The end of financial year is fast approaching, so it is a great time to assess your financial affairs.
Below, we have summarised some key areas that either a business or individual should consider when preparing for the end of financial year.
As a business owner
We have seen a variety of incentives presented by the government to support small to medium businesses. Listed below are some of the business incentives and their requirements that many of our clients have accessed, or are planning to, as they prepare their end of financial year documents:
- If an eligible business spends up to $150,000 on a capital item, which is on hand/installed ready for use by 30 June 2021, 100% can be claimed as a deduction in the current financial year. An example would be a farmer who purchases a new tractor, that farmer can write off the asset in this financial year rather than depreciating over several years.
- Company Loss Carry Back – a temporary tax relief for medium and small companies, to carry back tax losses incurred in the 2020, 2021 or 2022 financial years, to be used against profits taxed in a previous year, 2019 or later. The company will receive a refundable tax offset in the year they made a loss.
- Prepay interest costs – bring forward interest costs for capital borrowed.
- Superannuation Contributions – if you want the employee superannuation contributions to be deductible this year, you will need to pay the super before 30 June 2021.
There is no denying that Covid-19 has led to a change in the way many of us now work. Like the incentives that have been offered to businesses, individuals have access to additional incentives and there are some additional requirements when submitting end of year tax documents. Some of these are listed below:
- Working from Home – You can claim a deduction for your work from home (home office) set up and additional usage requirements.
Declaring all income – the ATO can now data match on most income sources, so if you have income from third parties which are likely to show up in this portal, make sure this is all accurately reported.
- Sale of your home and land over five acres – with new data matching by the state revenue office, the ATO is now aware when properties are sold. Properties sold which are more than five acres are an issue – there may be a requirement for a valuation of the property to clarify whether any capital increase is associated with the principal place of residence and five acres, or with the extra land.
As we approach the end of the year, it is a great time to make sure everything has been completed properly. As some rules have changed over the past few years and new caps have been created, it is worth making sure that you have actioned everything:
- Contributions: for your contributions to count in the current year, they need to be received by your super fund on or before 30 June 2021. If your total super balance is less than $500,000 and you have made concessional contributions of less than the concessional contributions cap of $25,000, you may be eligible to make additional concessional contributions in subsequent financial years. Unused cap amounts can be carried forward for up to five years.
- Pension Payments – to keep your superannuation in a tax-free pension phase, you are required to draw a minimum pension each year. With Covid-19, the government reduced required pension withdrawal by 50% for this financial year. They also announced recently that next year the minimum pension withdrawal will also be reduced by 50%. Whether or not you have taken advantage of this reduction, it is important that you reconcile all pension payments received to ensure you do not underpay the minimum pension payment required by 30 June 2021. Where this requirement is not met, SMSFs will be subject to 15% tax on pension investments instead of being tax free.
- Capital Gains Tax – if you have taken profits in your portfolio over the year, you should understand the tax payable on these gains before the end of the year.
- Government Superannuation Co-contribution – if you worked during the year and have an adjusted taxable income of less than $54,837 p.a., you may be eligible for the government superannuation co-contribution. The government will contribute 50 cents for every dollar of after-tax contributions you make to your superannuation fund up to a maximum of $500. The full benefit is available for income earners under $39,837 and begins to phase out where adjusted taxable income is between $39,837-$54,837.
If you require assistance or have any questions, please contact one of the team.