EOFY FAQs – Strategies for Business

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?

Yes, but note that the ATO may deny the deduction where PAYG withholding has not been remitted to the ATO in relation to the amount claimed as a deduction.

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?

As part of the stimulus measures introduced by the Federal Government, the instant asset write-off has been increased to $150,000 for assets purchased between 12 March 2020 and 31 December 2020.

What is the depreciation limit for motor vehicles?

The depreciation limit for the 19/20 FY is $57,581 – it applies to both the depreciation as well as the GST credits claimable.

The depreciation limit for motor vehicles means that a business can only deduct up to $57,581 for the purchase of a motor vehicle between 12 March 2020 and 31 December 2020.

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?

Depending on your circumstances, you could consider restructuring to a corporate entity to take advantage of the flat company tax rate. Companies with a turnover of $50 million or less will be taxed at 27.5% in 2020 FY provided no more than 20% of their turnover represents passive income.  All other companies will be 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 client service contact before taking action.

Should I pay company dividends before 30 June?

This will depend on tax planning and whether dividends are required to be declared by the company to comply with Division 7A.

What stimulus measures are available to my business?

The Federal and State Governments have released several stimulus packages to help businesses navigate the impact of the COVID-19 pandemic. Click here to view our articles on these relief measures.

If you have any further questions, please do not hesitate to contact your client service contact at Banks Group.

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.

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Financial Planning Services provided as an authorised representative of Count Financial Limited ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Count advisers are authorised representatives of Count. www.count.com.au

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