30 June 2021 is fast approaching and there are many tax planning strategies business owners and individuals need to know and potentially address before the end of the financial year and beyond. With some businesses having seen a reduction in revenue last year, and many seeing a recovery in 2021, it is important to stay on top of your tax planning and ensure you understand your tax liabilities and due dates.
Key areas to be considered by businesses and individuals include:
Revisit retirement planning
Review your wealth creation structures and ensure that they remain appropriate and continue to meet your requirements prior to 30 June 2021.
If you have started a pension from superannuation, it is important that you have drawn the required minimum pension for the 2021 financial year before 30 June 2021. The minimum pension payments for the 2021 financial year are based on the member account balance as at 30 June 2020, and are as follows:
There is no maximum limit, except for transition to retirement pensions which is limited to 10%.
For planning beyond 30 June 2021, we note that the minimum pension factors for the 2022 financial year remain the same as that noted above. However, the payment amount will be calculated based on the member account balance as at 30 June 2021.
Superannuation guarantee changes
Increase in SG rate
As of 1 July 2021, the Superannuation Guarantee (SG) rate rises to 10.00%, with further increases to come over the next five years. Employees should review their employment agreements to determine the impact the SG percentage increase may have on their take-home pay.
Superannuation guarantee – multiple employers
If you are an individual with multiple employers, from 1 January 2020 onwards you may be eligible to opt out of receiving SG from some of your employers.
This may help you prevent unintentionally going over the concessional contributions cap, and avoid paying extra tax. In order to opt-out, the ATO must receive the employee’s application for a shortfall exemption certificate a minimum of 60 days before the first quarter for which the exemption is wanted. While the application period for the quarter beginning 1 July 2021 has past (being 2 May 2021), employees may apply until the 2 August 2021 to receive the exemption certificate for the quarter beginning 1 October 2021.
If you are considering applying for an exemption certificate, discuss this with your employer first. The employer is able to choose to disregard the exemption certificate and continue to pay SG.
Superannuation contributions – individuals
Individuals are able to make personal concessional contributions from pre-tax funds to claim a tax deduction in their income tax returns for the year ended 30 June 2021. The tax deduction is only deductible in the 2021 tax return where the superannuation fund receives the contribution by 30 June 2021. The general concessional contributions cap for the 2021 financial year is $25,000 (increasing to $27,500 from 1 July 2021).
Where you have an unused concessional cap amount from the 2019 and 2020 financial year, the carry-forward arrangement may be utilised to make extra concessional contributions in the 2021 financial year. This arrangement is available if your total superannuation balance as at 30 June 2020 was less than $500,000 and you have, or are planning to, make concessional contributions in the 2021 year that exceed the general concessional contributions cap.
The additional concessional contributions relate to any unused cap amounts from previous years starting from the 2019 financial year. The unused cap is able to be carried-forward and used in a future year, although it expires after five years.
When making any additional concessional contributions before 30 June 2021, it is important to:
- Identify your specific contribution cap (is it limited to $25,000 or can you access the carry-forward arrangement?);
- Confirm the amount of superannuation contributions that have been received by your superannuation fund during the financial year; and
- Understand what your employer (if applicable) will still contribute prior to 30 June 2021.
This will assist with ensuring the concessional contributions cap is not exceeded for the period ended 30 June 2021. If a taxpayer exceeds the 2021 cap of $25,000 (and any carry-forward cap), the excess amount is included in their 2021 income tax return and taxed at their marginal tax rate.
Individuals are able to make non-concessional contributions for the year ended 30 June 2021 where their superannuation balance at 30 June 2020 is less than $1.6 million. These contributions are not tax deductible and are not taxable in the superannuation fund. The non-concessional contributions cap for the 2021 financial year is $100,000 (increasing to $110,000 from 1 July 2021).
If you are under 65 years of age, you may be eligible to make contributions above this annual non-concessional contributions cap by gaining access to future year caps under the bring-forward arrangement. This is reliant on the bring-forward arrangement not being utilised in the previous three years.
The bring-forward arrangement allows you to make extra non-concessional contributions without the requirement of paying extra tax. The availability of this arrangement in this financial year will depend on your age and total superannuation balance as at 30 June 2020. The relevant bring-forward limits for the 2021 financial year are as follows:
The non-concessional contributions cap from 1 July 2021 increases to $110,000. As such the relevant maximum bring-forward contributions outlined in the table above will also increase to $330,000, $220,000, $110,000 and $nil retrospectively for the 2022 financial year.
For rental property owners, it is important to begin assembling relevant documentation including expenditure receipts to prepare for your 2021 tax return.
This includes determining deductible expenses and considering what capital gains tax implications may arise in the event of a sale. For eligible expenses such as rates, property management fees, capital works and depreciation, the timing of the deductions available may vary.
Subject to sufficient cash availability, you may consider prepaying interest or paying for other expenditure before 30 June 2021 to crystallise a tax deduction in the 2021 income tax return.
It is also important to review loans and policies to ensure that any interest only periods are not nearing expiry.
Super guarantee – company
Employer superannuation contributions
Superannuation is deductible when paid. Therefore, to claim superannuation as a tax deduction for the June quarter (or month where the business pays superannuation monthly), the business must ensure that this superannuation is paid before 30 June.
Importantly, if you use a clearing house such as the Small Business Superannuation Clearing House, you may have to make the superannuation payment to the clearing house by 23 June 2021 to ensure the payment is made to the employees’ funds by 30 June.
Increase in SG rate
Employers need to be aware of changes to superannuation in the new financial year.
As of 1 July 2021, the SG rate rises to 10.00%, with further increases to come over the next five years. Due to the cash flow implications of these changes to businesses, it is important for employers to factor these changes in when negotiating new salary and wage packages. The SG percentage will increase to 12.5% by 1 July 2025.
Personal exertion income
Broadly, personal exertion income is income derived by the personal efforts or skills of an individual. Typical industries where personal exertion income is derived include (but not limited to) medical professionals, financial professionals, information technology consultants and engineers.
Where personal exertion income is derived through structures such as trusts, partnerships or companies, the income (less certain deductions) is attributed to the individual who performed the services. It is important to ensure that profits earned from personal efforts when operating via a trust, partnership or company are appropriately paid out to the relevant individuals before 30 June 2021.
Personal loans from companies
If you are a shareholder or associate of a private company and have borrowed money from the company, it is important you have made the necessary minimum loan repayments before 30 June 2021 to ensure no adverse tax consequences arise.
Additionally, any new loans created during the current year will be required to be repaid or put on a complying loan agreement before the earlier of:
- the date the company lodges its 2021 tax return; or
- the lodgement due date of the 2021 tax return.
The interest rate for these loans (known as Division 7A loans) in the 2021 financial year is 4.52%.
Fringe benefits tax
Fringe benefits tax (FBT) broadly applies to non-cash benefits provided to an employee unless an exemption applies. The commonly applied exemptions include (but not limited to):
- minor and infrequent benefits provided for less than $300;
- private use of a panel van, ute or other commercial vehicle (broadly being, one not designed principally to carry passengers where the private use is limited);
- the provision of portable electronic devices mainly for use in the employee’s employment.
Where employers are providing non-cash benefits to employees that are exempt from FBT and not lodging FBT returns, we recommend lodging an FBT return annually to limit the amendment period.
The ATO has the right to audit and amend FBT relating to prior years, for a period of up to six years from the date of an FBT assessment. If an entity has never lodged an FBT return, and therefore never received an assessment, the ATO can audit the entity for an unlimited number of prior years. This exposure can be limited by lodging an FBT return for the year ended 31 March 2021, thereby generating an FBT assessment.
Discretionary trusts (and some fixed trusts) are required to prepare and execute distribution minutes prior to 30 June for each financial year. These distribution minutes detail how the income of the trust will be distributed to beneficiaries for the relevant financial year. Minutes must be prepared in accordance with the trust deed and detail any use of income streaming. For the 2021 financial year distribution minutes to be effective, they must be prepared and executed by 30 June 2021.
When preparing the trust distribution minutes, it is recommended to prepare the minutes in a way to retain a nominal amount in the trust for the 30 June 2021 income year. This will assist with generating a notice of assessment for the trust and effectively limiting the amendment period to 4 years (or 2 years for trusts that are considered a small business entity).
Broadly, the amendment period is a particular tax period that the ATO and taxpayer is able to review and amend tax forms to include any under or overpayment of tax. The period is determined from the date of relevant notices of assessments. Where there is no retention of income, trusts are generally not taxable and therefore do not receive notices of assessment. As such, without completing the distribution minutes and retaining a nominal amount in the trust by 30 June 2021, the amendment period may be greater than 4 or 2 years.
Bad debts should be identified before 30 June 2021 to understand the commercial and tax implications. Therefore, a review of trade debtors should be conducted to identify any amounts that are considered uncollectable and written off prior to 30 June 2021.
Broadly, where a bad debt is written off and been determined unlikely to be recovered through any reasonable and commercial attempts prior to 30 June 2021, you may claim a tax deduction for it in the 2021 financial year. This is on the basis that the debt is still in existence and has not been waived, forgiven, sold or extinguished in any other way.
However, the bad debt may not be deductible where there has been a change in ownership or control of a company or trust, unless the continuity of business tests are satisfied.
Temporary full expensing
Business should consider bringing forward certain expenses to claim as a tax deduction in the year ending 30 June 2021. The temporary full expensing incentive may assist here.
Temporary full expensing allows a business to claim an immediate deduction for the full cost of eligible depreciating assets, where they are first used or installed after 7 October 2020. The conditions to access the immediate deduction are:
Currently, this concession will end after 30 June 2022. However, the Government is proposing to extend this concession until 30 June 2023. It is important to consider the timing of the purchase, installation and use of the relevant asset to determine eligibility for this deduction. We recommend contacting your Pilot advisor to determine whether these deductions apply to you.
Employers – Year-end finalisation report
Employers should have procedures in place to ensure they are able to lodge the Single Touch Payroll (STP) year-end finalisation report by 14 July 2021. This will allow their employees to complete their tax returns.
Remember to include fringe benefits provided to employees in the STP finalisation report where the benefit provided is more than $2,000.
Loss carry back tax offset
Eligible companies may utilise the loss carry back tax offset in their 2021 and 2022 company tax returns. Additionally, the Government has proposed to extend this offset the 2023 financial year.
The loss carry back tax offset may be available to an eligible company in its 2021 tax return where the company:
- carried on a business and its aggregated turnover did not exceed $5 billion in the loss year;
- made a tax loss in the 2020 or 2021 income year;
- had an income tax liability for the 2019 or 2020 income year;
- has a surplus of franking credits as at 30 June 2021;
- lodges its 2021 income tax return and lodged the previous five income tax returns; and
- the company loss test have been satisfied.
Choosing to carry back losses (made in the 2020 and 2021 income year) to earlier years (in which there were income tax liabilities) may result in a cash refund, reduced tax liabilities or a reduction of debt owing to the ATO. The availability of this offset for the 2021 income tax return is subject to taxes paid in prior years and limited to the franking account surplus as at 30 June 2021.
Generally, an immediate tax deduction is not allowed for certain prepaid expenses exceeding $1,000. Instead they are deducted over the period the service is being provided or 10 years (whichever is less).
However, small business entities may claim an immediate tax deduction for prepaid expenditure, where the value is greater than $1,000 and covers a period that does not exceed 12 months. Businesses should review their expenses and, subject to cash availability, consider bringing forward any payments which are currently being paid monthly such as subscriptions and insurance.
In order to claim a deduction for this financial year, determine what expenses may be prepaid prior to 30 June 2021 using excess cash available.
Stock and depreciating assets
For tax purposes, most businesses that trade stock are required to do an annual stocktake as at 30 June. It is important to plan and execute a stocktake in a way which gives a reliable and accurate stock figure. As part of stocktake, you should identify any old, obsolete or damaged stock which can be written off or written down.
The fixed asset register should also be reviewed to write off obsolete, scrapped or damaged depreciating assets before 30 June 2021.
Tax File Number reporting
Closely held trusts (including family trusts) are required to report the Tax File Number (TFN) and other personal details of any new beneficiaries. This is done by completing a TFN Report for the quarter the beneficiary quotes their TFN to the trust. The TFN report must be lodged by the end of the month following the relevant quarter. As such, any beneficiaries of a trust for the year ended 30 June 2021 that have not quoted their TFN should do so by 30 June 2021. This will ensure the trust is able to lodge the June 2021 quarter TFN report by 31 July 2021.
Where a beneficiary’s TFN has not been quoted, the trustee is required to withhold tax at the top rate from any payments or distributions made to them.
Payroll tax – Queensland
Where a business has Australian taxable wages that exceeded $1.3million for the 2021 financial year, the entity must lodge the Queensland annual payroll tax return by 21 July 2021. In the event that the entity has overpaid tax for the year, the amount will be applied to other outstanding debt or refunded.
It is important to note that a business must register for payroll tax within seven days after the end of a month in which the Australian taxable wages exceed $25,000 a week. This is required even if the business expects the Australian total taxable wages for the financial year to be less than the $1.3million threshold.
There are a range of deferrals and concessions available from the ATO to assist with cash flow including:
- The ability to change GST reporting cycle to monthly to get quicker access to GST refunds. Note that this may not suit all taxpayers and is locked in for a minimum of 12 months.
- Income tax instalments automatically calculated by the ATO for the year ended 30 June 2022 will not be adjusted upward for GDP.
- Where you believe you may have overpaid tax, you may vary your PAYG instalments with no penalties for the 2021 year provided you make a genuine attempt to estimate your end of year tax liability. This may allow you to reclaim funds before the lodgement of your 2021 tax returns.
- For taxpayers wanting a deferral to pay their outstanding or future tax liabilities, the ATO is providing payment arrangements on a lower interest (or possibly nil) rate depending on your circumstances.
- If your business was impacted by COVID-19 and incurred interest and penalties after 23 January 2020, the ATO will consider remitting these in certain circumstances and potentially stop interest being charged while you continue to be affected by COVID-19 and for the duration of a payment plan put in place.
Now is the time to contact your advisor to understand the timing and quantum of your tax liabilities. Tax planning should be reviewed annually in June or earlier.
If you would like assistance with tax planning or have any questions, please contact Kylee Smith or your Pilot advisor on (07) 3023 1300.