Tax Planning Update 2020 [UPDATED]

On 9 June 2020 it was announced that that the 150k instant asset write off will be extended until 31 December 2020. We have updated our original newsletter that was sent prior to this announcement.

          Please also remember that if you would like to tax deduct superannuation contributions in the 2020 financial year then the cash payment will need to be made no later than 23 June 2020 to allow for processing times. This includes employer contributions as well as personal concessional contributions. When making your contributions please review your contributions caps as discussed below. Please contact your C&J adviser if you would like to discuss.

In this newsletter we will highlight several key stimulus items that may affect you as well as some general tax planning strategies.

          We have included information for individual and business clients in this newsletter. If you would like more information on the various stimulus packages please refer to our news page: http://www.cjeffery.com.au/news

          Please contact your C&J advisor if you wish to discuss any of the items below.

Recent Changes & Tax Planning Strategies:

Index:

1. Tax Deduction for Depreciating Assets for Small Businesses
2. Accounting and Tax Treatment of Stimulus Payments
3. Superannuation Contributions
4. Excess Concessional Contributions and Division 293 Assessments
5. General Tax Planning Considerations

1. Tax Deduction for Depreciating Assets for Small Businesses

As part of the stimulus package the instant asset write off has been expanded until 30^th June 2020. The expanded scheme covers business with aggregated turnover of less than $500 million. The asset value has increased to $150,000 from 12 March 2020 to 30 June 2020. The asset thresholds have changed during the financial year as follows:

          Please note that motor vehicle purchases are still subject to the depreciation cost limit which is currently $57,581. The deductible amount of car purchase is limited to your business use (log book) percentage times $57,581.

          From 1 July 2020 the instant asset write-off will only be available for small businesses with an aggregated turnover of less than $10 million and the threshold will be $1,000.

          NOTE - Accelerated depreciation will also be available for assets acquired after 1 July 2020 and installed ready for use by 30 June 2021 representing a claim of 50% of cost plus the usual rate applicable on the balance.

2. Accounting and Tax Treatment of Stimulus Payments

Please see a summary of the tax and accounting treatment of the various stimulus packages that you may have received:

JobKeeper:

• The JobKeeper payment is a wage reimbursement
• The payments will be included in your taxable income although you will be able to deduct the wage payments made to your staff
• There is no GST on the payment.
• The payments should be coded to an appropriately named account in the “other income” area in your accounting system with the Non-Reportable or BAS Excluded code.

Cash Flow Boost:

• The Cash Flow Boost is credited to your ATO account based on the PAYGW reported on eligible BAS’s
• The payments are tax exempt and will not be included in your taxable income
• There is no GST on the payment.
• The payments should be coded to an appropriately named account in the “other income” area in your accounting system with the Non-Reportable or BAS Excluded code.

NSW 10k Small Business Grant:

• The Small Business Grant is a cash payment to eligible small business.
• The payments will be included in your taxable income
• There is no GST on the payment.
• The payments should be coded to an appropriately named account in the “other income” area in your accounting system with the Non-Reportable or BAS Excluded code.

3. Superannuation Contributions

Tax Deductible Contributions - Concessional Contributions:
The limit for the 2020 financial year for tax deductible contributions is $25,000. (The increased limit for members aged 49 and over has been removed.)

          From 1 July 2017 all members under the age of 65 have been able to make personal concessional contributions directly to super and claim a tax deduction for the contributed amount. The requirement for these contributions to be made via a salary sacrifice arrangement have been removed.

          Taxpayers between 65 and 75 can also contribute providing the work test is passed.

          In order to claim the deduction for the superannuation contribution the following must apply:

• The contribution must be made before 30 June and must clear from your bank account on or before the 30th June.
• You must notify your super fund of your intention to claim a tax deduction for the contribution. Your fund will have a form to notify them of this. If you have a SMSF that we administer, please let us know and we can help with the required reporting.
• You can only claim deductions up to your concessional cap of $25,000. Please note that this cap includes any super guarantee contribution made by your employer.
• It is possible to prepay super contributions and effectively receive a double deduction in one financial year.  This may be an option IF you have made a large capital gain for instance and you are willing to commit funds to super. Please contact your C&J adviser to discuss this option.

Unused Concessional Cap Carry Forward:

From 1 July 2018, if you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to contribute more than the general concessional contributions cap and make additional concessional contributions for any unused cap amounts.

          The first year you will be entitled to utilise carried forward unused amounts is the 2019-20 financial year. Unused amounts are available for a maximum of five years, and after this period will expire.

After-tax Contributions - Non-Concessional Contributions:
When you make a contribution from your after-tax savings this is officially called a non-concessional contribution. The annual non-concessional cap is $100,000 for the 2019 financial year. A three year bring forward rule will still apply for members under 65 years old hence a maximum contribution of $300,000 may be possible.

          Non-concessional contributions can only be made if your balance in super is less than $1.6 million. If your balance is approaching this figure please contact us so we can review your ability to make additional contributions.

4. Excess Concessional Contributions AND Division 293 Assessments:

You may have received an additional assessment from the ATO for either of these items. As they are not well understood we have provided some information regarding each below:

Excess Concessional Contributions (ECC):

When concessional contributions, to super, in excess of the $25k cap are made on your behalf the ATO will assess additional tax to you personally on the excess amount. Concessional contributions are generally the contributions made by your employer, including salary sacrificed amounts, and personal concessional contributions. The ATO adds the excess amount to your personal income hence you are taxed on this component at your marginal tax rate. The ATO then allows a 15% offset to take into account the 15% tax already paid in the super fund on the contribution. The only “penalty component” to ECC tax is that the ATO will add an interest component to recognise the fact that the tax is being paid later than if the income was originally taxed as personal income.

          When you receive an ECC Assessment you have the option to release the excess contribution from super. You can release up to 85% of the excess contributions as the 15% tax in super is taken into account. The release form can be lodged online and must be completed within 60 days of the original assessment. The funds are then released from your super fund to the ATO, any additional amounts will then be refunded back to you.

          Please note that if you choose not to release the excess concessional contributions then they will be converted to non-concessional contributions in your super fund. You need to be aware that if you have “maxed out” your non-concessional limit by making contributions or you are unable to make non-concessional contributions as your balance is over $1.6mill then this may cause issues with you breaching the non-concessional cap.

Division 293 Assessments (Div 293):

          A Div 293 assessment will be issued to you if your adjusted personal income is greater than $250k and concessional contributions have been made on your behalf. This assessment levies an additional 15% contribution tax on the excess contributions that take your adjusted income over $250k.  Only the concessional contributions up to $25k are assessed for the additional 15% tax. As this is capped at the concessional contributions cap the maximum assessment you can currently receive is $3,750.

          The additional assessment will be sent to the individual member who can then choose to pay the assessment directly OR release the tax amount from your fund. The release form must be lodged within 60 days of the date of the original assessment.

          If you are unsure about either of these additional assessments please contact your C&J adviser.

5. General Tax Planning Considerations:

Tax planning is an on-going concern however it helps to pay particular attention to it at this this time of year. For your benefit and as a timely reminder we have listed below some year-end strategies that should be considered;  

• Trade debtors – Review aged debtors listing prior to 30 June and give consideration to the collectability of debtors. The decision to write off bad debts should be documented prior to 30 June and the accounting systems updated accordingly.
• Invoicing pre 30 June - Consider deferral of billing (for accrual based tax payers only) to 1 July for clients or customers who are notoriously bad payers.
• Stock Valuation – Stock is required to be valued at the end of the income year at its cost, market selling price or replacement value. There is no obligation to use the same method for each item of stock. Therefore consideration should be given to the valuation methodology for each stock item.

For your reference, the definition of each method is as follows:

• Cost – is the cost of acquiring the trading stock plus any further costs in getting it into its existing condition or location.
• Market Selling Value – is the current selling value of the item in your selling market.
• Replacement Value - is the cost of replacing the particular item.
• Obsolete Stock – You may also elect to value an item of stock below the values determined above, if it is warranted, because of obsolescence or any other special circumstances.

• Trade Creditors – Review trade creditors as at 30 June to ensure all invoices have been received for goods and services provided during the period ended 30 June.
• Staff Superannuation – In order to obtain an income tax deduction for superannuation, the payments must be made to super funds prior to 30 June.  Ensure superannuation for all staff is up to date and paid prior to 23 June to ensure it has time to clear into the super fund prior to 30 June. This can also help avoid creating excess contribution issues for employees if contributions are delayed.

Superannuation can also be prepaid for the next 12 months – please discuss this with your C&J adviser.

• Bonus Payments – Bonus payments will be deductible, even though the physical payment is not paid until the following year, if, prior to the 30 June, the company is definitively committed to the payment of a quantified amount. This will be evidenced by reference to employment contracts, General Ledger entries and directors resolutions.
• Asset Schedule Review – The asset register of the company should be reviewed on an annual basis prior to 30 June to determine whether there are any items present on the listing which have been scrapped since the last review. These assets need to be written off in the accounts of the company prior to 30 June.
• Prepayments – Individual and small business taxpayers can bring forward tax deductions by prepaying expenses, usually rent or interest, providing these are for a deductible purpose and for a maximum of 12 months. The prepayment must be made pre 30 June. Making a prepayment needs to be carefully reviewed in relation to cash flow requirements and likely taxable income for the following financial year.
• Capital Allowance & Depreciation Schedules for Investment Properties – Are you maximising your tax deduction for depreciation of your investment property? If you have a property that was constructed after 1 July 1985, or even renovated since that date, you may do well to commission a quantity surveyor to produce an extensive depreciation schedule for your property and even any eligible assets attached to the common property that you effectively have a pro-rata ownership interest in. The cost of the report is tax deductible and the tax savings from the depreciation claim will generally recoup the after-tax cost of the report within the first year. Please note that if your investment property was purchased after 9 May 2017 and the property was not purchased new from the developer depreciation entitlements are more limited.
• CGT considerations - Plan carefully: The end of the financial year is an opportune time to review your investment portfolio. When making a decision to sell assets, the tax effect of whether it results in a gain or loss should be considered and you should plan carefully to minimise the tax effect. Capital gains can be offset by capital losses, either brought forward or from sales within the same year of course. Also be aware that exchange of contracts is the critical date for crystalising capital gains.