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Hot Tax Return Tips for 2020

by | Apr 9, 2020

Are your tax savings soaring this financial year?

It is never too early to be thinking about your taxes – especially when proactive steps can save you some of your hard earned cash! Sorting your taxes can be a shudder-some task if left to the last days in the financial year, so here is how you can get on top of tax returns early this financial year!

Imagine what you could do with tax saved?

• Reduce your home loan

• Top up your super

• Have a holiday

• Deposit for an Investment Property

• Upgrade your Car

1. Claim on all deductions you are entitled to claim

There has never been a better time to discuss tax deductions. We all know you can get money back on tax but do you know what tax deductible items are often missed? Here are some deductions you could be taking advantage of at the end of the financial year.

Tax agent fees
Work related car expenses
Home office expenses
Personal device phone calls

2. Record everything by saving receipts

If you are planning on claiming work expenses or any of the deductions mentioned above, you

need to make sure to be documenting receipts. There is nothing worse than sorting through every file, email thread and work satchel to find 12 month old receipts. Be prepared and have a clean and organised process of documentation. We suggest having a designated folder in one location to store all work related expenses. If you’re busy on the go and often lose receipts before getting home, we suggest snapping a clear photo on your phone and storing it in a designated folder.

Not only is this a good habit for staying on top of business expenses – it will make sure you aren’t losing hundreds of dollars in your tax return in 2020!

3. Use a tax agent

Taxes can seem like a timely task to squeeze into a busy lifestyle. If you’re struggling to find time or even want to avoid the ATO this financial year, you might want to see a tax agent.

Tax agents are professionals whose primary goal is to help you increase your tax refund. A professional tax agent will help you avoid any complications with the ATO by ensuring your tax return is lodged accurately and also shed some great financial advice for future returns.

As a qualified accountant, your tax agent will be able to see trends in your expenditure and help you learn what expenditure you may have been missing in your tax returns previously and help you gain the most this year.

4. Be organised with the little things

Off the top of your head, you can probably list all your big expenses in the last year. You may have purchased a new desk, computer, tools or vehicle and while these are important to document, we urge you to really sweat the small stuff!

While a $20 meal on a work related trip seems small at the time, in a year the little things usually add up to big numbers. Why penalise yourself from tax deductions you are entitled to? If your not sure whether you can claim on certain expenses, keep the receipt anyway and ask advice from a professional tax agent.

Here’s a guide to the strategies you can use to minimise your business tax.

IS YOUR BUSINESS A “SMALL BUSINESS” ENTITY?

Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected / affiliated with you) of less than $10 million and be operating a business for all or part of the 2020 year.

REDUCTION IN COMPANY TAX RATE

The company tax rate for businesses with less than $50 million turnover is 27.5%, if 80% or less of a company’s assessable income is “passive income” (such as interest dividends, rent, royalties and net capital gains).

If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 27.5% for the 2020 year. Note that this company must qualify as a “base rate” entity to be eligible for the lower 27.5% company tax rate. Please discuss with us whether your company will qualify.

INSTANT DEDUCTION FOR ASSETS PURCHASES

If your business has a turnover under $50 million, business assets purchased up to the amount of $30,000 (exc. GST) will be immediately deductible.

You should buy these assets and use them or have them ready for use before 30 June 2020.

MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS

The concessional superannuation cap for 2020 is $25,000 for all individuals. Do not go over this limit or you will pay more tax!

Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge.

For the contribution to be counted towards the employee’s 2020 contribution cap, it must be received by the fund by 30 June 2020.

TOOLS OF TRADE / FBT EXEMPT ITEMS

The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit.

Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.

If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased.

You should buy these items before 30 June 2020.

PAY EMPLOYEE SUPERANNUATION NOW

To claim a tax deduction in the 2020 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2020.

You should avoid making last minute superannuation payments as processing delays may cause them to be received after year-end. If for any reasons you end up having to make last minute payments and you would like to claim them as deductions for the current year, contact us immediately and before you make any payments for possible resolutions.

DEFER INCOME

If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2020. This strategy pushes tax payable to future years.

BRING FORWARD EXPENSES

Purchase consumable items BEFORE 30 June 2020. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now and get the deduction this year

REPAIRS & MAINTENANCE

Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2020.

DEFER INVESTMENT INCOME & CAPITAL GAINS

If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2020.

The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date!

MOTOR VEHICLE LOG BOOK

Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2020. You should make a record of your odometer reading as at 30 June 2020 and keep all receipts/invoices for motor vehicle expenses.

An alternative (with no log book needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

INVESTMENT PROPERTY DEPRECIATION

If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.

PRIVATE COMPANY (“DIV 7A”) LOANS

Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2020. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.

YEAR-END STOCKTAKE / WORK IN PROGRESS

If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2020. Review your listing and write-off any obsolete or worthless stock items.

Talk to us about your different options for valuing Stock, and how they affect your tax payable.

WRITE-OFF BAD DEBTS

Review your Trade Debtors listing and write-off all bad debts BEFORE 30 June 2020. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2020.

SMALL BUSINESS CONCESSIONS – PREPAYMENTS

“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2020 and obtain a full tax deduction in the 2020 financial year.

TRUSTEE RESOLUTIONS

Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2020 for all Discretionary (“Family”) Trusts. Please see us for more information about these resolutions.

IMPORTANT INFORMATION

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountants.

If you’re dreading the fast approach of this financial season, save some time by contacting the professionals at Stewart Private Accounting. Stewart Private Accounting are experts in the industry and offer a wide variety of accounting solutions including: accounting and tax, bookkeeping, business advisory and trusted concierge. Our accounting solutions are designed to help business owners maximise their time and increase financial success. Contact a bookkeeping professional today so you make the most of your tax return!

  • Why Are My “Connections” Important To Know During Tax Season? - In the realm of tax law, a critical concept revolves around understanding the notion of "entities connected with you." This…

    In the realm of tax law, a critical concept revolves around understanding the notion of “entities connected with you.”

    This concept serves as a linchpin in several aspects of taxation, from determining one’s status as a Small Business Entity to ascertaining the value of assets when seeking eligibility for Small Business Capital Gains Tax (CGT) Concessions.

    Furthermore, it holds significance when an individual has sold an asset and claimed it was used by an ‘entity connected with them.’

    In various tax scenarios, having an entity connected to you can either prove beneficial or burdensome. A prime example of the former is when you sell a factory unit, and a company affiliated with you operates a mechanics business within that unit. In this case, you become eligible to claim the Small Business CGT Concessions on the sale of the factory unit, potentially leading to substantial tax benefits.

    Conversely, connected entities can have adverse consequences, particularly in specific asset tests. When evaluating certain asset-related criteria, the value of assets connected entities hold is aggregated with your own. Consequently, in such situations, having entities connected with you may not be advantageous.

    Consider a scenario involving a family trust and a distribution made to the adult daughter. In this instance, her assets may need to be added to the overall asset pool when determining your eligibility for tax concessions. A key threshold for determining connection to a trust is if an individual has received 40% of the income or capital of that trust in the preceding four years.

    Entities controlled by the same person or entity are also considered connected with each other. For instance, if you oversee two trusts, those trusts are not only connected to you but also to each other. This interconnectedness has implications for tax planning and assessment.

    Remarkably, spouses are not automatically deemed connected to each other in the eyes of tax law. This is not the default assumption, and typically, spouses are not considered connected entities. For instance, if you are in control of a company, and your spouse independently manages their own separate company, they would generally not be considered connected to each other. The implications of this can vary depending on the specific tax scenario.

    While the concept of entities connected with you may seem intricate, it is a dynamic factor that necessitates ongoing attention and evaluation. Circumstances surrounding the connections can change over time. Returning to the example of the factory unit, the nature of its disposal could alter the connection dynamics. For instance, you may have retained ownership of the factory unit while transferring ownership of the company to your son five years ago. In this case, the company is no longer connected with you, potentially affecting your eligibility for specific tax concessions.

    Understanding and managing the relationships between entities and their connections is pivotal in navigating the complexities of tax law. It is not a static concept but one that requires ongoing consideration, as changes in these connections can have significant implications for an individual’s tax obligations and eligibility for various concessions.

    Therefore, individuals and businesses should remain vigilant and seek professional advice when dealing with entities connected with them in the realm of taxation.

    Keeping us apprised of your plans for your assets and of changes that could impact your connections means we can ensure that you do not inadvertently miss out on any of the tax concessions available.

    Disclaimer for External Distribution Purposes:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Your Health Has A Place In Estate Planning: What You Should Consider If You Fall Ill - When estate planning, most people focus on what will happen to their family and their assets after they pass, often…

    When estate planning, most people focus on what will happen to their family and their assets after they pass, often neglecting to consider what would happen if they were to become ill or incapacitated.

     

    Falling ill can be a very stressful and traumatic time for you and your family, especially if you are the primary financial provider for your household. Taking the time to become prepared and evaluating your financial situation can help you to future proof if you are out of work for health reasons. It is essential to ensure you know of every entitlement available should you become sick or incapacitated.

     

    Income Protection:

    Income protection is a form of insurance that pays you a regular cash amount if you are unable to work as a result of a sudden illness, covering up to 75% of your income for a set period of time. You can insure your income through agreed value, where you decide the amount you wish to receive each month, or indemnity, where you prove your income at the time of claim rather than during application.

    Generally, you can claim part or all of your income protection insurance premiums that are taken outside of your super as a tax deduction, helping you save more on your tax bill. However, you are not entitled to deductions for a policy that compensates for a physical injury. Other insurance policies include health insurance, trauma cover or total and permanent disability (TPD) insurance.

     

    Incapacity plan:

    Incapacity planning is a process through which capable adults make choices and plans about future events that are a possibility. It addresses what you would want to happen in relation to health care decisions and financial matters should you lose your ability to make or express choices.

    In the event you are seriously injured or develop an illness such as dementia, you may not be able to pay bills, file taxes or manage your assets and investments. Incapacity planning allows for those types of things to still be done by someone with the authority to handle them. An incapacity plan should contain the following documents:

    • Living Will: states what kind of health care you wish to receive or refuse to receive, should you lose consciousness or capacity. Unlike a last will and testament, your living will has nothing to do with what happens to your property after you die.
    • Financial power of attorney: allows you to choose someone who will have the legal authority to manage your financial affairs if and when you lose the ability to do so yourself.
    • Medical power of attorney: allows you to choose someone to have the legal right to make medical choices on your behalf if you cannot make them on your own. You should discuss your wishes with the chosen representative before you are incapacitated and they need to make medical decisions.

    Early release of super:

    There are very limited circumstances in which you can access your super before you retire. You may apply for early release on the grounds of:
    • Incapacity: if you suffer permanent or temporary incapacity.
    • Severe financial hardship: if you have received Commonwealth benefits for 26 continuous weeks but are still unable to meet immediate living expenses.
    • Compassionate grounds: to pay for medical treatment if you are seriously ill.
    • Terminal medical condition: if you have a terminal illness or injury likely to result in death within 2 years, as certified by two registered medical practitioners, at least one of whom is a specialist.

    Disclaimer for External Distribution Purposes:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Superannuation-Related Obligations Employers Need To Keep In Mind - While the hustle and bustle of operating and managing a business can occupy your mind, it’s important not to forget…

    While the hustle and bustle of operating and managing a business can occupy your mind, it’s important not to forget your superannuation obligations to your employees.
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    Employees (after entering the workforce) should have a ‘stapled’ super fund that you must pay their super into or the right to nominate a super fund. However, if an employee is not eligible to choose, does not have a fund or fails to notify the employer, the employer must pay their contributions into an employer-nominated or default fund.

    The employer-nominated or default fund must be a complying fund (meets specific requirements and obligations under super law) and be registered by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product.

    Some super funds may ask that an employer becomes a ‘participating employer’ before they can pay contributions to them. Participating employers may have to make super payments more frequently, such as monthly instead of quarterly.

    For example, you need to make sure that you are meeting the super guarantee contributions now for all of your employees, including those who would have previously fallen under the $450 threshold.

    Before 1 July 2022, employers who paid their workers $450 or more before tax in a calendar month had to pay superannuation on top of the employee’s wages. Now super must be paid on any payments you make to domestic or private workers if they work for you for more than 30 hours in a week, regardless of how much you pay them.

    The minimum amount of superannuation that an employer must pay to their staff in Australia is called the superannuation guarantee (SG).

    Under the superannuation guarantee, employers have to pay superannuation contributions of 11% (from 1 July 2023) of an employee’s ordinary time earnings when an employee is: over 18 years, or. under 18 years and works over 30 hours a week.

    Currently, it must be paid at minimum four times per year, but from 1 July 2026, employers will be required to pay their employees’ super at the same time as their salary and wages. This will be known as ‘payday super’, as more consistent contributions will mean that superannuation funds should be better able to increase their compounding potential.

    Employers can claim a tax deduction for super payments they make for employees in the financial year they make them. Contributions are considered paid when the employee’s super fund receives them.

    Missed payments may attract the SGC (superannuation guarantee charge). While the SGC is not tax-deductible, employers can use a late payment to reduce the charge or as a pre-payment of a future super contribution (for the same employee), which is tax-deductible

    Have concerns about your obligations as an employer when it comes to super? Why not have a chat with one of our team members, who may be equipped to assist you in this matter?

    Disclaimer for External Distribution Purposes:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.