Not just any financial year: Tips to make the most of your 2019/2020 tax return

We get it, tax time can feel like a real drag, but it’s the perfect time to get your business finances in order.

And thanks to new Government initiatives, there are greater opportunities to help your business survive and thrive this financial year.

In this article we’ll give you our top tax tips to make the most out of your 2019/2020 corona tax return. 

Boost your temporary cash flow

For hospo businesses affected by the COVID-19 economic downturn, the Government is providing temporary cash flow support to small and medium businesses.

The cash flow boost is designed to help businesses keep their employees, with the tax-free cash flow boosts ranging between $20,000 and $100,000 in activity statement system credits.

Generally, cash flow boosts will be equivalent to the amount you withheld from employee wages for each monthly or quarterly period from March to June 2020.

An additional cash flow boost will apply when you lodge activity statements from June to September. These credits will be equal to the total boost credits from March to June 2020.

To get the cash flow boost, you’ll need to:

  • Be a small or medium business entity (that is, an entity with aggregated annual turnover less than $50 million)
  • Have had an ABN on 12 March 2020
  • Have made payments to employees, subject to withholding (even if the amount you withheld is zero)
  • Have lodged, on or before 12 March 2020, at least one of: A) 2018–19 income tax return showing that you had an amount included in your assessable income in relation to you carrying on a business, or B) An activity statement or GST return for any tax period that started after 1 July 2018 and ended before 12 March 2020 showing that you made a taxable, GST-free or input-taxed sale.

The good news: you don’t need to apply for the cash flow boost. It’ll be automatically calculated by the ATO, with most businesses getting credits to their account when their activity statement is lodged.

Take advantage of the instant asset write-off (IAWO)

Do you need a new oven, refrigerator, or fryer? Maybe you’ve already bought an asset for your business over the last few months.

Well, the instant asset write-off (IAWO) might be a great way to get the benefit of an investment now, while improving your cash flow by applying the full depreciation write-off now, instead of over the life of the asset.

When corona hit, the Government increased the instant asset write-off (IAWO) threshold from $30,000 to $150,000. They also expanded access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million). And while it was due to end on 30 June, it has now been extended until 31 December 2020.

The IAWO applies to new or second‑hand assets first used, or installed ready for use, by 31 December 2020.

But you’d better get organised. From 1 January 2021 the IAWO will only be available for small businesses with an aggregated turnover of less than $10 million and the threshold will be $1,000.

And while IAWO has been around for some time, there have been other changes, so it’s worth checking your business’s eligibility to ensure you apply the correct threshold amount as stated by the Australian Taxation Office.

accelerate your depreciation deductions

Another Government incentive, Backing Business Investment (BBI) is a time limited, 15-month investment incentive designed to support business investment and economic growth over the short term, by accelerating depreciation deductions.

It applies to eligible assets acquired from 12 March 2020 and first used or installed by 30 June 2021.

If your hospo business has a turnover of less than $500 million, you’ll be able to deduct 50% of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset cost.

To be eligible for the accelerated rate of deduction, the depreciating asset must:

  • Be new and not previously held by another entity (other than as trading stock)
  • Not be an asset to which an entity has applied depreciation deductions or the instant asset write-off rules
  • Be first held on or after 12 March 2020
  • First used or first installed ready for use for a taxable purpose on or after 12 March 2020 until 30 June 2021.

You can claim the Backing Business Investment (BBI) deduction when lodging your tax return for the income year.

look at your losses and bad debts

It’s a good time to look at any losses or bad debts.

A tax loss is different from a capital loss. Generally, a tax loss is when the total deductions you claim for an income year exceed your income for the year. That’s your total income including both assessable and net exempt income for the year.

If you have made a tax loss in an income year you can carry it forward and deduct it in future years against income for tax purposes.

It’s important to get advice from your accountant about this to ensure all the loss tests are satisfied and to be advised on any specific consequences.

JOB KEEPER PAYMENTS

Most hospo businesses have been kept afloat thanks to the JobKeeper payments, which are assessable, meaning you can claim deductions for the payments made to employees and business participants.

If you have been making JobKeeper claims for your eligible employees, ensure that your reporting and documentation is up-to-date and correct, and keep this information for five years after the payment was made.

 

PRE-PAY YOUR EXPENSES

Rent, insurance, or subscriptions to any professional associations are some expenses you may be able to pre-pay now for the coming financial year — so you get the benefit of the deduction now, instead of later.

You can claim up to 12 months of the coming year’s expenses to be deducted in the current tax year, so it’s worth investigating.

 

PAYG INSTALMENT INDEXATION SUSPENDED

Get your 2020/2021 financial year off to a good start.

In response to the COVID-19 crisis, the Government has just passed legislation to suspend the indexation of PAYG and GST instalment amounts for small businesses during 2020–21.

The changes will apply to instalment quarters commencing on or after 1 July 2020.

TALK TO AN EXPERT

This is the most important tip of all.

While we’re not accountants, we hope these tips will help you get started on making the most out of tax times. We highly recommended you check with your accountant for any specifics and how they may apply to your individual business.

A good accountant can help you wrangle your paperwork, while giving you the best advice for your unique business situation. And best of all, their fee is a tax deduction too.

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