By Chris Smith
For businesses to maximise their cash position, they should consider the following tax planning opportunities before 30 June.
1. Prepay expenses before the end of the year:
- If aggregate turnover is < $10m, you can claim 100% deduction in the year an expense is paid
2. Bring forward the purchase of plant and equipment if you are a small business:
- Equipment costing less than $150k, and installed and ready for use by 30 June 2020 will be fully tax deductible in the current year
3. Maximise your tax-deductible debt:
- Loans for private purposes are not tax-deductible
- Review whether refinance options may be available to increase the split of deductible vs non-deductible debt
- Consider whether Div 7A loans can be restructured
- New rules limit the deductions available against vacant land, so investigate whether restructures to repayments on loans can be made
4. Maximise superannuation contributions
- Super is only deductible if paid by 30 June
- Annual concessional contribution caps are $25k
- Salary earners can make concessional member contributions as the previous restriction (10% rule) no longer applies
5. Write off bad debts:
- If debtors are not recoverable, and all action has been taken to resolve then write off the bad debt before 30 June to bring to account the expense
- Ensure GST is adjusted
6. Write off slow-moving or obsolete stock
- Review your stock holding
- If the market value is lower than the cost of the stock, a deduction can be realised for the difference
7. Utilise unrealised capital losses:
- Ensure you take advantage of capital losses within your group
- Consider whether distribution minutes can be prepared in a way to utilise group losses
8. Review plant and equipment:
- Review depreciation schedule for any scrapped plant and equipment that can be written off
- Review the effective lives of equipment and consider whether appropriate to increase rate of depreciation
9. Repayment of Div 7A loans:
- Cash repayments can reduce the requirement for dividends to be declared
10. Review tax rate applying to companies:
- Base rate companies pay tax at 27.5% while all others pay tax at 30%
- Planning for rate change in FY 2021 to 26% and FY 2022 to 25% – consider impact on timing of dividends and the tax credit vs top-up tax payable
- Review any planning that could occur to achieve the desired tax rate (may be lower to reduce tax, may be higher to maximise franking credits on dividends)
11. Review for access to refundable franking credits:
- Review for opportunities ahead of 30 June 2020 to access any refundable franking credits
- Consider whether any loss entities could result in a flow of highly franked income resulting in a refund
12. Claim and document your Research & Development activities:
- When engaged in R&D activities, clearly document the activities and costs relating to those activities to take advantage of R&D Tax Offsets
13. Super Amnesty
- Is there an opportunity to apply for the amnesty and receive a tax deduction for late paid employee superannuation.
14. Review your tax position prior to 30 June:
- Understand your options to reduce or defer tax payments
- Plan the cashflow for instalments of tax, and the tax due on lodgement of tax returns
- Identify opportunities to vary tax instalments and improve cashflow
- Implement above tax planning and other savings
- Finalise trust distribution minutes before 30 June
- Finalise dividend minutes before 30 June
If you need any help with your tax planning, please do not hesitate to contact me or our office on (08) 6212 7200.
