Tax Strategies for Businesses – Actions Prior to Midnight Wednesday June 30.
- Trustees must ensure that income distribution resolutions are made and documented, including any separate streaming of franked dividends and capital gains.
- Ensure any shareholder loan repayments required under loan agreements are made.
- Reviewing your debtors and write off any unrecoverable debts.
- Review your asset register and stock and consider:
- scrapping obsolete or badly damaged stock and assets
- reassessing effective lives of assets on hand.
- Consider bringing forward any necessary repairs.
- Ensure superannuation guarantee obligations have been met and that contributions have been received by the relevant fund.
- Pay donations, if any.
- Where year-end bonuses, director’s fees etc. are to be paid after year end, consider making appropriate resolutions committing to pay specific amounts to ensure deductibility in 2020/21.
- Consider the timing of invoices for work in progress.
- Consider pre-paying deductible expenses (small business taxpayers only).
- Consider bringing forward purchases of depreciable assets individually costing $150,000 or less for 2020/21 for an outright deduction (small business taxpayers only, please be aware of that SBE aggregated turnover limit has been expanded to $500 million from $50 million). An instant asset deduction limit of $150,000 was implemented from 12 March 2020 with the Coronavirus measures, and subsequently extended to 100% of eligible depreciable assets of any value(i.e., full expensing including improvements to existing assets) until 30 June 2023 for businesses with turnover up to $5 billion.
- Consider transferring any unearned revenue from the profit and loss account to the balance sheet to highlight its non-taxable status. The unearned revenue must be refundable if the business does not provide the services paid for.
- In relation to loans by shareholders to companies with turnover of more than $20M, ensure that loan agreements are in place so that the loans are not treated as equity.
- The temporary loss carry-back rules will be extended by one year. This will allow eligible companies to carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year. Companies with aggregated annual turnover of up to $5 billion can apply tax losses incurred during the 2019-20, 2020-21, 2021-22 and now the 2022-23 income years to offset tax paid in 2018-19 or later years. The tax refund will be available to companies when they lodge their 2020-21, 2021-22 and now 2022-23 tax returns.
- From 1 July 2021, 10,000 guarantees will be made available over four years to eligible single parents with dependants, to build a new home or purchase an existing home with a deposit of as little as two per cent, subject to an individual’s ability to service a loan, and the government will guarantee up to 18 per cent of the loan.
- From 1 July 2021, all eligible brewers and distillers will receive full remission (up from 60 per cent) of any excise they pay on the alcohol they produce up to a cap of $350,000 each financial year (increased from $100,000).
Superannuation Guarentee (SG) – 2021
- Contributions of 9.5% of gross salary (up to a maximum salary of $57,090 per quarter i.e. $228,360 p.a.) must be made for most employees for the year ended 30 June 2021. There is no longer any upper age limit for superannuation guarantee contributions. Superannuation is only deductible when paid. Contributions for the June 2021 quarter must be received by the relevant fund by 30 June 2021 for a deduction to be claimed in 2020/21.
- From 1 July 2022, eligible employees who earn less than $450 per month will be paid super guarantee by their employer if they satisfy the other eligibility requirements.
- According to Taxation Ruling TR 2010/1, a contribution by electronic funds transfer (EFT) is not made until the amount is credited to the fund’s bank account.
- If superannuation contributions for the June 2021 quarter are not received by the relevant fund by 30 June 2021, they must be received by 28 July 2021 to be deductible in 2020/21.
- If contributions are not received by the fund within 28 days after the end of the relevant quarter, the employer will be subject to the SG charge, a non-deductible payment consisting of the contribution shortfall, interest and administration penalty. The employer is required to self-assess their liability and lodge a SG Statement with the ATO and pay the SG liability by the 28thday of the second month following the end of the quarter.
- If contributions are not received by the fund within 28 days after the end of the relevant quarter, the employer will be subject to the SG charge, a non-deductible payment consisting of the contribution shortfall, interest and an administration penalty. The employer is required to self-assess their liability and lodge a SG Statement with the ATO and pay the SG liability by the 28thday of the second month following the end of each quarter.
- While late paid contributions may in some circumstances be offset against the SG shortfall amount, the requirement to lodge an SG Statement and pay the interest and administration penalty remains.
- The SG rate remained at 9.5% for 2020/21 and it will increase to 10% for 2021/2022.
- From 29 June 2012, directorsbecame personally liable to pay penalties for any unpaid SuperannuationGuaranteeCharge, as well as PAYG amounts withheld but not remitted. This change in the law prevents a director from escaping liabilityby placing the company into administration or liquidation.
Superannuation Payment by Employers
- When an employer pays superannuation it can be in the form of an in specie transfer of specific assets (e.g. shares or business real property) without incurring fringe benefits tax.
- Employers receive a tax deduction for all superannuation contributions made on behalf of employees. Please note however, that tax penalties at the individual’s marginal tax rate plus an interest charge apply to concessional (pre-tax) contributions (from all sources) in excess of the following limits:
- Employers must comply with the SuperStream rules. These rules require employers to make all super contributions and associated contribution data electronically. Employers will need certain information from each employee’s superannuation fund for this purpose as well as payroll software that conforms to SuperStream. Information required includes the details of the fund’s ABN and bank account as well as an electronic service address. Employees with SMSFs may need to apply for this.
- From 1 July 2018 employers with 20 or more employees are required to report to the Commissioner through Single Touch Payroll-enabled software. The following information must be reported on or before the day you withhold from a payment (the pay day):
- payment information, including salary or wages, allowances, deductions, etc.
- withholding amounts
- superannuation liability information or ordinary times earnings (OTE).
- Employers who fully report all the information required through Single Touch Payroll will not have to comply with a number of other reporting obligations under the existing law. This includes providing certain payment summaries and the corresponding payment summary annual report. They will now only need to provide a finalisation declaration.
- STP becomes mandatory from 1 July 2018 for employers with 20 or more employees. You can choose to report through Single Touch Payroll if your software is ready. Once you are setup, the option to report a payment to the ATO will be presented for each pay run and your payroll information will be filed with the tax office. Please contact us to discuss this further if you have any questions.
- The new reporting rules essentially require, from 1 July 2018, ‘real time’ reporting of salary and wages, PAYG withholding and superannuation information to the ATO by ‘substantial employers’ (i.e., those with 20 or more employees) directly from their payroll software, giving the ATO almost instant access to key tax-related information.
- By aligning payroll functions with the regular reporting of taxation and superannuation obligations, it is anticipated that the new rules will reduce the compliance burden (and costs) for employers, and also facilitate early intervention by the ATO as part of its compliance focus.
- From 1 July 2019, STP was broadened to include all employers (i.e., including employers with 19 or less employees).
- However, the Commissioner had a discretion to defer the start date for an employer who may not be ready to commence reporting under STP, or to exempt an employer on a ‘class’ or ‘individual’ basis.
- From 1 July 2021, STP reporting becomes mandatory for all
Superannuation for the Self-Employed
- From 1 July 2017, individuals earningmore than $250,000 have their concessional superannuation contributions taxed at 30% rather than 15%. Despite this increased rate, concessional superannuation contributions can still be a tax effective strategy for higher income earners.
- From 1 July 2017, the 10% rule for tax deductibility of member contributions is removed and it may not be necessary for employees to maintain salary sacrifice arrangements (but check availability for public sector funds and some corporate defined benefit funds).
- Superannuation is only deductible when paid. Contributions for the June 2021 quarter must be received by the relevant Fund by 30 June 2021 for a deduction to be claimed in 2020/21.
- Contributions for the self-employed are tax deductible. Please note unfortunately that tax penalties apply if you exceed the contribution caps so be sure to confirm with us if you are unsure (currently $25,000 for all irrespective of age from 1/7/2017 to 30/06/2021 and $27,500 from 1 July 2021)
- Contact us prior to 30 June if you believe the above contribution limits have been exceeded.
- Taxpayers aged 18 years to 67 years do not need to pass a work test in order to be able to make superannuation contributions. Taxpayers aged 68 years to 74 years will need to have worked in gainful employment for at least 40 hours in a consecutive 30 day period in that same financial year prior to making deductible contributions. Taxpayers aged 75 years or older are unable to make personal superannuation contributions.
Business Tax Measures
- The government has re-committed to its 10-year Enterprise Tax Plan to reduce the company tax rate to 25% for all companies by the year 2026-27. However following defeat of the Amendment Bill 2017 in parliament the bill was abandoned. In October 2018the Government announcedthat the scheduled introduction of the 25% rate would be brought forward to land in the 2021-22 year. This latest tax reduction schedule is now law and reflected in the table below.
- The corporate tax rate for entities with an aggregated turnover of $50 million or more remains at 30%.
- Franking credits will continue to be determined by reference to the amount of tax paid by the company. We note that the drop in company tax rate will mean individual shareholders will pay more personal “top-up” tax when dividends are received.
- From the 2017–18 income year, a base rate entity is eligible for the lower 27.5% company tax rate. However, you still need to be a small business to be eligible for other small business tax concessions. A base rate entity is a company that:
- has a turnover less than the turnover threshold – which is $50 million (increased from $25 million) for the 2018/19 income year, and
- operates a business for all or part of the income year.
- To work out the rate you use when franking your dividends you need to assume your aggregated turnover will be the same as the previous income year.
- The lower 26% company tax rate will apply to base rate entities with a turnover less than $50 million in the 2021/22 income year. From 2021/22, the lower company tax rate will reduce to 25%.
- The carrying on a business test is replaced with a passive income test, under which companies that are generating predominantly (i.e. 80% or more) passive income will not be eligible for the lower (less than 30%) corporate tax rate.
- For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000.
- From 1 July 2019, net income generated from the forced sale of livestock will be exempted from the Farm Household Allowance payment assessment, when that income is invested into a farm management deposit.
Small Business Tax Concessions
- The small business entity threshold was increased from $25 million to $50 million of aggregated turnover (ex-GST) from 1 July 2017, increasing the number of businesses that can potentially access small business tax concessions (refer below).
- The company tax rate is reduced to 26% from 1 July 2021 for small businesses (turnover less than $50m).
- The small business tax discount available to unincorporated small businesses increased from 5% to 8% from 1 July 2016. The discount will be 8% of income tax payable on business income received from an unincorporated small business entity, capped at $1,000 per individual per income year and delivered as a tax offset in the end of year tax return.
- An immediate write off is available for all business assets individually costing as mentioned below. Eligible assets include cars, machinery, vans, equipment etc.
- In addition, if the balance of the small business simplified depreciation pool is less than $150,000 over this period, it can be written off immediately.
- Small businesses that provide employees with more than one qualifying work-related portable electronic device in a year can claim FBT exemption on each device from 2017/18, even where the devices have similar functions.
- The main concessions currently available for taxpayers meeting the small business entity test are:
- Depreciable asset costing < $150,000 that are purchased between 12 March 2020 to 30 December 2020 inclusive of GST are immediately written off (refer above). All other assets are pooled and depreciated at 30% (15% in the year an asset is first added to the pool). An instant asset deduction limit of $150,000 was implemented from 12 March 2020 with the Coronavirus measures, and subsequently extended to 100% of eligible depreciable assets of any value(i.e. full expensing including improvements to existing assets) until 30 June 2023 for businesses with turnover up to $5 billion.
- The second measure of a 50% deduction applies from 12 March 2020 until 30 June 2021 and is only available to new assets (not second hand). It applies where the first measure above is not available either due to the asset costing more than $150,000 or being first used or ready for use after 1 July 2020. This applies to depreciating assets which are plant and equipment. It is not available for capital works such as roads and structures. This measure also excludes water facilities, horticultural plant, fodder storage and fencing as existing concessional depreciation is available for these.It is only available to business entities with turnover below the $500 million threshold. It is not available for equipment purchased in a related entity such as a machinery hire company or a service trust which on-charges the operating business for use of the asset.
- Ability to change legal structure without attracting a CGT liability with effect from 1 July 2016.
- Simplified trading stock rules – in certain circumstances small business entities do not have to account for changes in trading stock or conduct a year end stock take. This is available where the reasonably estimated value of trading stock at year end is within $5,000 of the opening stock value;
- Deduction available for prepaid expenses incurred up to 12 months in advance;
- A potential reduction to two years from the standard four years that the ATO can audit and amend the taxpayer’s assessments;
- Eligibility for the desirable CGT small business concessions without having to satisfy net asset eligibility criteria (but note that the existing $2m turnover threshold will remain in place for this concession i.e. the new $10m threshold does not apply);
- Annual apportionment of GST input tax credits for acquisitions and importations that are partly creditable;
- Accounting for GST on a cash basis;
- Paying GST by quarterly instalments;
- Exemption from the FBT car parking rules;
- Eligibility to pay PAYG instalments based on GDP adjusted notional tax;
- Immediate deductibility for various start-up costs.
- In the lead up to 30 June 2021, small business entities may consider strategies such as prepaying expenses (for no more than twelve months), purchasing assets individually costing less than $150,000 that are purchased between 12 March 2020 to 30 December 2020 for immediate write off [subsequently extended to 100% (i.e., full expensing) until 30 June 2023 for businesses with turnover up to $5 billion] or deferring the receipt of income.
- There is no advantage to prepayment of large expenses for non-small business entities, being entities with aggregated turnover of greater than $50m from 1/7/2018. Prepaid expenses are solely deductible on a pro rata basis depending on the period to which the prepayment relates.
- Please note that a deduction is still available for prepayments of less than $1,000 and prepayment of expenses required under government legislation (e.g. worker’s compensation insurance).
Private Company Loans
- Amounts paid, lent or forgiven by private companies to shareholders or their associates are generally taken to be unfranked dividends (to the extent they represent realised or unrealised profits of the company), unless the loan is repaid or a complying loan agreement is put in place prior to the due date or the actual lodgement date of the company’s income tax return (whichever is the earlier) for the year in which the loan was made.
- These rules also apply to the provision of company assets (e.g. houses, cars & boats) to shareholders and their associates at less than market value rental, subject to certain exemptions.
- Interest and capital repayments in respect of loans in existence at 30 June 2020 (and covered by a complying loan agreement), must be made prior to 30 June 2021. Please contact our office should you require further information.
Loans to Private Companies (“At Call loans”)
- Under the debt/equity provisions, a loan that has no fixed term, is repayable on demand by the lender and has no interest, or a low rate of interest, can be deemed to be an equity interest in the company rather than a debt interest.
- Where a loan is deemed to be an equity interest, payments of interest are non-deductible to the company but frankable in the manner of a dividend.
- From 1 July 2005, related party “at call loans” to companies with less than $20 million turnover in that year are deemed to be debt for the purpose of the debt/equity provisions.
- For related party “at call loans” to companies with more than $20 million turnover in that year we recommend obtaining certainty by putting a loan agreement in place which sets out the terms of the loan in such a way that it will not be deemed to be an equity interest.Please contact our office if you require more information on this topic or wish to discuss loan documentation.
Distributions From Trust
- Please ensure that a distribution resolution is made prior to 30 June 2021. Where resolutions are not made by year end, trust income may, depending on the circumstances, become taxable to the trustee at 47%.
- Taxation Ruling,TR 2010/3 (Div 7A: trust entitlements) sets out the Commissioner’s view that, broadly, a loan will usually arise where a distribution has been declared to a private company beneficiary of a trust and that distribution remains unpaid. This is a departure from his long held view that such amounts are not to be considered loans. It is possible for the Commissioner to deem the unpaid distribution to be a dividend assessable to the shareholders of the company or their associates. In order to prevent the loan being deemed to be a dividend, there are a number of courses of action. Please contact us for further details if required.
- Consider whether a family trust election is required if planning to distribute franked dividends to beneficiaries. If a family trust election has previously been made, ensure that distributions are not made outside the family group otherwise Family Trust Distribution Tax may be payable.
Taxable Payments Annual Report
- Businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year on theTaxable payments annual reportby 28 August each year. Accordingly, the next report will be due 28 August 2021.
- The details required to be reported for each contractor include name, ABN, address, gross payments for the year & the total GST included in the gross payments.
- If this is relevant for your business you should ensure that appropriate systems are in place to enable the business to report the required information.
- From 1 July 2018 businesses that supply courier or cleaning services also need to report payments made to contractors if the payments are for courier or cleaning services.
- From 1 July 2019 businesses that supply Road freight, IT or security, investigation or surveillance services also need to report payments made to contractors by 28 August each year.
- Federal, state, territory and local government entities also needs to report the total payments they make to an entity, wholly or partly, for providing services by 28 August each year.
Living away from home allowance (LAFHA”) Changes
- Changes were made to the LAFHA rules that, with the exception of “fly in fly out” arrangements:
- Limit LAFHA availability to employees who maintain a home available for their own use in Australia, which they are required to live away from for their work;
- Limit LAFHA availability to a maximum of 12 months
- The changes apply from 1 July 2012 for new arrangements and from 1 July 2014 for arrangements entered into prior to budget night 8 May 2012.
- It has been clarified that the usual place of residence cannot be rented or sublet during the employee’s absence.
Employee Share Plan Changes
- The following changes took effect from 1 July 2015, effectively repealing some of the more onerous 2009 provisions in relation to stock rights/options.
- Share rights will now be subject to tax at the earliest of:
- When the employee ceases the employment in respect of which the right was acquired;
- Fifteen years after acquisition;
- When there are no longer any genuine restrictions on disposal of the right (i.e. the right can be sold) or real risk of forfeiture of the right; and
- When the right is exercised and shares acquired which are not subject to restrictions.
- Certain small start-up unlisted companies may be eligible for the start-up concession which provides that an employee does not include a discount on ESS interest in assessable income at grant and that any gain is taxed under the CGT provisions on disposal.
Worker’s compensation is a form of insurance payment to employees if they are injured at work or become sick due to their work.
Worker’s compensation includes payments to employees to cover their:
- wages while they’re not fit for work
- medical expenses and rehabilitation.
- Employers in each state or territory have to take out workers compensation insurance to cover themselves and their employees.
- Worker’s compensation is governed by individual states and territories. Each state and territory has their own regulator that administers and gives advice on workers compensation.
- Employers need to obtain a Workers Compensation policy.Please contact us if you require assistance in obtaining a policy.
Payroll tax is a self-assessed, general purpose state and territory tax assessed on wages paid or payable by an employer to its employees, when the total wage bill of an employer (or group of employers) exceeds a threshold amount.
Returns are lodged, and payment of liability made, at an agreed frequency (monthly, quarterly, or annually) to the respective revenue office in the Australian state and/or territory in which the wage payment is deemed liable.
This is a guide only, please contact us and we can advise you in relation to your particular circumstances.