Year-end tax planning – things to think about before 30 June

With 30 June fast approaching it is prudent to consider whether there are any opportunities available for you to legitimately minimise or defer your tax for the year.

Please note these suggestions are of a general nature only and should not be relied upon without seeking specific advice. We recommend that you contact your usual Calibre advisor to assist you with your own specific tax planning requirements, as well as any broader audit and assurance assistance that may be required.

Review your financial performance

You should prepare up to date management financial statements and cash flows, together with a forecast for the next financial year.

Not only will this help you understand how the business has performed to date, but it will also establish a platform for this year’s tax planning.  You will need to understand the potential tax that you will pay for the current and next financial year, to understand the potential benefits of any tax planning. 

Company tax rate

The company tax rate for base rate entities is 26%, compared to the standard corporate tax rate of 30%.  A base rate entity is a company with aggregated group turnover of less than $50 million and the company derives 80% or less of its income from dividends, interest, royalties, rent and net capital gains.

If your company’s turnover is close to the$50 million threshold, consider income deferral strategies to ensure the lower base rate applies.

The base rate entity company tax rate reduces to 25% from 1 July 2021, so strategies to defer income to the next financial year and/or bring forward expenses to the current financial year will also result in a lower tax burden.

Deferral of income strategies/acceleration of deductions

Deferral of Income

If cash flow and business reality allow, consider deferring the derivation or receipt of income until the next financial year. If income is reported on a cash basis, consider trying to defer the receipt of cash. If income is reported on an accrual basis, if possible, defer the derivation of income by holding back invoices or delaying the shipment of product until after 30 June.

Income Received in Advance

Income received in advance may not be derived (and is not taxable) until the services are provided. Conversely income such as interest, royalties, rent, and dividends are usually derived when received.

Timing of Expenses

Expenses are only deductible when incurred, i.e. there must be a presently existing liability to pay the expense. Many accruals and provisions are not deductible as they represent an estimate of expenses and do not relate to a presently existing liability.

Most prepayments are not deductible until the period to which they relate has passed, although base rate entities may be able to deduct 12 months of prepayments in the year paid.

Bad Debts

Review your debtors and if any are unlikely to be recovered, write them off as bad before 30 June 2021. This will reduce your income tax and may generate a GST refund (where taxpayers are registered for GST on a non-cash basis).

Trading Stock

Undertake a stock take on or before 30 June 2021. Identify any obsolete or old stock and scrap it or write it down to its correct market value. Individual items of trading stock can be valued at cost, market value, or replacement value for tax purposes. It is permissible for the tax value to differ to the accounting value.

Superannuation Contributions

Only contributions that are received by a superannuation fund by 30 June on behalf of employees are tax deductible in the 2021 year.

Payment to a superannuation clearing house before 30 June may not be sufficient to guarantee deductibility as the clearing house needs to pay it to the fund. Accordingly, if you plan to pay all June quarter superannuation before the end of June, we recommend this be done as early as possible.

Carried forward unused superannuation concession caps

From the 2019–20 financial year, carry-forward rules allow you to make extra concessional contributions above the general concessional contributions cap. An unused cap amount occurs when the concessional contributions you made in a financial year were less than your general concessional contributions cap. For example, if your contributions cap is $25,000 and you contributed $15,000 in the 2019-20 financial year, you could make an additional superannuation contribution of $10,000 in the 2020-21 financial year without penalty.

To use your unused cap amounts you need to meet two conditions:

  • Your total super balance at the end of 30 June of the previous financial year is less than $500,000.
  • You made concessional contributions in the financial year that exceeded your general concessional contributions cap.

The amount of unused cap amounts you will be able to carry-forward will depend on the amount you have contributed in previous years, starting from the 2018–19 financial year. Unused cap amounts are available for a maximum of five years and will expire after this. For example, a 2018–19 unused cap amount which is not used by the end of 2023–24 will expire.

Fixed assets

Review your asset register and scrap any obsolete items before 30 June. If you will be selling any items of plant that will realise a profit on sale, consider delaying the sale until after 30 June. Conversely, if selling assets that will realise a loss, bring it forward.

Full expensing of depreciating assets

If you have an aggregated turnover of less than $50 million and purchased and first used/installed depreciating assets after 6 October 2020 you can fully expense the cost of the depreciating asset, regardless of whether the asset is new or second hand.

If you have a turnover of greater than $50 million and less than $5 billion, you can only do so in relation to new assets. 

The immediate deduction also applies to costs associated with improving existing depreciating assets.

The key to obtaining a deduction is that the depreciating asset is installed and ready for use.  If you have purchased the asset and it has not been installed, it may be worthwhile having the asset installed before 30 June, even if it is not required until after 30 June. 

If you have aggregated turnover of $10 million or more, or businesses with an aggregated turnover of less than $10 million that do not use simplified depreciation, you have a choice to opt out of these rules on an asset-by-asset basis.  Full expensing, however, is compulsory for businesses with an aggregated turnover of less than $10 million that use simplified depreciation rules.

Company Loans – Division 7A

Any payments, loans or debts forgiven from private companies to shareholders and their associates could be deemed to be an unfranked dividend.

Action can be taken to prevent deemed dividends from occurring.  Ensure that such loans are either repaid by 30 June or documented and made subject to minimum interest and repayment terms before the lodgement day of the company’s tax return.

Ensure that interest is charged, and minimum repayments are made before 30 June in relation to any prior year loans.

Trust distributions

Trustees of discretionary trusts need to consider which beneficiaries they will make presently entitled to the income or capital of the trust on or before 30 June.

The trust deed should be reviewed to consider how trust income is to be determined and to which beneficiaries’ income can be distributed.

June 2021 PAYG Instalments

If you are a taxpayer on the PAYG Instalment system and you plan to use some of these tax planning tips to reduce your 2021 taxable income, you may be able to vary the June quarterly instalment (due 28 July) to a lower amount to assist with your cashflow. As a leading provider of tax services in Australia, Calibre Business Advisory are well placed to assist you with all aspects of your year-end tax planning. Contact Calibre Business Advisory, trusted tax accountants, today to find out how we can help you.