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With 30 June 2020 fast approaching, we have put together ten areas you need to address before the end of the financial year and beyond.

1. Super Contributions

Superannuation is deductible when paid so it is important to ensure that any superannuation payable for you or your staff is paid before 30 June so that you can claim the amount paid as a tax deduction in the 2020 financial year.

The concessional contributions cap is $25,000 in the 2020 financial year. If a tax payer goes over this cap, the excess amount is included in their 2020 year tax return and taxed at their marginal tax rate.

It is important to confirm the amount of superannuation contributions that have been received by your superannuation fund during the financial year, and what your employer (if applicable) will still contribute prior to 30 June 2020. This will help you calculate the amount of personal superannuation contribution you can make before 30 June 2020 so that you do not go over the cap.

2. Personal Exertion Income

For our medical professional clients, your income earned is deemed as Personal Exertion Income. As defined by the Australian Taxation Office (ATO), Personal Exertion Income is classed as income derived by the personal efforts or skills of an individual.

The ATO looks through any structures such as trusts or companies to attribute any Personal Exertion Income earned by an individual from their personal efforts to the individual themselves.

It is therefore important to ensure that profits earned from personal efforts when operating via a trust or company are appropriately paid out to you before 30 June 2020.

3. Trust Distributions

When it comes to trusts, the ATO requires that distribution minutes are prepared and signed prior to 30 June 2020. These distribution minutes detail how the income of the trust will be distributed to beneficiaries for the 2020 financial year. Minutes must be prepared in accordance with the trust deed and deal with any potential streaming of different classes of income.

It is also worth noting that the ATO has the right to audit and amend trust income tax returns for up to 4 years after the date of assessment. Since trusts are generally not taxable and do not receive notices of assessment, the amendment period may be greater than 4 years. By retaining a nominal amount in the trust at 30 June 2020, the ATO will generate a notice of assessment for the trust after lodgement of the tax return. The issuing of this notice of assessment will then limit the amendment period for the ATO to review to being 4 years. To retain a nominal amount in the trust, this needs to be included in the trust distribution minutes that are prepared prior to 30 June 2020. We recommend discussing options around distribution minutes with your accountant.

4. Instant Asset Write Off

The instant asset write off allows businesses with a turnover of less than $500 million to immediately deduct the cost of new business assets costing less than $150,000 up to 31 December 2020. This concession was recently increased from $30,000 on the 12th March 2020. The limit for motor vehicles is capped at $57,581 to claim as a deduction and any excess over and above this amount cannot be depreciated.

If you need to purchase any new plant and equipment for your business in the coming months then you may like to bring forward the purchase prior to 30 June 2020 and claim a tax deduction for this financial year.

5. Fringe benefits tax

Fringe benefits tax (FBT) can apply where a payment is made to an employee but in a different form to salary or wages. There are some exemptions that apply including:

  • minor and infrequent benefits provided of less than $300; and
  • the provision of portable electronic devices mainly for use in the employee’s employment (limit of one per employee per year).

Note that no FBT should apply where an employer is simply reimbursing or paying an employee’s work related expenses while working from home.

6. Single Touch Payroll

All employers who employ staff are required to report to the ATO all information relating to their staffs’ payroll. This is known as Single Touch Payroll (STP).

Payroll software Action required
If your business is not using any payroll software You will need to implement compliant software as soon as possible.

There is an exemption for closely held payees where they do not need to be reporting via STP. For these payees, they have until 1 July 2021 before they need to be STP compliant.

If your business is already using payroll software Ensure that it is STP enabled and start using the payroll function for your reporting each pay cycle.
If your business is already using payroll software, yet the software is not STP compliant The software will need to be upgraded or replaced with STP ready software as soon as possible.

 

If you are currently not using a payroll software for the administering of staff wages, then we recommend you speak to your Pilot advisor. They can discuss options available to you so that you are compliant for STP.

7. JobKeeper

Businesses who have seen their turnovers decline by at least 30% relative to a comparable period a year ago are able to access the JobKeeper wage subsidy. The subsidy totals $1,500 per eligible employee, per fortnight, from 30 March 2020 to 27 September 2020. Where any employees receive wages of less than $1,500 per fortnight, you are required to top-up their wages to this amount.
Employees that were employed after 1 March 2020, are not eligible for JobKeeper. The rules for determining whether employees are eligible for JobKeeper are quite complex.

The ATO has recently released further information in respect businesses that use a service entity to employ staff within their group and various criteria in determining whether JobKeeper applies. These rules are also quite complex and there is no one cookie-cutter approach in their application.

There is the ability to also register one eligible business participant (per employer) to receive the JobKeeper payment where that individual works in the business but doesn’t receive a wage. If the employer meets the eligibility test to receive JobKeeper for staff, then the eligible business participant can be as follows:

Employing entity Eligible business participant
Sole trader The sole trader
Partnership A partner
Trust An adult beneficiary of the trust
Company A shareholder or director of the company

 

If you have not already been in discussions with your accountant as to whether JobKeeper applies to your business, yourself (as an eligible business recipient), or your employees, then it is important that you do so to avoid missing out on any payments you are entitled to.

After the month of April 2020, employers are required to upload their financial data to the ATO each month, 7 days after month end for JobKeeper to continue to be paid.

There are a number of documents that need to be submitted to the ATO as part of the monthly declaration process. This is to ensure businesses continue to be paid for JobKeeper. We recommend discussing these due dates with your accountant as they can assist with these requirements.

8. Revisit Retirement Planning

Leading up to 30 June 2020 is a great time to review your wealth creation structures and ensure that they continue to be appropriate and meet your requirements. If not, then you have until 30 June 2020 to ensure that you attend to any changes to your group structure, prior to commencing a new financial year.

If you have a self-managed super fund, it is important that you have drawn the required minimum pension for the 2020 year. A recent release from the ATO is that the minimum pension percentage has been halved for the 2020 financial year, hence allowing you to retain more funds in super if you wish.

9. ATO Deferrals/Concessions

There are a range of deferrals and concessions available from the ATO to assist with cash flow including:

  • The deferral of tax payments for up to 6 months in relation to Activity Statements, Income Tax, Fringe Benefits Tax and PAYG Instalments PAYG-I). There is no General Interest Charges (GIC) included on any of these tax payment deferrals from the Tax Office.
  • The ability to vary the March 2020 PAYG-I in your Activity Statement to nil and request a refund of any PAYG-I’s previously paid in the September 2019 and December 2019 BAS’s. Do note that this is more for assisting in cash flow. The tax that is being varied will need to be repaid on lodgement of tax returns.
  • The ability to change GST reporting cycle to monthly to get quicker access to any GST refunds. Note that this does not suit all tax payers.
  • The remission of GIC and Penalties from the Tax Office in relation to any charges levied on tax liabilities after 23 January 2020 where that debt is under a payment arrangement.
  • For tax payers wanting more than 6 months deferral to pay their tax liabilities, the Tax Office is providing payment arrangements on a lower interest rate.
  • A new simplified approach for claiming home office expenses of $0.80 for every hour worked from home between 1 March 2020 and 30 June 2020. If this applies to you, then this deduction can be included in your 2020 year tax return.

10. Tax Planning and Cash flow budgeting

Although the economy has slowed due to COVID-19, tax unfortunately still needs to be paid. And while some businesses are finding a temporary reduction in their income, it is still important to stay on top of your tax planning and ensuring you are still saving towards your tax liability.

It is recommended you speak to your accountant to understand the timing and quantum of your tax liabilities. Tax planning should be reviewed in May and June each year.

If you have any questions regarding this above, please contact your Pilot advisor on (07) 3023 1300.