A lot of people would have sat down in June 2019 or July 2019 to plan out the 2020 financial year – no one could have predicted the changes that have occurred over the last four months!
Coronavirus, economic and social shutdown and restrictions for over three months, government assistance packages that will extend to over $200 billion, and a raft of packages like JobKeeper, JobSeeker, business Cash Flow Boost, and increased asset write-offs all aimed at trying to the economic ship afloat.
As a result of all of this, there are some things that have stayed the same for 30 June planning, but there are a number of new issues and benefits that need to be thought about.
We’ve listed out below the key points to keep in mind when tidying up for the 2020 financial year, as well as others that will assist into 2021.
Minimum wage increase from 1 July 2020
For anyone not covered by an award, the new national minimum wage will be $753.80 per week, or $19.84 per hour.
This applies to the first full pay period on or after 1 July 2020. This increase will be applied to awards in 3 stages to the first full pay period on or after 1 July 2020, 1 November 2020 and 1 February 2021.
If you haven’t already, review your award and ensure that you are paying the correct amount to your staff.
Some of the key things to plan before 30 June 2020:
Superannuation – pay before 30 June for a tax deduction Pay employee and personal superannuation by 23 June 2020, so that it reaches the super fund by 30 June 2020 and you can claim a tax deduction in your 2020 tax return.
Any super that is paid and reaches the fund after 30 June 2020 will be a tax deduction in the 2021 financial year.
Depreciation – $150k instant asset write-off for new and pooled assets -The government has extended the $150,000 instant asset write-off until 31 December 2019 – remember that the asset must be installed ready for use by 30 June 2020 to be able to claim the deduction in the 2020 financial year.
One flow on of the $150,000 asset write-off is that any assets pooled for depreciation will have the full pool balance written off for the 30 June 2020 year where the written down balance of the pool is under $150,000. This will see a lot of assets written off in full for the 2020 year, and reducing taxable income substantially in some cases.
It is just bringing forward deductions to the 2020 year however, as once the assets are written off, then there won’t be any depreciation in future years, and any disposal of assets will see the full sale price being included as income.
Prepayments – Prepay expenses before 30 June 2020 to claim a tax deduction.
Expenses such as rent, subscriptions, licence fees etc. that are for a service that will be used within 12 months will be deductible at the time of payment (for businesses under $10 million turnover)
Deferring Income – Consider deferring invoicing to customers to have the income fall into the next financial year. This needs to be weighed up against the business case for bringing forward cashflow – given the economic situation this may not be the best course of action for a lot of businesses, as getting paid could be vastly more important.
Write-off bad debts – Any debts that are declared as bad debts by 30 June 2020 will be a tax deduction in the 2020 year. There will also be a corresponding GST adjustment to claim back GST previously paid.
Writing off the debt as a bad debt does not mean you can’t still chase the debt. The declaration of a bad debt is an internal action to declare it as unrecoverable for tax and accounting purposes. If the debt is subsequently collected, then you would include the receipt as income and pay the corresponding GST at the time it is received.
Work from home expenses – Recognising that a lot of people worked from home during April and May, the ATO has introduced a short cut method to calculate your deduction for working from home.
Using this method, you can claim 80 cents per hour for each hour you work from home during the period 1 March 2020 to 30 June 2020. This method covers all of your work from home expenses, such as: phone expenses internet expenses the decline in value of furniture and equipment electricity and gas for heating, cooling and lighting.
If you use this method, you can’t claim any other expenses for working from home. You can continue to use the existing fixed rate method of 52 cents per hour, which includes depreciation of furniture purchased, but allows you to claim phone and internet expenses, consumables and depreciation on equipment.
Superannuation – If you make a personal superannuation contribution to your super fund, and the fund receives it before 30 June 2020, you may be able to claim this contribution as a deduction on your 2020 tax return.
Things to consider: make sure you don’t exceed your $25,000 concessional contributions cap. You may have a higher cap if you didn’t use all of your cap last year and can bring forward the unused portion (only if your super balance is under $500,000).
Make sure the fund receives your contribution by 30 June 2020 You will need to send the fund a “Notice of Intent to Claim a Deduction For Personal Super Contributions” form, and receive an acknowledgement from your fund before you lodge your tax return.
Superannuation co-contribution – If you are eligible then you may receive a co-contribution from the government for personal contributions made to superannuation.
The maximum co-contribution is $500, which will be paid for contributions of $1,000 if your income is below $38,654. The co-contribution will reduce as your income increases, or the amount you personally contributed reduces.
Motor Vehicle expenses – If you are using the logbook method to claim your motor vehicle expenses (i.e. work related percentage of all costs), then you need to make sure you have actually completed your logbook!
One of the major areas for audit by the ATO is motor vehicle claims, and the first thing they ask for in an audit is your logbook. The logbook must be kept for at least 12 continuous weeks, and contain the following:
- when the logbook period begins and ends the car’s odometer readings
- at the start and end of the logbook period the total number of kilometres the car travelled during the logbook period
- the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey
- the odometer readings at the start and end of each subsequent income year your logbook is valid for
- the business-use percentage for the logbook period
- the make, model, engine capacity and registration number of the car.
- For each journey, record the:
- reason for the journey (such as a description of the business reason or whether it was for private use)
- start and end date of the journey odometer readings at the start and end of the journey kilometres travelled.
If you start a logbook before 30 June 2020, then it will still be valid for the 2020 financial year. if you don’t have a logbook, then start one today!
Capital gains and losses – If you have had a capital gain during the year, then consider selling other assets which might create a capital loss to offset gain.
Most typically this is done with shares held, as it is easy to sell the shares on market quickly and trigger any loss that you may be sitting on with those shares.
Note that the date for CGT is contract date, so you will need a contract date of 30 June 2020 or earlier to have the capital loss in the 2020 year.
Property depreciation reports – If you have recently bought a rental property, or have recently renovated a rental property, then you should consider obtaining a quantity surveyor’s report to maximise the depreciation claim.
You only need the depreciation report prepared before your tax return is prepared, however if you order the report now, then the fee for the report will be a tax deduction in the 2020 year. Contact us if you need a referral to a quantity surveyor.
Donations – Consider donations to your favourite charities or cause before 30 June 2020 to claim a tax deduction.
Ensure that the charity is a registered deductible gift recipient – you can look them up on the Australian Business Register by searching for their name or ABN, and this will tell you if they are a deductible gift recipient.
30 June 2020 Superannuation payments must reach the super fund to be deductible in the 2020 year
30 June 2020 Lodge the Single Touch Payroll reports for all wages paid during 2020 financial year – in most cases this will be making sure the last pay run has been lodged
14 July 2020 Make finalisation declaration for staff wages through Single Touch Reporting for employees with 20 or more employees
21 July 2020 Lodgement and payment of monthly July 2020 Activity Statements
28 July 2020 Make superannuation guarantee contributions for the June 2020 quarter to super funds by this date.
28 July 2020 Lodgement and payment of quarterly June 2020 Instalment Activity Statements
31 July 2020 Make finalisation declaration for staff wages through Single Touch Reporting for employees with 19 or fewer employees
25 August 2020 Lodgement and payment of quarterly June 2020 Business Activity Statements