Top 10 ‘non-business-as-usual’ considerations to assist your year-end tax planning

By Simon How, Chairman, Tax Advisory Committee, Bentleys Network, and Partner, Tax, Bentleys SA/NT

We are unlikely to see a year of disruption like we have had in 2021 again in our lifetimes. The tax landscape, in particular, has had a massive upheaval due to increased government spending. This has significantly distorted normal planning ahead of year-end.

Surprisingly, many businesses have had bumper years off the back of COVID and now face significant taxable profits to manage. Other businesses are looking at ways to bring forward cashflows by deferring tax to help them sustain growth post-JobKeeper.

We have listed below the top-10 non-business-as-usual things you should be considering as part of your year-end tax planning:

  1. Asset write-offs: The asset write-off rules are somewhat of a mess of dates and thresholds. Many small businesses will be faced with a forced tax write-off of the balance of their assets. This can create tax issues if not properly managed. Other businesses will be looking at ways to accelerate their capex to access immediate write-offs. Structuring the ownership and timing of these purchases is critical. It may be a good year to ‘release’ extra income through dividends etc… to benefit from these tax deductions.
  2. Company loss carry-back: This is a new initiative which enables a business to get a refund of tax paid in the 2019 and 2020 financial years. This will be attractive for businesses who are in financial difficulty or have created large tax deductions through capex spend. There are some critical structuring issues in relation to dividends to manage if you want to access this concession.
  3. Pre-payments: Prior to 2021 only businesses with turnover less than $10m could access deductibility of prepayments. This has been extended to businesses with up to $50m ‘aggregated’ turnover and may create an opportunity for tax deferral.
  4. Financial reporting: In the past your accountant may have prepared financial statements in line with your income tax return given it is really only the bank who sees them other than your accountant. With the introduction of full tax expensing, the profit position in your financials prepared in line with your tax return may be significantly lower. You should talk to your accountant about whether you would like to adopt a different treatment for your fixed assets for your financial statements in order to show a more realistic profit.
  5. Change in company tax rate: The ‘SME’ company tax rate is reducing to 25% from 1 July 2021. This provides an incentive to defer income and bring forward franked dividends. The differential from the normal 30% tax rate also provides an incentive to structure income distributions to access the lower rate.
  6. Research and Development: The ATO has determined that Jobkeeper receipts can reduce your R&D claim. You should carefully consider this issue as part of your 2021 R&D claim.
  7. Employee superannuation: Along with the normal planning to maximise concessional contributions prior to 30 June 2021 you also now need to consider the increase in super guarantee from 1 July 2021 and the impact on your employee salary packages.
  8. International issues: The international tax landscape has been changing for some time now and COVID and COVID concessions have an impact on the tax treatment of international transactions. We recommend you pay close attention to this, particularly where you have related party cross-border transactions or movements of employees.
  9. Personal services income (PSI): The ATO is paying closer attention to arrangements to divert PSI away from the person who provides the services. We recommend you review your PSI position for this year in line with current ATO guidance.
  10. Contractor payments (cash economy): As part of the cash economy measures, payments you make to contractors may not be deductible where you have not been provided with their ABN and have not withheld tax from the payment. You should review your contractor payment compliance to ensure payments continue to be tax deductible.

These top 10 items are a few of many key issues your Bentleys advisor will help you with as part of your reporting process. We have prepared a more comprehensive manual to help you identify the areas impacting your business and personal situation, which you should raise with your Bentleys advisor.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

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