Top 10 End of Financial Year Tax Tips – 2020

1.Write off bad debts

  • Review your debtors and if any are unlikely to be recovered, actually write them off as bad before 30 June.
  • Keep evidence to show they are irrecoverable.

This will reduce your income tax and should generate a GST refund (for taxpayers registered for GST on a non-cash basis).

2. Do a stocktake

  • Prepare for a stock take on or before 30 June.
  • Identify any obsolete or old stock and scrap it or write it down to its correct market value.

Individual items of trading stock can be valued at cost, market value, or replacement value for tax purposes. The tax value may differ to the accounting value.

3. Defer income or bring forward expenditure

  • If on a cash basis, consider trying to defer the receipt of cash. If reporting income on an accruals basis, defer the derivation of income by holding back invoices if possible until after 30 June.
  • Consider whether income received is actually derived. Income received in advance may not be derived (and not taxable) until the services are provided. Conversely income such as interest, royalties, rent and dividends are usually derived upon receipt.
  • Expenses are only deductible when incurred, i.e. there must be a presently existing liability to pay the expense. Many accruals and provisions are not deductible as they represent an estimate of expenses and do not relate to a presently existing liability.
  • Most prepayments now are not deductible until the period to which they relate (some exceptions apply), although small businesses and individuals may be able to deduct 12 months of prepayments in the year paid.

If cash flow and business reality allow, consider deferring the derivation or receipt of income until the next financial year. This is especially relevant for companies with the change in tax rate.

4. Declare Director’s fees or employee bonuses

  • Bonuses are only deductible when they are actually incurred i.e. at 30 June the business must be committed to paying them and they are not subject to any discretion.
  • Companies paying bonuses and/or directors’ fees can claim a tax deduction.
  • Approve directors’ bonuses and/or fees, and ensure they are evidenced in Board minutes.
  • For a company to claim a tax deduction for directors’ bonuses and/or fees, it must show it has definitively committed to paying or making available those amounts to the particular director by 30 June 2020 and has met company law requirements authorising those payments. Accruing the amounts in the accounts is not enough. The director will then be taxed on the bonus/fees in the 2020 income year.

5. SBE Accelerated Depreciation

  • Depreciating assets – Non-SBEs that have an  aggregated annual turnover of less than $50 million can claim an immediate deduction for eligible assets costing less than $30,000 for any assets acquired and first used (or installed ready for use) from 7:30pm (AEDT) 2 April 2019 to before 12 March 2020.
    Non-SBEs that have an aggregated turnover of less than $500 million can claim an immediate deduction for eligible assets costing less than $150,000 for any assets acquired from 7:30pm (AEDT) on 2 April 2019 and first used (or installed ready for use) from 12 March 2020 to 30 June 2020.
    Depreciating assets costing $100 or less can be written off in the year of purchase and depreciating assets costing less than $1,000 can be allocated to a low value pool and depreciated at 18.75% (which is half of the full rate of 37.5%) in their first year, regardless of the date of purchase.
    Finally, a 50% accelerated depreciation concession may apply for new eligible assets that start to be held and used (or installed ready for use) from 12 March 2020 to 30 June 2021.
  • Repairs.
  • Consumables/spare parts.
  • Advertising.
  • Fringe benefits – any benefits to be provided, such as property benefits, could be purchased and provided prior to 1 July 2020.
  • Superannuation – contributions to a complying superannuation fund, to the extent contributions are actually made (i.e., they cannot be accrued but must be paid by 30 June).

6. If not using SBE depreciation

Any part of an expense prepayment relating to the period up to 30 June is generally deductible.

In addition, non-SBE taxpayers may generally claim the following prepayments in full:

  • expenditure under $1,000;
  • expenditure made under a ‘contract of service’ (e.g., salary and wages); or
  • expenditure required to be incurred under law.

Note:  Prepayments can be a little confusing, so before you commit to making a payment please feel free to call us with any queries or assistance if required.

7. Consider any capital losses that can be recognised

  • Consider any capital losses that can be recognised

8. Obtain a Quality Surveyor Report for any rental properties

  • Obtain a Quality Surveyor Report for any rental properties

9. Comply with Div 7A legislation

  • Pay principal and interest payments on Div 7A loans by 30 June 2020.

10. Pay Super

  • If you employ staff, pay their April – June super before 30 June 2020. The funds must reach their super accounts before 30 June 2020

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