With everything we have been through in the last few weeks and months, it is hard to believe that the end of the financial year is less than 2 months away.
Individuals
All taxpayers
This may result in effectively no FY20 income tax being paid through PAYG instalments. However, taxpayers may still have to pay income tax upon lodgement of their FY20 return later in the year or in 2021. While the ATO has committed to not penalising taxpayers who have varied their instalments, cash-flow management will be important to ensure you are able to pay your full FY20 tax liability in due course.
For more information, please contact your Prosperity principal adviser or Director of Taxation Services Raffi Tenenbaum on 02 8262 8716 or email rtenenbaum@prosperity.com.au.
Like every year, there are important tax planning opportunities and matters to consider in the lead-up to 30 June. This year, some important Stimulus matters also need to be considered in the context of year-end tax planning.
Stimulus measures
1. Instant asset write-off - assets purchased and ready for use between 12 March 2020 - 30 June 2020
In the very first Stimulus announcement, the Federal Government significantly extended the instant asset write-off to all business entities under $500m aggregated turnover (previously $50m) and increased the amount to $150,000 (previously $30,000). This measure applies to both new and second-hand depreciating assets.
Car write-offs are still be subject to the luxury car limit ($57,581).
If you are planning on purchasing depreciating assets in the near future, it may be beneficial to do so before 30 June to obtain this write-off.
2. Accelerated Depreciation – assets purchased and ready for use by 30 June 2021
All other new (but not second-hand) depreciating assets purchased between 12 March 2020 – 30 June 2021 will be eligible for a 50% upfront deduction and the remaining 50% will be depreciated at existing rates.
Unlike the instant asset write-off, there is no cap on the expenditure eligible for this measure. This measure is also available to all business entities under $500m aggregated turnover.
This may be beneficial if you are planning on purchasing more expensive depreciating assets (i.e., over $150,000) in the near future for which you cannot obtain the instant asset write-off.
3. Stimulus payments received – tax treatment
In the last few months of FY20, you may be receiving various Stimulus payments – e.g., JobKeeper, Cashflow Boosts, Government Grants, etc.
Cashflow Boosts are specifically exempt from income tax, but JobKeeper payments and most Government Grants will likely be assessable. Assessable payments should be taken into consideration when planning your tax instalments for the rest of the year (see below) and your overall FY20 tax liability position.
4. Superannuation contributions
While most of the focus has been on the ability to withdraw early from super in certain circumstances, individuals wishing to make contributions up to the concessional cap ($25,000) and/or non-concessional cap ($100,000, or up to $300,000 “brought forward”) should do so by 30 June 2020.
Companies
Trusts
5. Tax rates and dividends
The 30 June 2020 tax rate for companies with aggregated turnover of less than $50m and less than 80% of their income in the form of “base rate entity passive income” is 27.5%.
For most of these companies, any dividends paid during the year and before 30 June 2020 can be franked to 27.5%.
As the company tax rate for such companies is scheduled to reduce to 26% from 1 July 2020, the franking rate will also reduce to 26%. Therefore, dividends would need to be declared and credited before 30 June 2020 to use the higher franking rate.
6. Division 7A loan agreements and minimum repayments
Where individuals and/or trusts have borrowed money from a private company in the year ended 30 June 2019, the loans must be fully repaid or be documented in a Division 7A-complying loan agreement before the due date of the company’s 2019 income tax return. Many companies have had the due date of their 2019 income tax returns deferred as a result of COVID-19, thereby potentially providing more time to repay such loans or enter into a Division 7A-complying loan agreement.
In relation to Division 7A loans from FY18 and prior years where a minimum payment is required in FY20, it must be made (via cash or dividend) before 30 June 2020.
7. Distribution Minutes
As always, trust distribution minutes should be prepared and signed before 30 June. Distribution planning may be required if you are planning on distributing capital gains and/or franked dividends to different beneficiaries than those who receive distributions of other income.
8. Tax Instalments
Due to COVID-19, the ATO is allowing taxpayers to vary the remainder of their FY20 tax instalments to nil, as well as request refunds of FY20 instalments already paid.
9. Disposal of capital assets
As always, with the proximity to year end, if you have decided to sell assets, it is generally advisable to postpone the sale of assets with unrealised gains and bring-forward asset sales with unrealised losses.
10. Donations & prepayments
Donations must be made before 30 June 2020 in order to obtain a deduction this year. Similarly, taxpayers entitled to an upfront deduction for certain prepayments (e.g., individuals prepaying rental loan interest or businesses prepaying amounts required by law) must pay the amounts before 30 June 2020 to obtain the deduction.
