2020 Financial year has been devastating for so many, with the bushfires in the earlier part of the year, and then Covid-19 which is really something none of us could have ever predicted.
As the financial year draws to an end there are some incentives available to small-medium businesses as well as some tax planning opportunities for consideration which can help position businesses to be in a stronger position going in to FY2021.
The instant asset write-off has increased from $30,000 to $150,000 and is available to eligible businesses. This has recently extended to December 31st, 2020. The asset needs to be installed or ready for use by December 31st, 2020. There are limits and exclusions to this ruling so please speak with your advisor if this is something you are considering.
Cash flow Boost
Cash flow boost payments may be offset against your integrated client account or refunded direct to your bank. These payments are non-assessable non-exempt income and should be recorded in an ‘other income’ Rebates and Refunds (non-assessable)’ account.
The initial Cashflow boosts payments will be delivered when you lodge your monthly or quarterly activity statements from March to June 2020, and additional Cashflow boost payments will be delivered from June to September 2020. To access the Cashflow boost payments, you must lodge your activity statements for PAYG Withholding Tax.
JobKeeper payments are assessable to the business. We are recommending that an ‘Other Income’ account named ‘Rebates and Refunds (assessable)’ be established to capture this income. Positioning this account as other income will ensure it won’t affect operating income for reporting purposes.
The superannuation expenses incurred during the year, need to be paid, and in the accounts of the recipient by 30th June to claim a tax deduction. The ATO have mandated that employer superannuation payments are to be lodged via a clearing house. Payments need to be made at least one week prior to ensure they land with the superannuation funds by 30th June. Please contact your advisor if you would like to pay your superannuation early to claim the deduction in the current financial year.
Payroll Tax Refunds
Payroll tax refunds essentially reduce the deductible expense, thereby increasing your business’s taxable income. The payroll tax refund should be offset against the expense in the profit and loss statement.
Tax planning strategies need to be executed prior to the end of the financial year. This year has been very difficult for many businesses, and strategies put in place may require review to ensure they are still appropriate. As 2020 draws to an end, please reach out if you have a question.
STP has ensured reporting in streamlined and very efficient for those managing payroll systems. Prior to finalising within your accounting system, it is important to review the figures and ensure the following accounts are reconciled and accounted for.
Wages and Salaries
ATO Integrated Client Account
The Xero GST Audit report is a very useful report for identifying transactions that have had an incorrect tax code applied. Amend any incorrect entries prior to reconciling the GST accounts to the lodged activity statements, and any variances can then be picked up in your June lodgement.
Any assets of a capital nature with a purchase price exceeding $300 should be coded the relevant asset account in the balance sheet. Although they will likely be fully depreciated utilising the instant asset write off this financial year, by coding to the balance sheet you are able to maintain an asset register for all of your capital purchases.
Now is the perfect time to prepare a forecast to try to predict how the business will perform for the 2021 year. Job keeper / Cash flow boost payments are all set to end later in the year. Running some numbers to see what the business looks like moving forward may allow to take steps now that assist the business moving forward. How has the business operation changed in the last 3 months, and can you capitalise on new efficiencies that have been forced upon your business?
Working from Home
The ATO has recently announced a new ‘shortcut’ method for calculating your home office deductions. It is available from 01/03/2020 to 30/06/2020. The deduction is 80c per hour for each hour worked from home and is an all-encompassing home office deduction. There are some conditions around this so please review your eligibility. The fixed rate and actual cost methods are also still available for use in this period if they result in a more favorable outcome for you.