The 30 June deadline approaches quickly every year, and it is important for business owners to review their annual tax figures and look at tax saving options before they miss the limited window of opportunity. As your trusted advisor, we can promote strategies to maximise cash-flow, minimise tax and comply with regulatory requirements. These will be tailored to accommodate your trading structure, business size, and life cycle stage. We further consider commercial aspects, such as existing banking covenants and future lending requirements, to overlay any of our tax planning decisions.
There are a vast range of tried-and-true strategies available, but it is important to also consider new incentives that have been announced. We highlight three recent changes that could be available for your business in the 2021 financial year under appropriate circumstances.
Temporary Full Asset Expense
The full asset expense allows a business to claim an immediate tax deduction for any depreciable asset that will be used in the business. This applies to almost every business in Australia, (turnover is required to be under $5 billion per annum.) This is available for new assets purchased between October 2020 – June 2022 to promote investment and improve confidence in the Australian economy. It will only be available for trading businesses and will not include any passive investment property assets. If the business turnover is under $50 million per year, we are also able to write-off second-hand assets. These assets should be installed and ready for use by the end of the financial year. The full asset expense can significantly reduce taxable income for capital-intensive businesses. There are a range of exclusions, capital works for example (i.e. buildings, structural improvements or earthworks), and some intangible assets such as Trademarks and Patents. The depreciation limit on cars also applies. Before committing to major expenditure check with your accountant that it will fully deductible – but it very likely will be!
Carry-Back Loss Rules
For our clients that are trading as a company, the government has re-introduced the carry-back loss. This is beneficial for a company that has had a loss in a recent year but was previously profitable and had paid tax. The loss allows a company to receive a tax refund by applying the current year tax losses against prior year taxable income. This was designed to assist with the many industries that were negatively affected by the financial shock from COVID-19. The company must have paid tax on trading profits during either of the 2018, 2019 or 2020 financial years and made a subsequent trading loss during the 2020, 2021 or 2022 financial years. There must also be sufficient franking credits available to apply the refund. The carry-back loss rules may be used in conjunction with the temporary full asset expense rules to claw-back some of the tax paid in prior years after generating a tax loss due to the purchase of new assets.
Concessional Superannuation Carry-forward Rule
The concessional contribution cap during the 2020/21 financial year is $25,000 per year. However, from 1 July 2018, superannuation fund members who have a total superannuation balance of under $500,000 on 1 July will automatically roll-forward any unused contribution cap for up to 5 years. This can be a useful tool while completing our tax planning as a catch-up contribution can be made to align with higher profits or a large capital gain event to help ‘smooth out’ income over multiple years. Similarly, if there are losses during the current year, a voluntary superannuation contribution can be delayed until a later year, allowing a catch-up contribution in a more profitable financial year.
The above three options are just a few current examples of what our advice can achieve for business clients before 30 June. There are many more tax planning strategies that may be appropriate for your circumstances, or with future opportunities arising from the upcoming Annual Federal Budget Night (May 11th). Contact our office to discuss how these scenarios could impact you or any other tax planning concerns as the end of financial year looms closer.