10 Tax Tips for 2021
24 June 2021
As tax time approaches, our tax team has put together some helpful information for you for that 30 June deadline.
Please note that the following is general information only and taxpayers should seek detailed advice from their accountants before undertaking any strategy.
To follow is information on the following topics:
- Capital Gains Tax (CGT)
- Prepaid Expenses
- Bad Debts
- Uncapped Immediate Write-off for Depreciable Assets
- Superannuation Contributions
- Single Touch Payroll (STP)
- Company Tax Rate Change and Dividends
- Division 7A Loan Agreements and Minimum Repayments
- Individual Tax Rate Changes
- Non-complying Payments
Each topic includes a link to the ATO website for more information.
Capital Gains Tax (CGT)
If an asset has been sold during the year (such as an investment property or business asset), taxpayers should consult their accountant before 30 June to work out how much capital gain has been made and what can be done to reduce the tax impact of that gain. This could include bringing forward other deductible expenses or making more deductible contributions to superannuation. For the sale of business assets, concessions such as the small business CGT concessions may be available. Also consider postponing the sale of assets with unrealised gains and bring-forward asset sales with unrealised losses.
Deductions may be claimed in the 2021 income year for certain prepaid expenditure. A prepaid expense is expenditure that is incurred in the current income year for something to be done (in whole or in part) in a later income year. Generally, a prepaid expense is deductible over the period in which the relevant service is provided. Some prepaid expenditure can be deducted in the current year. These amounts include:
- Excluded expenditure (e.g. amounts of less than $1,000 (excluding input tax credits), amounts required to be incurred by a court order or law of the Commonwealth, state or territory (e.g. worker’s compensation insurance), payments of salary or wages (under a contract of service)).
- Amounts covered under the 12 month rule – if the taxpayer is a small business entity, or an individual incurring deductible non-business expenditure they can claim an immediate deduction under the 12-month rule for prepaid expenditure if the payment is incurred for a service period not exceeding 12 months and the service period ends in the next income year (e.g. prepaying insurance premiums or interest).
Bad debts are a significant cost to all businesses that sell on credit. There is no sense in paying tax and GST on sales where payment will not be received, so reviewing any bad debts before the end of the year is important. A tax deduction may be available where bad debts are written-off prior to 30 June.
Uncapped Immediate Write-off for Depreciable Assets
Business taxpayers with an aggregated annual turnover of less than $5 billion may be able to claim an immediate deduction for the full uncapped cost of an eligible depreciable asset in the 2021 income year where the following requirements are satisfied:
- The asset was first held on or after 7.30 pm (AEST) on 6 October 2020.
- The asset was first used or installed ready for use by 30 June 2021.
The full write-off is available for both second-hand and new assets where the taxpayer is a small or medium sized business (i.e turnover less than $50 million). Taxpayers with turnover in excess of $50 million can only access the write-off in relation to new assets. Moreover, taxpayers with turnover in excess of $50 million cannot access the write-off where they entered into a contract/commitment to acquire the asset prior to 6 October 2020.
Small businesses (i.e. with aggregated annual turnover of less than $10 million) must deduct the entire balance of their simplified depreciation pool at 30 June.
Taxpayers can choose not to fully write-off an asset and instead calculate depreciation under the “ordinary” depreciation rules in Div 40 of ITAA1997. Small business taxpayers must fully write-off all assets acquired in 2020-21 unless they choose not to apply Simplified Depreciation in 2021.
Some assets are ineligible for the full write-off. These include assets in the low value or software development pools, capital expenditure under Division 43, assets that will never be located or used for business purposes in Australia and certain primary production assets (e.g. Subdiv 40-F assets)
Taxpayers wishing to claim a tax deduction for concessional super contributions in 2020-21 should ensure that those contributions are received by the relevant superannuation funds before 30 June 2021. The concessional contributions cap for 2021 is $25,000 and the non-concessional contributions cap is $100,000.
Taxpayers with a superannuation balance of less than $500,000 on 30 June of the previous financial year may contribute more than the $25,000 concessional contribution limit. For year ending 30 June 2021, eligible taxpayers can access their unused concessional contribution cap amounts from the 2019 and 2020 income years. Unused amounts are available for a maximum of 5 years.
Single Touch Payroll (STP)
The deadline for enrolment in STP for small employers with closely held payees is 1 July 2021. Taxpayers should ensure that they have enrolled by 1 July 2021. From 1 July 2021, amounts paid to closely held payees can be reported through STP in any of the following ways:
- Report actual payments on or before the date of payment – whenever a payment is made to a closely held payee, report the information on or before each pay event.
- Report actual payments quarterly – report your actual payments to closely held payees quarterly. Each quarter, when the activity statement is due, report all payments made in that quarter.
- Report a reasonable estimate quarterly – report amounts equal to or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter.
Company Tax Rate Change and Dividends
The 2020-21 company tax rate for base rate entity companies is 26%. For these companies, any dividends paid during the year and before 30 June 2021 would generally be franked to 26%. The company tax rate for such companies is scheduled to reduce to 25% from 1 July 2021, the franking rate will also reduce to 25% in most cases. Therefore, dividends would need to be declared and credited before 30 June 2021 to access the higher 26% franking rate. Companies could also consider deferring income (by deferring invoicing for accruals basis taxpayers or deferring receipt of income) to 2022 as the income may be taxed at the lower rate of 25%.
Division 7A Loan Agreements and Minimum Repayments
Where shareholders or their associates (includes individuals or trusts) have borrowed money from their private company in the year ended 30 June 2021, the loans must be fully repaid or be documented in a Division 7A-complying loan agreement before the due date of the company’s 2021 income tax return. Minimum repayments must be made by 30 June on loans which were placed under Div 7A complying loan agreements in a prior year.
Individual Tax Rate Changes
The low and middle income tax offset of up to $1,080 which was due to cease on 30 June 2021, will be extended until 30 June 2022. For the year ended 30 June 2021, there is also an increase from $37,000 to $45,000 in the income threshold of the 19% tax bracket and an increase in the income threshold of the 32.5% tax bracket from $90,000 to $120,000.
Taxpayers can only claim deductions for payments they make to their workers (employees or contractors) where they have complied with the pay as you go (PAYG) withholding and reporting obligations for that payment. Taxpayers intending to claim deductions for payments made prior to 30 June 2021 (e.g. salary and wages, director’s fees or payments to contractors without an ABN) must withhold the amount required under the PAYG withholding rules from the payment and report the amount to the ATO (generally in the June BAS). Any payments made to a worker where a taxpayer has not withheld or reported the PAYG amounts are called non-compliant payments which are non-deductible.
If you would like further information on any of these tips or have any questions, please contact your local Boyce representative.