Top five things to think about before EOFY: Planning in the COVID era

COVID-19 has seen businesses all over the world suffer from temporary closures, customer number restrictions as well as a general decline in consumer spending especially during the initial lockdown period. Some industries have been more affected than others but with the many government assistance packages available and the return to some form of normality those businesses with cash reserves should ensure that tax planning is not forgotten in the 2020 financial year.

Just to rehash, available from the Federal government as part of the Australian stimulus packages are the following:

1. Cash flow boost – worth up to a maximum of $100,000 in tax credits based on your PAYGW
2. JobKeeper – wage subsidy up to $1,500 per eligible employee per fortnight for a six month period
3. Apprentice assistance payments – up to $7,000 per quarter per eligible apprentice
4. Superannuation – early access to eligible employees of up to $10,000 of superannuation in the 2020 financial year.

The various state governments also have stimulus packages on offer and these differ from state to state but they all are there to assist in boosting the funds available to businesses to help them survive these uncertain economic times.

With the additional cash that may now be available businesses should consider the following measures pre 30 June:

1. $150,000 instant asset write off

Does your business need equipment upgrades, computers, replacement motor vehicles or any depreciable business asset? If so now is the time to acquire. With the $150k write off this negates the need to depreciate these items over a certain period and allows for the cost of the asset to be immediately deducted. This can bring significant tax savings to the business.

With respect to motor vehicles, keep in mind the depreciation limits that may apply as well as private use adjustments that may be required.

Although this measure has now been extended to 31 December 2020 if your business needs the deduction in the 30 June 2020 financial year it must be installed and ready for use by 30 June. Some care must be given to the assets that you intend on acquiring as not all assets are eligible for the write off.

2. Employee wages

The COVID-19 pandemic saw many businesses reduce staff salaries and wages. Some have been reinstated to their pre-COVID positions while others have not. Not only increasing your employees’ wages back to where they were but some businesses may consider paying them a ‘bonus’ or ‘top up’ to compensate for their loss. Not only does this provide a tax deduction but it may also go a long way to improving team morale. If you’re considering this course of action then please ensure the amounts are paid by 30 June to ensure the deduction is available.

3. Review your Trade Debtors

It is now more important than ever to review the recoverability of your business’ debtors. Some businesses, who may be your customers, simply may not survive and there is no point in paying tax on income you may never receive. Do what you can to try and collect these and make sure that those that are deemed to be bad are well documented and meet the deductibility requirements. Also where relevant remember to amend your BAS’ for GST already paid to the ATO on these bad debt amounts.

4. Superannuation

As most business operators will know superannuation is only deductible in the financial year actually paid so you should pay any outstanding employee superannuation by 30 June.

As mentioned previously, the Government has allowed early access to superannuation for eligible employees of up to $10,000. The ATO is aware of schemes where employees are withdrawing this amount and then recontributing it to their fund with the aim being to claim a tax deduction. The ATO will be reviewing these instances and in the event they believe a scheme was entered into the deduction will be disallowed.

Remember, in most instances there is the ability for individuals and businesses to claim a maximum of $25,000 in concessional superannuation contributions per person. These also must be paid to and received by the fund by 30 June. It is always advisable to leave a safety buffer to ensure the payment is received in time.

5. Tax payment deferrals

In these times cash is king. To assist businesses in maintaining and increasing their bank balances the ATO have allowed for both the deferral of tax payments and the refunding of PAYGI credits paid to date.

Payment deferrals have been extended up to 14 September 2020 with no interest and/or penalties to be applied subject to application.

If applying for PAYGI refunds please consider the impact this will have not only on your cash flow down the track when the tax is due but also the impact this may have on your available franking credits and other tax obligations.