Before 30 June 2020 there are a number of measures currently available to help businesses manage their income tax obligations for the 2020 financial year.
Some of the key measures are:
Take advantage of the instant asset write off
Under the Government's Economic Stimulus Package in response to the COVID-19 pandemic this threshold is now $150,000. Meaning, if your turnover is under $500 million, any assets costing less than $150,000 acquired, and ready for use in the business, before 30 June 2020 can be claimed as a tax deduction in full in the 2020 financial year.
The measure applies to any asset whether it be brand new or second hand.
Under the original announcement, this measure was to expire on 30 June 2020. However, due to supply chain pressures the Government has now extended the measure to 31 December 2020. Whilst this extension does not help with claiming a tax deduction this year on assets that cannot be delivered before 30 June 2020, if they are delivered early in the 2021 financial year, then the same deduction will still be available next year.
Utilise Accelerated depreciation rules
For businesses making significant investment (more than $150,000) utilise the accelerated depreciation rules that apply from 12 March 2020 to 30 June 2021. Another part of the Economic Stimulus Package, this measure allows businesses to claim a deduction equal to 50% of the cost of an asset costing more than $150,000 in the year the asset is first available for use in the business. If you are a Small Business Entity (SBE) (i.e. with annual turnover less than $10 million) the deduction in the year of acquisition increases to 57.5%. Unlike the instant asset write off, this measure only applies to brand new assets.
Write off of existing SBE depreciation pools
Because of the increase in the instant asset write off threshold to $150,000, any SBE using the Small Business Pooling depreciation rules will be able to write off the balance of their pool in the 2020 financial year if the balance of the pool (before applying depreciation for the year) is below $150,000. If this occurs, then the entire pool will be written off and claimed as a deduction in the 2020 financial year.
The following example explains the opportunity:
If your Small Business Pool balance was $100,000 at 30 June 2019, and you haven't acquired any new assets during the 2020 financial year, you will get a deduction in the 2020 financial year of $100,000. The advantage of this measure is that, without having to spend any money on new assets during the year, a significant tax deduction is created.
Write off bad debts before 30 June 2020
Due to the financial impact of the COVID-19 pandemic it may be possible that some of your debtors will not be able to be recovered. If this is the case, then to get a tax deduction for the bad debt, it needs to be written off before 30 June 2020.
Pay your superannuation obligations before 30 June 2020
Employee superannuation obligations are not tax deductible until they are paid, and cleared, to the employee's superannuation fund. If you want to get a tax deduction in 2020 for your superannuation contributions for the June 2020 quarter, you will need to ensure that the contributions are paid, and cleared, to the employee's superannuation fund before 30 June 2020. Having contributions cleared by the clearing house can be a trap, so it is important understand the cut off dates for the clearing houses to pay the contributions and ensure your payments are submitted on time.
Take advantage of low interest rates and prepay interest
SBE's and individuals with rental properties can claim a tax deduction for interest payments in the year payment is made. If you wish to take advantage of these measures talk to your bank.
Primary Production Measures
For the primary producers, take advantage of measures specifically designed for primary production businesses such as:
- Farm Management Deposits – put excess cash into a farm management deposit account and claim a tax deduction for doing so; and
- Invest in your farm and take advantage of the immediate tax deductions available on money spent on Landcare, Water Facilities, Fencing and Fodder Storage Assets.
To make sure you're making the most of these tax planning opportunities, talk to your Johnsons MME advisor, email@example.com.