2020 Tax Planning – Businesses

Tax Planning businesses

2020 has been a difficult year for Australian businesses on so many levels. Not only are we in the midst of a global pandemic and recession but locally, bushfires and drought has seen a lot of stress placed on Australian Business owners.  However, with all of this going on it is still very important to remain focused on assessing and planning your businesses financial position prior to 30 June.

I have prepared for you a list of areas for you to consider.

Employer Superannuation Payments

Superannuation is only deductible where the superannuation is paid on or before the end of the financial year. If you are seeking a tax deduction prior to 30 June I recommend that you pay employees’ superannuation at least a week before 30 June rather than leaving it right to the end or after the financial year.

Instant Asset Write Off

The instant asset write off applies to new and second-hand assets acquired and used or installed ready for use. The eligibility rules changed throughout the 2020 year and are summaries in the table below.

Eligible BusinessesDate range for when asset first used or installed ready for useAsst Cost Threshold
Less than $500 Million aggregated turnover12 March 2020 to 30 June (see note)$150,000
Less than $50 Million aggregated turnover7.30pm (AEDT) on 2 April 2019 to 11 March 2020$30,000
Less than $10 Million aggregated turnover29 January 2019 to 7.30 (AEDT) on 2 April 2019$25,000

If you have acquired a motor vehicle or you are looking to acquire a motor vehicle during this period, please note that the instant asset write off for motor vehicles is limited to the depreciation cost limit of $57,581.

Assets that are excluded from the instant write off regime are:

  • capital works deductions
  • assets that are leased out for more than 50% of the time on a depreciating asset lease
  • assets allocated to a low value asset pool
  • horticultural plants
  • software allocated to a software development pool

Prepayment of Expenses

If your business is a small business entity (i.e. aggregated turnover is less than $10.0M) you are able to prepay expenses and claim an immediate tax deduction for the full amount prior to 30 June. Examples of expenses that could be prepaid are:

  • rent
  • interest
  • lease payments

JobKeeper Payments

The JobKeeper Payments received by a business form part of the business’ assessable income.  Therefore you will need to take JobKeeper payments into consideration when planning for the end of the financial year.

Bad Debts

Bad debts are considered a complete loss where you have provided services or goods for which a third party has not paid and is unlikely to pay.  A debt does not become a bad debt until you have done everything within reason to chase payment. Once you have done this and if the debt is still outstanding you may then write the debt off as a bad debt.   A tax deduction is allowed for the bad debt written off provided that:

  • the debt was previously included in the business’ assessable income;
  • you have formally written off the debt. 
  • the debt is written off on or before 30 June.

If you are writing off a bad debt, remember to claim back any GST that you may have previously remitted to the ATO as part of a previous Business Activity Statement.

Interest on Bank Loans

If you have been granted relief by your bank on loan repayments for the duration of the 2020 tax year, you should be aware that the bank may still charge you interest on the loan. 

Despite not paying the interest, you are entitled to a tax deduction for the interest that the bank has capitalised. 

Inventory & Stock

The value placed on stock/inventory impacts on the business’ taxable income.  So with that in mind, as we approach year end you should be:

  • reviewing stock for obsolescence and damage
  • planning for stocktakes at 30 June
  • considering how you are going to value your stock at year end.

A business can value its stock for tax purposes at either cost, market selling value or replacement value. If your stock levels have not changed by $5,000 then a stock-take is not required.

Depreciation Rates

If the business has a substantial amount invested in plant and equipment, office equipment and furniture, you should review the items listed in the depreciation schedule. This is to ensure that they are still in use and held by the business.  Where items are no longer held or used you should look to write off these items and therefore claim a tax deduction. 

If you have any questions regarding business tax planning for 2020 please contact JHL Accounting.

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