You have questions, we have answers.
With the end of the financial year approaching, it is a great time to make smart decisions about your finances. Taking action before 30 June can open up more opportunities for you. We know that there isn’t a one-size-fits-all solution to accounting, wealth management and business growth.
So, we’ve outlined some tax-effective strategies that you may benefit from. We can help you find what strategies are right for you and/or your business.
Question: Can I claim a tax deduction for payments made to workers/contractors?
No deduction is available if a business does not meet the required PAYGW obligations for payments made to employees. If engaging a contractor, an ABN should be quoted by the contractor, otherwise, tax should be withheld by the business engaging the contractor. Failure to do so denies a deduction for the contractor payment. Businesses should be careful when making the distinction between employees and sole trader contractors.
Question: Is my audit insurance tax deductible?
Yes, the premium paid for audit insurance is tax-deductible. It also covers the cost of defence in the event of a claim. The ATO continues to benchmark businesses, with cash businesses becoming a major focus. Technology is becoming more advanced so be aware of information sharing and matching between government and non-government institutions.
How much is the instant asset write-off?
From 6 October 2020 to 30 June 2023, most businesses should be able to deduct the full cost of depreciating assets that are purchased. The car limit still applies.
What is the depreciation limit for motor vehicles?
The depreciation limit for 2020/21 is $59,136 – it applies to both the depreciation as well as the GST credits claimable.
Can I use a work vehicle for private purposes?
The ATO continues to focus on the use of work vehicles for private use. Business owners may consider limiting the length per trip and total kilometres per annum.
Can I delay the receipt of income to the following tax year to defer the tax payable?
Yes, if the business’ accounting is using the income on a cash basis method. Delaying receipt until after 30 June will delay the tax liability by a full tax year. However, if the business uses the accrual method, it is important to hold back issuing of invoices for the deferral to apply.
If accounting on a cash basis, should I pay creditors by 30 June?
If cash flow allows, creditors’ accounts should be paid by 30 June to maximise deductions.
The 12-month rule will apply to prepayments for expenses such as registrations, insurances and subscriptions. Accounts under $1,000 are excluded from the 12-month rule.
Should I restructure my business to a corporate entity for tax reasons?
Companies with a turnover of $50 mil or less will be taxed at 26% in 2021 FY. This reduces to 25% in 2022 FY. Please note companies that derive mainly passive income (i.e. interest, rent, dividends, royalties) are still taxed at 30%.
Should I introduce a corporate beneficiary to a discretionary trust for tax reasons?
If a restructure to a corporate entity is not feasible, consider making a distribution to a company to maximise tax at 30%.
Should I write off bad debts?
Consider writing these off before 30 June to reduce the tax liability. We recommend talking to your Banks Group representative before taking action.
My company has a tax loss for the 2021 financial year, can I offset this against prior year profits?
Yes. You can offset this tax loss against previously taxed profits and this can generate a tax refund when you lodge your 2021 tax return. The amount refundable will depend on the amount of previously taxed profits and the company’s franking account balance as at 30 June 2021. Please contact a Banks Group representative to discuss further.
If you have any further questions relating to the above, please do not hesitate to get in touch with us via your Banks Group representative, (03) 9810 0700 or firstname.lastname@example.org.
This article is intended for general discussion and is not intended to represent specific advice. Banks Group shall not be responsible for any entity that acts on any of the comments in this article without first obtaining specific advice from Banks Group.