Year End Tax Planning 2021

By Peter Vickers Business Group | Accounting, tax, Year End, instant asset write off, Tax Planning |

YEAR END TAX PLANNING

The rule here is that you need to ensure that your financial records pass the good housekeeping award.

  • Bad debts need to be written off. This means removed from your debtor’s ledger. You should continue to try and collect these amounts. You can also claim back the GST if you are on accruals GST accounting.
  • Scrap useless depreciable assets to claim all the written down value as a deduction. This means throw it into the bin. Leaving it in the corner unused is not good enough
  • Scrap worthless stock. Valueless stock can be devalued to market value but you need to know which stock that is.
  • Superannuation is the only expense that must be paid in order to get a tax deduction. So pay before 30 June and not the due date of 28 July. The ATO believes payment means receipt in the super funds bank account.
  • If your super fund is in pension phase then the pension must be paid before the 30th June. No payment, no zero tax rate.

OTHER YEAR END JOBS

  • Beneficiaries must be entitled to their share of the family trust at 30th June. Thus the trustees, as stated in the trust deed, must determine this. This is usually done by passing a resolution at a meeting.
  • If you want dividends to be paid for the year then also the directors must pass the required resolution.
  • The last two points are recorded in minutes of a meeting. The Corporations Act requires that minutes of a meeting be signed by the chairman and entered into the minute book one month after the meeting. If you have forgotten to produce the minutes, we will do this for you when we produce the tax return and accounts but you need to be able to stand in the witness box in a court and state that the meeting was held as shown in the minutes.
  • Set up bank feed so that it starts from 1 July. These feeds can’t be activated retrospectively. It is not efficient to process transaction using two different methods during a year.
  • 1 July is also the correct date to commence your cloud accounting or investment software. We have lots of experience, good and bad, on how or even if you should be doing this. Be careful into falling for the latest fad in software. The real secret is not the software but implementation and on-going bookkeeping. If this is not your strength then leave it to us.

INSTANT ASSET WRITE OFF

This is a great benefit but has been made complicated by parliament. It only applies to entities that carry on a business. A vague and often contested term. In the 2019/2020 year there were 3 relevant dates during the year.

For the 2020/2021 year, it is important if the asset was acquired before or on and after 6 October at 7.30pm.

You then have to consider the aggregated turnover of your business. Another complex issue, if you have trusts, partnerships or overseas associated businesses.   There are different rules for turnover limits of $5 billion, $50 million and $10 million and if the asset is new. The term “held and first used or installed ready for use for a taxable purpose” needs to be considered.     

2021 FEDERAL BUDGET

Most of the announcements will only commence from 1 July 2022 and still need to pass parliament and the turmoil of the next election and the 2022 budget.

The only two points worth mentioning are that superannuation will now have to be paid for all employees where previously if the employee received below $450 per month no super payment was required. The planned start date is 1 July 2022. This represents a 10% increased cost to employers and a 10% increase in ‘wages’ for these employees.

Also full expensing of purchase of depreciable assets has been extended to 30 June 2023. You can now plan your purchases of assets in line with your cash availability without the need to rush into these transactions. The asset must be held and used or ready for use by that date.

If you’d like more information on how to grow your business, please contact one of our accounting and tax experts using the button below.

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