Key Tax Minimisation Strategies
CONSIDER THE FOLLOWING OPPORTUNITIES
1. Delay Deriving Assessable Income
One effective strategy is to delay deriving your income until after June 30, 2020 by:
a. Delaying the Timing of the Derivation of Income until after June 30.
b. Timing of Raising Invoices for Incomplete Work (Businesses)
Where this strategy will not adversely affect your cash flow, consideration should be given to deferring the recognition of income until after 30 June 2020. Please note, not banking amounts received before June 30 until after June 30 does not qualify because the income is deemed to have been earned when the money is received or the goods or services are provided (depending on whether you are on a cash or accruals basis of accounting).
- Cash Basis Income - Some income is taxable on a cash receipts basis rather than on an accruals basis (e.g. rental income or interest income in certain cases). You should consider whether some income can be deferred in those instances.
- Consider delaying your invoices to customers until after July 1 which will push the derivation of the income into the next financial year and defer the tax payable on that income. If you operate on the cash basis of accounting you simply need to delay receiving the money from your customers until after June 30.
- Lump Sum Amounts - Where a lump sum is likely to be received close to the end of a financial year, you should consider whether this amount (or part thereof) can be delayed or spread over future periods.
2. 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 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).
- Superannuation for Business Owners, Directors and Associated Persons.
- Wages, bonuses, commissions and allowances
- Travel and accommodation expenses
- Trade creditors
- 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
- Subscriptions and memberships to professional associations and trade journals
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), we never recommend you spend money on items you don’t need. Of course, this only works if you have sufficient cash flow.
Superannuation Contributions - some low or middle-income earners who make personal (after-tax) contributions to a superannuation fund may be entitled to the government co-contribution. The amount of government co-contribution will depend on your income and how much you contribute. (Refer to the Superannuation Section for more information)
Capital Gains/Losses – the timing of the asset sale is critical and deferring the sale until after June 30 will defer the tax exposure on the profit. Of course, if you have made other capital gains during the financial year it could be worth bringing forward the sale and crystallizing the loss so you can offset it against the other capital gains. Note that the contract date is often the key date for when a sale has occurred for capital gains tax purposes, not the settlement date.
Accounts Payable (Creditors) - If you operate on an accruals basis and services have been provided to your business, ensure
that you have an invoice dated June 30, 2020 or before so you can take up the expense in you accounts for the year ended 30th June 2020.
Other 2020 Year End Tax Planning Opportunities
- Back to the overview of the 2020 Year End Tax Planning Guide
- Round Up of Other Year End Tax Issues
- Immediate Write-Off For Individual Small Business Assets
- Other Tax Effective Strategies
- Superannuation Tax Planning Opportunities
- Download the full PDF
Disclaimer: This newsletter contains general information only and no responsibility can be accepted for errors, omissions or possible misleading statements. It is not designed to be a substitute for professional advice and does not take into account your individual circumstances. Therefore, no responsibility can be accepted for any action taken as a result of any information contained in this newsletter.