2021 EOFY Tax Planning - Quick Guide

Can you believe the end of the financial year is upon us? Below are some important tax planning opportunities to consider in the lead-up to 30 June 2021.

Uncapped immediate write-off for depreciable assets

(a) Businesses with annual turnover of less than $5 billion can claim an immediate deduction for the full uncapped cost of an eligible depreciable asset, in the year the asset is first used or is installed ready for use where the following requirements are satisfied:

• The asset was acquired from 7 October 2020.
• The asset was first used or installed ready for use by 30 June 2023.
• The asset is a new depreciable asset or is the cost of an improvement to an existing eligible asset, unless the taxpayer is a small or medium sized business (i.e turnover less than $50 million), in which case the asset can be second-hand.

(b) Small businesses (i.e. with annual turnover of less than $10 million) can deduct the balance of their simplified depreciation pool at the end of the income year up to 30 June 2023.

Motor vehicle purchase deductions are still subject to the luxury car limit ($59,136).

Ineligible assets include assets in the low value or software development pools, capital expenditure under Division 43 and assets that will never be located or used for business purposes in Australia.

Superannuation contributions*

Employers wishing to get the full tax deduction in FY21 for Superannuation Guarantee contributions, should pay those contributions by 21 June 2021.

Individuals wishing to make contributions up to the concessional cap ($25,000) and/or non-concessional cap ($100,000, or up to $300,000 “brought forward”) should do so by 21 June 2021.

Consider Carried forward unused concessional caps – With a superannuation balance of less than $500,000 on 30 June of the previous financial year, you may contribute more than the $25,000 concessional contribution limit for any unused amount from the year ended 30 June 2019.  Unused amounts are available for a maximum of 5 years.

* Note this is general tax advice only and you should seek professional financial advice specific to your circumstances regarding superannuation contributions

Single Touch Payroll
The deadline for enrolment in STP for small employers with Closely held payees is 1 July 2021. Ensure that you have enrolled by 1 July 2021.

Company Tax rate change and dividends
The 30 June 2021 tax rate for companies with turnover of less than $50m is 26%.  For these companies, any dividends paid during the year and before 30 June 2021 can be franked to 26%.

As the company tax rate for such companies is scheduled to reduce to 25% from 1 July 2021, the franking rate will also reduce to 25%.  Therefore, dividends would need to be declared and credited before 30 June 2021 to use the higher franking rate.

Division 7A loan agreements and minimum repayments
Where individuals and/or trusts have borrowed money from a private company in the year ended 30 June 2020, the loans must be fully repaid or be documented in a Division 7A-complying loan agreement before the due date of the company’s 2020 income tax return.  Many companies have had the due date of their 2020 income tax returns deferred as a result of COVID-19, potentially providing more time to repay such loans or enter into a Division 7A-complying loan agreement..

Temporary loss carry back for eligible companies

Companies with a turnover of less than $5 billion can carry back losses from the 2020, 2021, 2022 or 2023 income years to offset previously taxed profits made in or after the 2019 income year. This will allow such companies to generate a refundable tax offset in the year in which the loss is made

The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit.

This is available by election for eligible companies when they lodge their tax returns for the 2021, 2022 and 2023 income years. Alternatively you may choose to utilise those losses against profits in subsequent years.

Individual tax rate changes

The low and middle income tax offset of up to $1,080 which was due to cease on 30 June 2021, will be extended until 30 June 2022

For the year ended 30 June 2021, the ATO changed the Individual tax rates of an increase from $37,000 to $45,000 in the income threshold of the 19% tax bracket and an increase in the income threshold of the 32.5% tax bracket from $90,000 to $120,000.

Stimulus payments received – treatment

In the FY2021, you may be receiving various Stimulus payments – e.g., JobKeeper, Cashflow Boosts, Government Grants, etc.

Cashflow Boosts are specifically exempt from income tax, but JobKeeper payments and most Government Grants will likely be assessable income.

Jobkeeper top up payments are excluded from your Workcover wages declarations

Trust Distribution Minutes

Trust distribution minutes should be prepared and signed before 30 June. Distribution planning may be required if you are planning on distributing capital gains and/or franked dividends to different beneficiaries than those who receive distributions of other income.

Sale of capital assets
Consider postponing the sale of assets with unrealised gains and bring-forward asset sales with unrealised losses.

QBCC Financial Requirements
Ensure your entity’s QBCC minimum financial requirements of Net Tangible Assets and Current Ratio are met by 30 June 2021.

Self Managed Super Funds rent relief deferral (inhouse asset exclusion)
If a SMSF allows a related party tenant to defer rental income due to the financial impact of COVID, the deferral will not result in a breach of an in-house asset rule.

This does not apply to waivers or reductions of rent. However, the ATO stated that they will not take compliance actions for the 2019-20 and 2020-21 financial years if an SMSF gives a temporary rent reduction or waiver to a related party because of the financial effects of COVID during this period. 

Other key tax planning considerations;

• Bad debts must be written off in your accounts before 30 June
• Defer invoicing and the receipt of income
• Prepay expenses for up to 12 months – insurance, interest, subscriptions. Small businesses (turnover less than $10m) can claim expenses prepaid up to 12 months in advance.
• Wages paid to family members must be reasonable for the work performed.
• Review valuations of trading stock in the lead up to 30 June. Best practice is generally to value stock at the lower of cost or market selling value.
• Loans, payments and debts from Private Companies to their shareholders and associates will require minimum loan repayments to minimise deemed dividend income. Shareholders and entities should consider repaying loans and/or making minimum loan repayments on loans by 30 June 2021.
• Self-Managed Superannuation Funds in pension mode should ensure the minimum pension amounts have been paid to members in the year ended 30 June 2021.
• If your business is trading through a Discretionary Trust and 2021 has been a large income year, consider the use of a “Bucket Company”.
• If you are not reporting to the ATO via STP before 1 July 2021, you will be required to provide 2021 PAYG Payment Summaries to your employees by 14 July 2021. Your Annual 2021 PAYG Payment Summary needs to be lodged with the ATO by 14 August 2021.
• Review your asset register to write off any obsolete or destroyed items.
• Staff Bonuses.  For accrued staff bonuses to be deductible in the 2021 tax year the decision to pay the bonus and the determination of the bonus must be made and documented prior to 30 June 2021.
• Foreign residents – CGT main residence exemption no longer entitled from 1 July 2020 unless you satisfy the life events test.