2020 tax tips

Here are 10 business tax tips to legally minimise your 2020 tax position.

1. You don’t want to pay tax on any income you have not yet earned. Therefore, you need to review your debtors and write off any debts you are not sure you will not collect on or before 30 June 2020.  Don’t worry, you can still chase the debtor and if you manage to collect the cash after 30 June 2020, you can include that in next year’s tax return.

2. If you have stock, make sure you do a stock take and assess the value of all your stock. If any stock is unsaleable for any reason, formally write this off on or before 30 June 2020.  If the selling price of any stock is less than the cost, value the stock item at the selling price ex GST.

3. Superannuation is only tax deductible when paid. If you pay the June quarter super on or before 30 June 2020 you can claim the deduction against your 2020 income.

4. If you are the business owner, considering topping your superannuation contributions up to $25,000 for each individual.

5. If you are going to pay your staff bonuses for the work they have done, consider paying these on or before 30 June 2020. You can then claim an immediate deduction.    If you don’t have the cash to pay these before 30 June, consider doing all the necessary reviews and paperwork documenting and approving these bonuses before 30 June, and if done properly you may still be able to claim a deduction in the 2020 for these.

6. Small businesses with revenue under $10 million, can claim an immediate deduction for expenses paid up to 12 months in advance. For example, if the rent for July to September was paid in June, you can claim all of this in your 2020 income tax return.

7. The instant Asset write-off rules were recently changed. If your revenue is below $500 million, you may be able to claim an immediate write off against your taxable income for the purchase of assets up to the value of $150,000 (assets purchased between 12 March and 30 June 2020).  For the rest of the 2020 tax year, if your revenue was less than $50 million. you may be able to claim an immediate write off against your taxable income for the purchase of assets up to the value of $30,000. Now don’t just buy the asset for the sake for the deduction.  Make sure you need it and you have the cash to buy it.  Also, if you claim the instant write off and later dispose the asset, you will need to pay tax on the sale price.  For example, you buy a new 1 tonne work vehicle for $40,000 and claim the 100% write off.  Then, in a years’ time, the vehicle is written off in an accident and the insurance company pays you out $35,000, that $35,000 is treated as assessable income and you pay tax on this.

8. One other area is to consider is any capital gains. If you have any capital gains that you may be liable to pay tax on and you have some assets with capital losses, it may be worthwhile to sell those assets before 30 June so you can offset the capital losses with the capital gains (as you can’t offset income tax losses with capital gains).

9. If you currently do not expect to hit the $50,000 limit for the cash flow boost for the 2020 financial year, then it may be worthwhile to pay the owners higher salary in June to take advantage of this. For example, the personal income tax withheld from your staff was $20,000 for the March 2020 quarter and is expected to be $25,000 for the June 2020, you are $5,000 below the threshold ($50,000 – $20,000 – $25,000).  If you pay yourself extra income, say $12,000 and withhold $5,000 in tax, that $12,000 salary payment will in this case only cost you $2,000.  That is because the government will increase the cashflow boost by $5,000 in respect of the June quarter and also another $5,000 in the period July to November.  But remember, if you are above the $50,000 personal income tax withheld threshold, you get no benefit from this.

10. Don’t forget JobKeeper payments are taxable, but you can claim the wages paid in respect of this deductible, but any cashflow boost payments are not taxable.

If your tax advisor is not being proactive with you about these tax tips for your business, and any tax tips around your personal situation, find yourself a new tax advisor.

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