With the end of the 2020-2021 financial year fast approaching, there are many tax planning strategies that you as a business owner and an individual need to be aware of so that you can take action in the coming months. It’s vital to be familiar with these aspects and get them in order before 30 June, 2021, as the new financial year often brings change and new obligations. Let’s discuss tax planning for the end of the financial year, for both individuals and businesses.
Tax Planning for Individuals
Arrange a Property Depreciation Report
When tax planning for the end of the financial year, you need to firstly, consider your assets and properties. If you have a rental property, for example, a Property Depreciation Report may be something to look into. It will allow you to claim depreciation and capital works deductions on capital items on your income tax return.
Be Mindful of Motor Vehicle Use
If you use your personal motor vehicle extensively for business purposes, the motor vehicle log book method is likely to provide a better deduction on your income tax return. To keep this log book, you must be accurate in your details and record your trips for at least a 12 week period.
Consider Superannuation Voluntary After-Tax Contribution
Contributing something to your superannuation can not only boost your super for retirement, it can boost your income tax deductions too. If you make voluntary after tax contributions to your superannuation account, you may be eligible to claim a tax deduction and reduce the amount of income tax you pay.
Tax Planning for Businesses
Business assets immediate write-off
The Government has changed the instant asset write-off threshold. This measure allows small businesses with an aggregated annual turnover from $10 million to less than $50 million to immediately deduct each business asset that costs less than $150,000.
Superannuation (super) contributions must be physically received by a super fund before 30 June in order to be claimed as a deduction in the current tax year.
When working out super contributions for the financial year remember that contributions don’t count when the payment is sent, they only count once the payment is received by a super fund. That’s why it is important to make sure a super fund has received the super contribution before the end of the financial year.
Prepayments of expenses which are due within the next 12 months
Companies with an annual turnover less than $10 million can claim an immediate deduction for prepaid expenses where the payment covers a period of 12 months or less that ends in the next financial year.
A prepaid expense is expenditure you incur under an agreement for something to be done (in whole or in part) in a later income year. Prepaid expenditure incurred by a small business entity is immediately deductible under the 12-month rule if the eligible service period for the expenditure is 12 months or less; the period ends no later than the last day of the income year following the year in which the expenditure was incurred.
This rule, known as the 12-month rule, applies to both deductible business expenditure and deductible non-business expenditure incurred by a small business entity that chooses to use this concession.
If a prepayment does not meet the 12-month rule, you cannot claim an immediate deduction.
Review Account Receivables
If you are carrying bad debts, you should review them before the end of the financial year. If you decide they are irrecoverable, write off any bad debts before June 30 so you can claim them as a deduction.
You are allowed a deduction for bad debts if you have previously included the amount in your assessable income or it is for money you lent in the ordinary course of a money-lending business carried on by you.
The bad debt has to be written off in the year of income before a bad debt deduction is allowable. Don’t forget to keep some form of written record such as a Minute of Meeting to evidence your decision to write off the debt from the accounts.
Tax Planning: Take Action Now
We have now explored our top tax planning tips for individuals and businesses alike. You should strongly consider these action points and act on them accordingly. For expert tax planning advice that is tailored to your individual situation, contact our team of tax accountants. We can assist you to legally minimise tax payable, reduce tax time stress and help you to meet your legal obligations.
Need Help? Would you like a Tax Planning Meeting?
If you would like help with respect to tax planning or would like tailored advice, please contact one of our experienced tax accountants by submitting an online enquiry form, calling us on 1300 QUINNS or alternatively, +61 2 9223 9166 to arrange a teleconference or appointment.