For many, the preparation and lodgement of your 2020 income tax return is still far-off however, there is some planning you should be doing before June 30. Today’s blog outlines the key things to know and join us for Nexis Business Chat series starting this Thursday at 11am to explore the topic further. Scroll to the bottom for webinar details.
Due to COVID-19 for 2020 there will be significant increases to tax deductions for many taxpayers for the working from home expenses – at least some consolation for those who didn’t enjoy self-isolation that much. We recommend that you create a clear diary and keep records of the expenses you incurred when working from home. Nexis can manage the detail of undertaking the most tax effective way of determining your deductions but to do so – we need accurate information which you can support by records. For all the days at home you should have records of how many hours you worked from home; and any business costs you incurred (but did not claim back from your employer). Whilst your working from home deductions may have increased during COVID we would expect that your vehicle and laundry deductions will have decreased.
Under a scheme to be administered by the state government; the federal government has announced a new stimulus package for the building industry. The program is designed to provide eligible owner-occupiers (not just first home buyers) with a tax-free grant of $25,000 to build a new home or substantially renovate an existing one. The program will run from 4 June until 31 December 2020 with construction required to be commenced within three months of the contract date.
Full details of the eligibility criteria have not yet been released however current announcements outline an income cap of $125,000 for singles or $200,000 for couples. The price to build a new home is capped at $750,000 (house and land value) including on vacant land held before 4 June 2020. It has not yet been clarified if the ‘income’ in question is taxable income or assessable income. Like the cashflow boost the ‘devil is always in the detail’ and with the states still to agree to the exact process – this ‘detail’ may not be forthcoming quickly.
Where an existing home is renovated, a minimum expenditure of $150,000 and maximum expenditure of $750,000 will be required and the total value of the property (house and land value) cannot exceed $1.5 million pre-renovation.
Instant Asset Write-Off (IAW)
Businesses with the turnover of up to $500M per year now have until the end of the calendar year to utilise the extended $150,000 instant asset write-off. This means that if you are eligible and you acquire a depreciable asset that will be installed and ready for use before 30 June, you can immediately deduct the full amount.
Technically after 31 December the IAW should revert to $1000 (but considering past limit increases such a drop is unlikely).
This financial year you have a unique opportunity to maximise your deduction for superannuation contributions. You will be able to make a “catch-up contribution” if you didn’t use the full concessional contribution cap last year.
However, it is important to remember that the $25,000 limit applies to all concessional contributions (including the ordinary super payable on salary). If you did not make any concessional contributions in 2019 tax year , this year you would be able to contribute and claim a deduction of up to $50,000
Spousal Super Contributions
If your spouse earns less than $37,000 you can contribute $3,000 into their super (prior to June 30) and claim a tax offset for yourself of $540.
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.
Deferral of Income
If cash flow and business reality allow, consider deferring the derivation or receipt of income until the next financial year. This is especially relevant for companies with the change in tax rate.
Bringing Forward Deductible Expenses or Losses
Prepayment of Expenses – In some circumstances, Small Business Entities (SBE) and individuals who derive passive type income (such as rental income and dividends) should consider pre-paying expenses prior to 30 June 2020. A tax deduction can be brought forward into this financial year for business expenses like:
- Employee Superannuation Payments including the 9.5% Superannuation Guarantee Contributions for the June 2020 quarter (that have to be received by the Superannuation Fund by June 30, 2020 to claim a tax deduction).
- Subscriptions and memberships to professional associations and trade journals
- Superannuation for Business Owners, Directors and Associated Persons.
- Rent for July 2020 (and possibly additional months)
- Printing, stationery and office supplies
- Advertising including directory listings
- Motor vehicle expenses – registration and insurance
- Accounting fees
For individuals; pre-paying 12 months of interest, insurance and memberships is the most common items of bought forward expenditure.
A deduction for prepaid expenses will generally be allowed where the payment is made before 30 June 2020 for services to be rendered within a 12-month period. While this strategy can be effective for businesses operating on a cash basis (not accruals basis), you should not spend money on items you don’t need or cannot afford.
Review your debtors and if any are unlikely to be recovered, actually write them off as bad before 30 June. This will reduce your income tax and should generate a GST refund (for taxpayers registered for GST on a non-cash basis).
Research & Development (R & D)
If you undertake (or plan to undertake) any form of Research and Development there are generous concessions you should discuss with Nexis. For example, the refundable tax offset equals 43.5% of the R & D expenditure.
Nexis Business Chat: 11am Thursday
Following the success of our Business In the Times of Crisis webinar series, we have launched a monthly webinar series called Nexis Business Chat. We will be discussing a range of business-related topics including important updates for the month, provide useful tips that will help you run your business more effectively and efficiently as well as answer your questions. The next webinar is scheduled on 25 June 2020 at 11 am and we will be providing some useful tips to prepare for year-end and how to maximise your deductions in your 2020 income tax return.
This Week’s Topic: Preparing for Year End
June 30 – is just around the corner…
- Processing the STP Finalisation is more important than ever this year! We will show you the important steps you need to take to finalise your STP the right way.
- Have you kept the correct records to maximise your deductions in 2020?
- Are you fully compliant – and not at risk of falling foul of the Director’s penalties?
Join us for this webinar here: