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Business Top Tips for maximising your 2020-2021 deductions

For business

Corporate tax rate: Most companies with an aggregated annual turnover of less than $50 million will pay tax at 26% in the 2021 financial year.  The rate decreases to 25% from 1 July 2021.    However, companies with a turnover below $50 million will continue to pay tax at 30% where more than 80% of their income are passive income.

In line with the changes to company tax rates, there have also been changes to the franking rates.   Companies with 26% tax rate can only pay dividends up to a maximum franking rate of 26% until 30 June 2021 and reduced to 25% from 1 July 2021.

Temporary expensing: Businesses with an aggregated turnover of less than $5b can claim immediate deduction on the business portion of the cost of eligible depreciable assets.  Eligible assets must be first held, first used or installed ready for us between 6 October 2020 and 30 June 2022 (extended to 30 June 2023 based on the recent Budget announcement).  For small or medium taxpayers (ie turnover less than $50 million), the immediate deduction also applies to second-hand assets.  Car purchase deductions are still subject to depreciation car limit ($59,136).

Superannuation: Super Guarantee contributions must be paid before 30 June to qualify for a tax deduction in the 2020/21 financial year. You might consider bringing forward the June quarter contribution payments. We recommend allowing plenty of time for it to reach the super funds.

Read more about the importance of allowing time for the clearance and processing of the payment here.

Please also note that the superannuation guarantee rate will increase from 1 July 2021 to 10%.

Bad debts: Review your debtors list for uncollectable amounts. Write-off all those that, after ensuring that all reasonable steps have been taken to recover the debt, are unlikely to pay to enable a tax deduction this year.

Prepaid expenses: Prepaying certain expenses such as rent, repairs and office supplies before year end can reduce your current year tax liability. If payments are due early next financial year, a pre-payment may entitle you to the tax benefit much earlier.  The rules differ depending on the type of entity so please call us if you would like more clarification.

Stocktake: Trading stock should be reviewed before 30 June, either by a physical count or from a perpetual stock record system. Small Business Entities can be exempt from conducting a yearly stock take if the value of stock has moved by less than $5,000 during the year. Tax is paid on the value of stock at the end of the financial year so consider selling or disposing of slow moving stock so that it is not included in the count.

Franking credits: If you are planning on paying dividends out to shareholders before the end of the year, you should review the company’s franking account to ensure that the company has paid sufficient tax to enable the dividends to be fully franked. This may mean paying ahead of scheduled payments in an arrangement with the ATO. For assistance with calculating your franking account balance, please contact us.