such as the sale of a property, please contact your Client Manager.

Happy tax planning,

Otto & Partners

Business Developments

Instant Asset Write-Off

From 6 October 2020 until 30 June 2023, temporary full expensing allows an immediate deduction for eligible assets as follows:

  • For new depreciating assets for businesses with an aggregated turnover under $5 billion
  • For second-hand assets for businesses with an aggregated turnover under $50 million
  • To write off the balance of a small business general pool at the end of each income year in this period for businesses with an aggregated turnover under $10 million.

If you are intending to purchase an asset before 30 June 2021 to bring forward the tax deduction, please note that the asset must be installed and ready for use in the business prior to this date for the deduction to be available.

Small Business Company Tax Rate Cuts

For the current (2020/21) tax year, the company tax rate for businesses with an annual turnover of less than $50M is 26%.
For the 2021/2022 tax rate this rate is reducing to 25%.

Single Touch Payroll Reporting

From 1 July 2021 all business that pay wages to employees are required to report these payments through the STP reporting system. This now includes businesses that were previously exempt and includes wage payments to associates.For most businesses this will require the use of accounting software that is STP compliant. If your current software is not STP compliant we recommend using Xero to lodge your STP reporting. Xero has payroll only plans from as low as $10 per month.

Tax Treatment of COVID Stimulus

A reminder that JobKeeper payments and most government grants are to be reported as taxable income. Cash Flow Boost payments are classified as non-assessable non-exempt income and are not directly taxed.

Super Guarantee Increase

The superannuation guarantee is legislated to increase from 9.5 percent to 12 percent in 0.5 percentage point increments from 2021 through to 2025. The first increase, from 9.5 to 10 percent, is due to take effect on 1 July 2021. Please ensure that your payroll software is setup to reflect this change.

ATO Superannuation Guarantee Reviews

We have seen a significant increase in ATO review activity relating to unpaid or late paid employee superannuation.

It is now our strong recommendation that businesses review their superannuation obligations to ensure that all payments have been made on time. If there have been missed or late payments at anytime then these amounts should be reported to the ATO via Superannuation Guarantee Charge statements. It has been our experience that voluntarily reporting these amounts greatly reduces the likelihood of late payment penalties which can be as high as 200% of the late or missed payment.

We expect that this focus will continue and stress the importance of paying superannuation for employees on time. As a reminder superannuation is due within 28 days of the end of the quarter. Noting that the money must be received by the superannuation fund in this time frame, i.e. money leaving the business bank account on the 28th day is a late payment.

Superannuation

Minimum Draw Down Extended

The government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year to 30 June 2022.

The government had reduced the minimum superannuation drawdown rates by 50% for the 2019–20 and 2020–21 income years, ending on 30 June 2021 in its response to the COVID-19 pandemic.

A breakdown of the current rates is as follows:

Temporary reduction in superannuation minimum drawdown rates
Age Default minimum drawdown rates (%) 2019-20, 2020-21 and 2021-22 reduced rates (%)
Under 65 4 2
65–74 5 2.5
75–79 6 3
80–84 7 3.5
85–89 9 4.5
90–94 11 5.5
95 or more 14 7

Superannuation Contributions Caps Increasing from 1 July 2021

The concessional contribution cap is set to increase from $25,000 p.a. to $27,500 pa from 1 July 2021.

The non-concessional cap in 2021–22 will also see the standard cap increased from $100,000 to $110,000 from this date. Correspondingly the maximum amount a member can contribute under the non-concessional contribution cap bring-forward rule is also set to increase from $300,000 to $330,000 from 1 July 2021.

Prior to making any superannuation contributions, please check other eligibility requirements such as age limits and total superannuation balance caps.

Carry Forward Concessional Contributions

The carry-forward arrangements involve accessing unused concessional (tax deductible) cap amounts from previous years. An unused cap amount occurs when the concessional contributions you made in a financial year were less than your general concessional contributions cap.

To use your unused cap amounts in the current year, your total super balance as at 30 June of the previous financial year must have been less than $500,000.

The amount of unused cap amounts you will be able to carry-forward will depend on the amount you have contributed in previous years, starting from 2018–19. You can use caps from up to five previous financial years. The ATO portal contains information on unused contribution caps from prior years. Your client manager can access the figures if you are interested in making catch up concessional contributions.

Individual Tax

Personal Tax Rates
The tax rates for the 2020/2021 are:
Taxable Income Tax Payable (Medicare levy not included)
0 – $18,200  Nil
$18,201 – $45,000  19 cents for each $1 over $18,200
$45,001 – $120,000  $5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000 $29,467 plus 37 cents for each $1 over $120,000
$180,001 and over $51,667 plus 45 cents for each $1 over $180,000

The above rates to do not include the 2% Medicare levy. The Medicare levy applies to all tax payers except for low income earners.

Cryptocurrency under ATO scrutiny

The ATO will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. It also plans to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.

Generally, those who buy, sell, swap, or exchange one cryptocurrency for another, will be liable for Capital Gains Tax (CGT). CGT also applies to the disposal of non-fungible tokens.

Businesses or sole traders that are paid cryptocurrency for goods or services, will have these payments taxed as income based on the value of the cryptocurrency in Australian dollars.

While it appears that cryptocurrency operates in an anonymous digital world, the ATO closely tracks where it interacts with the real world through data from banks, financial institutions, and cryptocurrency online exchanges to follow the money back to the taxpayer. Taxpayers should keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it is just their wallet address.


Tax Planning – 6 Quick Tips

You have almost certainly seen this list before. All we can say is that they are oldies but goodies. Please contact your Client Manager if you have any questions about how best to implement these strategies.

1. Pay June Quarter Employee Super Before 16 June – Superannuation is only tax deductible when received by the super fund. This means that super accrued in the June Quarter will not be tax deductible until next year if it is paid when it is due on 28 July. Get the tax deduction in 2020/21 by paying your employee super at least two weeks before the end of June, to allow for clearing house processing timeframes.

2. Super contributions – Individuals can claim a tax deduction for contributions they make towards their superannuation. This is one of the only tax deductions where you can claim a deduction but not actually erode your overall asset position. As above, superannuation is only tax deductible when received by the super fund so please plan to make any contributions as early as possible before 30 June.

There may be additional conditions that you must meet before making a contribution, so please consult with your Client Manager before proceeding.

3. Pre-pay Expenses – Consider pre-paying business expenditure. Small business entities with a turnover of less than $10M can pay up to twelve months of expenses in advance.  This strategy is particularly effective if your income is unusually high in the current tax year.

4. Review Debtors and Trading stock – Prior to 30 June, review your trade debtors list to see if any bad debts can be written off.

Perform a stock take on 30 June to ensure that worthless stock isn’t included in your closing stock figures. Inflated closing stock effectively increases your taxable income.

5. Bring Forward Capital Expenditure – Businesses can consider bringing forward the purchase of capital assets (refer section above).

6. Ensure low tax thresholds are utilised – One of the most tax effective strategies involves ensuring that taxable income is shared amongst immediate family members to ensure that no individual is being pushed into the higher tax brackets unnecessarily. This can be achieved by targeted wages payments, trust distributions and/or dividend payments. Your Client Manager will review these options in the coming weeks, but if you would like to discuss how you could use this strategy, please give them a call.

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