After a tumultuous 2020, it is hard to believe that the end of the 2021 financial year is almost here.
Temporary Full Expensing - assets purchased and ready for use prior to 30 June 2023
The Federal Government has proposed to extend temporary full expensing (announced in the October 2020 Federal Budget) from 30 June 2022 to 30 June 2023.
Loss Carry-Back for a Company
Corporate tax entities with aggregated turnover less than $5 billion can apply tax losses from FY20 and/or FY21 against previously tax profits in FY19 or later to produce a refundable tax offset.
Start-up and Immediate Tax Deductions
Starting the 2021 year, a medium sized business with an aggregated turnover of $10-$50 million will be able to claim an immediate tax deduction same as the concessions currently available to a small business with turnover less than $10 million.
The 2021 tax rate for companies with aggregated turnover of less than $50m and less than 80% of their income in the form of “base rate entity passive income” has dropped from 27.5 to 26%.
Individual Tax Rate Changes
Superannuation contributions
Like prior years, employers wishing to get the full tax deduction in FY21 for Superannuation Guarantee contributions will need to pay those contributions prior to 30 June 2021.
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.
Trust Distribution Minutes and Planning
As always, trust distribution minutes should be prepared and signed before 30 June.
Like every year, there are important tax planning opportunities and matters to consider in the lead-up to 30 June.
The important budget announcements and other key items to consider are set out below.
Temporary full expensing is available to all business entities with aggregated turnover less than $5 billion and applies to all new assets. This measure also applies to certain second-hand assets for business entities with aggregated turnover between $50m and $500m.
Car write-offs are still be subject to the luxury car limit ($59,136).
The refundable tax offset is capped at:
- The tax paid in the financial year that losses are being carried back to
- The balance of the taxpayer’s franking account in the year the offset is being claimed.
If no choice is made to use the carry back measures, the loss is carried forward and available to use in future provided either the continuity of ownership or same business tests are satisfied.
The expenses include:
- Prepaid expenses for services to be provided within 12 months; and
- Start up expenses such as accounting and legal costs to set up a new business.
Company Tax Rate
For most of these companies, any dividends paid during the year and before 30 June 2021 will be franked to 26%.
From 1 July 2021, the company tax rate for these companies are also scheduled to reduce to 25%. Any dividends declared from this date will also be franked to 25%. Therefore, dividends would need to be declared and credited before 30 June 2021 to use the higher franking rate.
Individual Tax Rate Changes
For the year ended 30 June 2021, some of the Individual tax brackets change.
- The 19% tax band will increase from $37,000 to $45,000; and
- the 32.5% tax bracket from $90,000 to $120,000.
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”) will also need do so prior 30 June 2021.
Individuals with a superannuation balance of less than $500,000 on 30 June of the previous financial year, can 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.
In preparation, distribution planning will be required where income, capital gains and franked dividends are to be distributed amongst multiple beneficiaries.
Other Key Tax Planning Considerations;
- 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.
- 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 Company.
- 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.
- Defer invoicing and the receipt of income
