Key Areas for EOFY tax planning

Let’s be honest, we have all been guilty of leaving our tax planning to the last minute. But this year, tax advisers are getting in early with a warning for small businesses to act now. Due to the economic uncertainty of the 2020-2021 financial year, Small and Medium Enterprises (SME) should be motivated to review tax planning strategies now, rather than leaving it to the last minute.

Following a year of disturbances, small business owners and individuals should be trying to maximise their returns and recoup any losses from the past year’s downturn. We would love you to have a chat about the following points with your tax agent to see which may benefit you and how to go about applying them.

Key Areas of attention:

  • Super Guarantee (SG): SG contributions must be paid by 30 June 2021 to qualify for a tax deduction in the 2020-2021 Financial Year. The Superannuation fund must receive the payment by 30 June 2021. As it can take over a week for the payment to be submitted through to the superfund, it would be advisable to pay this by mid-June where possible.
  • Temporary Full Expensing (Instant Asset Write-Off): Policies have been expanded again in the last two federal budgets as part of the government’s Covid-19 initiative to encourage business spending to improve cash-flow. There is no limit to the amount a small business can write-off under this concession and unlike larger businesses, small businesses with an aggregated turnover of less than $50 million receive a full write-off for second-hand assets. The claim timeline has been extended to June 2023 in the Federal Budget but there are still time advantages to claiming in the 2020-21 Financial Year
  • Loss Carry-back: Introduced in the October 2020 federal budget and extended for 12 months longer in the May 2021 budget, this allows companies to “carry-back” tax losses incurred in the 2019-20, 2020-21, 2021-22 & 2022-23 income years to an earlier year as far back as 2018-2019. A refund could be claimed on lodgement of tax returns from the 2020-21 year onwards, representing the tax savings that would have arisen if the tax loss had been available to claim earlier in the year.
  • Small Business CGT Concessions: Those operating a small business may be eligible for these concessions on the sale of business assets or sale of shares in a company carrying on business. The concessions may be available where the aggregated turnover is less than $2 million or total net assets (excluding the Family Home & Superfund Balance) less than $6 million, although eligibility rules are extremely strict, having been tightened significantly in recent years
  • Income Deferral: Businesses may wish to delay tax payments on assessable income this financial year by deferring invoices until after 30 June 2021. Income from payments won’t be taxed until the following financial year.

It is important to be aware that by using any available tax strategies now, both individuals and businesses will set the tone for the following financial year. Once you get into the habit of being fully across your tax administration and what needs to happen, it becomes much easier and more efficient to manage. Tax legislation is constantly changing and having one’s tax planning up-to-date can ensure that changes are used effectively.

Key End of Financial Year dates to be aware of

As we come to the end of the financial year, there are lots of different jobs we need to get done. All of these have due dates so we thought we would put together a time-line to help you keep on track.

30 June 2021:
To receive a tax deduction in the 2020-21 Financial Year for wages and employee superannuation, these must be processed and paid by June 30. Payments must be received by 30 June so we recommend superannuation is paid mid-June to ensure it gets to the superfund on time

1 July 2021:
Superannuation Guarantee is increasing to 10% as of 1 July 2021, so please consider your employment contracts which may need to be altered.

14 July 2021:
Single Touch Payroll (STP) Finalisation is due by the 14 July for large employers of 19 employees or more. Let your employees know that that they will not be receiving their physical payment summary but rather can access their information on MyGov.

31 July 2021:
STP Payroll Finalisation is due by the 31st of July for small employers of less than 19 employees. Let your employees know that that they will not be receiving their physical payment summary but rather can access their information on MyGov.

25August 2021:
April – June 2021 Business Activity Statement (BAS) is due for lodgement so please ensure you are providing us your BAS documents prior to the 25 August 2021.

28 August 2021:
Taxable Payment Annual Report (TPAR) is due – this is industry specific to the Cleaning, Building & Construction, Courier & IT industry – to report on all subcontractors working for you.

Federal Budget 2021-2022 – Small Business Highlights

The Federal Government have handed down its 2021-2022 budget. Below is a breakdown of what’s in store for small and medium business.

Coming off the back of the COVID-19 Pandemic, the Treasurer cited a need to maintain and focus on the nation’s economic recovery. A commitment to supporting jobs & essential services is of the utmost importance. Josh Frydenburg has said “The Covid-19 recession will see our deficit reach $161 billon this year, falling to $57 billion in 2024-25. With more Australians back at work, this year’s deficit is $52.7 billion lower than was expected just over six months ago in last year’s budget”.

The incentives rolled out in the federal budget specific to the SME community include tax cuts, business incentive expansions, technology boosters and more. We have expanded on the incentives available below.

Business incentive expansion

As part of the commitment to create jobs, the Treasurer announced the government will be extending temporary full expensing and temporary loss carry-back for an additional year. This means it will be available until 30 June 2023 instead of the initially proposed 30 June 2022.

Tax Cuts

The Treasurer said the government will deliver more than $16 billion in tax cuts to small and medium businesses by 2023–24, with around $1.5 billion flowing in 2019–20. This, he said, “includes reducing the tax rate for small and medium companies, from 30 per cent in 2014–15 to 25 per cent from 1 July 2021”.

Broadening AAT powers

The Administrative Appeals Tribunal (AAT) now has the ability to pause or modify ATO debt recovery actions while a small business is in a dispute. This will save significant legal costs for small business.

Technology booster

In line with its plans to make Australia a digital economy in the next decade, the government will invest $1.2 billion in its Digital Economy Strategy for three key reasons.

1. To build digital skills and capabilities.
2. To encourage business investment.
3. To transform government services.

Increasing AusBiz proposition

As the Treasurer announced, “Australia is an attractive place to do business”, with “our way of life, our safe, clean cities and our proximity to Asia” desirable to foreigners.

In a commitment to attract more business to Australia and create more Australian jobs, Mr Frydenberg flagged that the government has introduced a new Global Talent visa and Temporary Activity visa and “will modernise the framework for individual tax residency, to encourage highly skilled individuals to relocate to Australia”.

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Workcover claims drop but mental health claims increase

Whilst employee numbers have increased by almost 20% in 2018-2019, Workcover claims have declined by 12%. Although men account for more physical injuries sustained, women account for a higher proportion of diseases such as mental health. Women are three times as likely to sustain mental health injuries at work as men.

Healthcare & social assistance were the top industries where women are disproportionately injured compared to male colleagues with women also having higher claims in the education & training sector.

Statistics highlight the need for work health & safety regulations in the workplace that address mental health hazards, there are over 20 formal workplace health & safety regulations that provide guidance for physical hazards, but none for mental health hazards.

It is expected that the 2019-20 statistics with the Covid-19 pandemic will create a number of unprecedented issues that affect mental health & well-being as well as reliance on essential services & their workers. The latest figures illustrate the need for regulations that help employers understand their obligations when it comes to the mental health of their workers.

With an increase in conversations around the importance of sound mental health & well-being, our workplace health & safety standards should evolve to reflect that.

Annual Wage Growth Stuck at Historic low 1.4%

The latest figures from the Australian Bureau of Statistics show that the annual wage growth has been maintained at the historically low annual growth rate of 1.4% for 2 quarters of 2020. The October to December 2020 data showed a seasonal adjustment to the wage price index rise of 0.6%. The latest data showed a large proportion of the private sector wage growth came from the continued restoration of hourly wages back to pre-pandemic levels following reductions made in the June and September 2020 quarters.

The Annual wage growth of the December 2020 quarter ranged from 0.3% growth of the accommodation & food services industry to 2.4% of the education & training industry. The moderate growth was influenced by businesses rolling back short-term wage reductions, returning wages to pre-Covid levels. The phased implementation of the Fair Work Commission annual wage review also had a small positive impact on wages.

Wage freezes have also had an impact on the public sector with its lowest annual wage increase (1.6%) since the commencement of the series.

Keep track of your work-from-home costs ahead of tax time!

Amid the Covid-19 pandemic, to simplify the process of claiming home office expenses, the ATO introduced the shortcut method where taxpayers can choose to claim a fixed rate of $0.80 per hour for all running expenses for the 2020-21 Financial Year. However, it has been cautioned that to utilise this method, a diligent log must be kept by both business owners & employees working from home.

In step with the rest of the world, our working patterns have changed and it is important that Australians are aware of their entitlements under ‘the new normal’. Record-keeping means that taxpayers must maintain a logbook of actual hours worked from home or a diary representative of a 4 week period. This amount of use can then be applied over the year to determine the full claim. If you haven’t filled out this log, you have the next 7 weeks to get it done.

If you are working both in the office and at home, it is important to keep a record of the different hours worked. The short-cut is the easy method, but individuals can still claim based on actual expenses incurred. If claiming expenses incurred, individuals will still need to comply with necessary complex record-keeping requirements.

Working-from-home claims can be calculated as follows:

  1. $0.80 per work hour for all additional running expenses
  2. $0.52 per work hour for heat, cooling, lighting, cleaning, declining value of office furniture + calculate work-related portion of phone, internet, computer consumable, stationery & decline in value of computer or laptop
  3. Claim the actual work-related portion of all running expenses, which taxpayers need to calculate on a reasonable basis

The ATO has also reminded taxpayers that the three golden rules for deductions still apply:

  1. Taxpayer must have spent the money themselves & not have been reimbursed
  2. The claim must be directly related to earning income
  3. There must be records to substantiate the claim

Expenses you can claim:

  • Electricity expenses associated with heating, cooling and lighting the area from which they are working and running items they are using for work.
  • Cleaning costs for a dedicated work area.
  • Phone and internet expenses.
  • Computer consumables (for example, printer paper and ink) and stationery.
  • Home office equipment, including computers, printers, phones, furniture and furnishings; you can claim either the  
    • Full cost of items up to $300
    • Decline in value (depreciation) for items over $300.

Stage 2 of the Economic Recovery backed by Prime Minister

Scott Morrison has set his sights on using a business led economic recovery plan relying on deregulation to help grow Australian businesses and recover from the Covid-19 Pandemic. He addressed the Business Council of Australia & has said that investing $120 million into a deregulation package will help guide Australia out of the recession. The budget aims to kick-start stage two of the National Economic Recovery Plan based on lower taxes, competitive policy settings, sensible industrial relations setting, deregulation, open trade & open markets.

The plan aims to invest in our people & new technologies to become one of the world’s leading digital economies by 2030. The plan is to take full advantage of the global energy transition taking place around the world. It puts business & the private sector in the forefront for a durable & strong economic recovery. As part of the plan, the Prime Minister pledged he would strive to save individual businesses $430 million a year by reducing compliance costs.

The government are determined to take unnecessary regulatory burdens off businesses reporting under the National Greenhouse & Energy Reporting Scheme. This will reduce time spent preparing reports by around 70 percent in some cases & will benefit more than 900 companies reporting on 7,500 facilities every year. The government will also streamline digital health services reducing the regulatory burden on about 400 companies in the pharmaceutical, medical technology services & medical software industry.

The government have indicated that the budget next month will lay out the next phase of Australia’s economic recovery plan to grow our economy so we can deliver jobs & guarantee essential services Australian’s rely on & keep Australian’s safe.

Changes to Casual Employment – Industry Reforms

The Fair Work Act 2009 (FW Act) was amended on 26 March 2021 to change the workplace rights and obligations for casual employees. The changes were made by Fair Work Amendment Act 2021 and came into effect on 27 March 2021.

The changes that have occurred are the introduction of a Casual Employment Information Sheet, which provides a definition of casual employment and provides a pathway for casual employees to move into full-time or part-time (permanent) employment.

The Casual Employment Information Sheet (CEIS) must be provided to every new casual employee before or as soon as possible after the new casual employee starts their job. Small business employers must provide all existing casual employees with a copy of the CEIS as soon as possible after March 27 2021.

The definition of a casual employee has been amended in the FW Act to include a new definition. Under the new definition, a person is a casual employee if they accept a job offer from an employer and that there is no firm advance commitment to ongoing work with an agreed pattern of work. Once employed as a casual, an employee will continue to be a casual until they become a permanent employee through casual conversion or are offered & accept a full-time or permanent part-time employment or stop being employed by the employer.

The Amendment Act adds a new entitlement to the National Employment Standards giving a pathway for casuals to convert to permanent employees, known as ‘casual conversion’. An employer (other than a small business employer) has to offer their casual employee to convert to a permanent employee when the employee: has worked for the employer for 12 months, has a regular pattern of hours for at least 6 months on an ongoing basis, could continue working those hours as a permanent employee without significant changes. There are exceptions that apply such as small business employers and having ‘reasonable grounds’ not to make an offer.

If you have any questions or queries or want to check whether you are required to offer a permanent position to your staff members, feel free to contact Sophie or Graham for assistance.   

The CEIS is attached here for your reference.

Small Business Fees & Charges Rebate

Government has introduced a new fees & charges rebate for small businesses. Sole traders, small business owners & non-for-profits may be eligible for the small business fees & charges rebate of up to $1,500. The aim is to encourage growth of businesses by reducing the running costs. Eligible businesses only need to apply once, however, they can submit multiple claims until they reach the full value of $1,500.

The rebate is available from April 2021 and will be open until 30 June 2022. Businesses are able to claim the rebate against invoices due & paid from 1 March 2021 for eligible invoices from the NSW Government. The rebate is in the form of Digital Credit, which can offset the cost of NSW and Local Government fees & charges.

Eligibility criteria for this are small businesses, including non-employing sole traders, who do not reach the NSW Government payroll tax threshold ($1.2 million). They must have an ABN in NSW, be registered for GST & have a turnover of $75,000 per year.

Small businesses can claim the rebate for local council rates and charges related to the cost of doing business such as tradesperson licenses, motor vehicle registration fees & other government costs related to doing business.

To apply, all documents must be ready as the process can’t be saved for later. You will login to your Service NSW Account, verify your identity with documents, confirm contact details, enter required details & upload supporting documentation. You will then need to enter your bank details, review your application, check the declaration & submit the application. You may be required to submit a letter from your accountant, and we are happy to help with supplying this.

If you have any questions or queries or would like assistance applying for the rebate, feel free to contact Sophie or Graham.

ATO Audit Activity Increasing

You may have seen in the media that the ATO is currently increasing their audit of JobKeeper and Cash Flow Boost Claims. If businesses have made a genuine attempt to do the right thing, the ATO are taking a pragmatic approach.  This is due to how fluid the rules were early on and very open to interpretation due to the quick implementation of the COVID schemes.

In some cases, it has been found that an innocent error resulted in overpayment, particularly with JobKeeper, but the overpayment was passed onto the employee in good faith. In cases similar to these, no action is taken, however in some instances, there have been calculated steps to manufacture claims & the ATO will take much firmer action on these situations.

To be safe, you need to ensure there is a defendable document trail that supports both JobKeeper & Cashflow boost claims. If we have been processing Jobkeeper on your behalf, we have put together a file for your business with the necessary JobKeeper documentation. The ATO have a page on ‘Keeping JobKeeper Fair’ which focuses on the areas they are aiming to look into such as claiming incorrect decline in turnover (15% decline where 30% should be taken), claiming employees when the correct funds were not passed onto them by the due date and claiming the Tier 1 rate on the extension when an employee generally worked less than 20 hours average per week.

If you have any questions or concerns regarding your JobKeeper or Cashflow boost claim, feel free to contact us.