2020 has been a whirlwind but it is time to start preparing to finalise the 2020 financial year.
What’s changing in terms of legislation this year?
The Federal Budget has been delayed this year until 6th October amid COVID-19.
The Company Tax Rate reduces to 26% starting on the 1st July 2020. This is for Companies with a turnover of less than $50m. This is down from 27.5% in this current year and will reduce to 25% on 1st July 2021.
Single Touch Payroll
Since the implementation of STP employers will no longer need to send employees their payment summary/group certificate for the financial year. Instead they will receive their payment summaries now known as an ‘Income Statement’ directly from the ATO via their MyGov account.
For employers you will need to lodge a finalisation for the financial year in your accounting software via the STP channel by the 14th July 2020. If you have 19 or fewer employees, you have until 31 July 2020 to make the finalisation declaration. Please note this process will differ for each accounting program.
Reporting payments to contractors (TPAR)
If you are in the building & construction, cleaning, courier, road freight, IT, security or investigation services you need to report to the ATO each year the payments you have made to contractors. This is knows as a Taxable Payment Summary (TPAR). We need to report to the ATO all payments made to these contractors along with their ABN, address and GST amounts. Some software products allow for this to be reported electronically via SBR. Alternatively, you can lodge the file on the business portal or complete a paper form.
$150,000 Instant Asset Write-Off
As part of the COVID measures any assets purchased between 12 March and 30th June that cost less than $150,000 are able to be claimed as a tax deduction in full at the time of purchase. Please note, it must be installed and ready for use before 30 June 2020 to be claimed in this financial year and the cost base will include freight and any installation costs.
This has now being extended to the 31st December. It’s important to remember this isn’t cash back, it’s simply a reduction of your taxable income, therefore a reduction in the tax you have to pay.
Claiming Tax Deductible Expenses while working from home due to COVID-19
The ATO recently announced a new method for claiming expenses when working from home during COVID-19. The general rules to claim deductions still apply but the new shortcut method means employees can claim 80 cents for each hour worked at home.
Unused Concessional Cap Carry Forward
If you have a superannuation balance of less than $500,000, the 2020 financial year is the first year you are entitled to carry forward unused amounts of your cap (for a maximum of five years).
Reportable Fringe Benefits
Where you have provided fringe benefits to your employees in excess of $2,000, you need to report the FBT grossed-up amount. This is referred to as a ‘Reportable Fringe Benefit Amount’ (RFBA) amount it needs to be updated for each employee as part of your Single Touch Payroll finalisation procedure for 2020. Please call should you have any queries regarding fringe benefits you may have paid to your employees.
StocktakeBusinesses that buy and sell stock generally need to do a stocktake at the end of each financial year as the increase or decrease in the value of stock is included when calculating the taxable income of your business. If your business has an aggregated turnover below $10 million, you can use the simplified trading stock rules. Under these rules, you can choose not to conduct a stocktake for tax purposes if the difference in value between the opening value of your trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year is less than $5,000. You will need to record how you determined the value of trading stock on hand.
A simple list of stock categories or lines as well as number on hand and the value of the stock should be recorded at 30 June 2020 for your financial and taxation records.
Livestock on hand – Numbers of all categories of livestock on hand as at 30 June 2020 will be needed to prepare year end livestock accounts. Ensure that you note down numbers of head for reconciliation / completion of your livestock trading accounts for the 2020 financial year.
Grain on hand – The value of grain on hand at the end of the financial year should be recorded for your business. A simple listing of the tonnages on hand this week will make this process easier than having to work back or estimate at a later date.
Here’s a few other reminders about ways to reduce your tax for 2020:
- Write-off Bad Debts in your computer system before 30 June 2020.
- Write-off any trading stock that is damaged or obsolete.
- Review your Asset Register and scrap any obsolete plant and equipment.
Due Dates & Action Items
- Stocktake – 30th June – Includes livestock counts and on farm stock take of items such as grain on hand or chemical on hand.
- Update Employees Pay Rates – Don’t forget you need to ensure any employees on award wages have their pay rates updated. Increases to awards will start on 3 different dates for different groups of awards.
- STP Finalisation – Due 14th or 31st July.
- Taxable payment annual report (TPAR)- Due 28th August.
- Quarterly BAS – Due 25th August.
- JobKeeper – Due 14th of every month
Organised record keeping is essential and Tax law requires that records be kept for five years, and they should include:
- sales receipts
- expense invoices
- credit card statements
- bank statements
- employee records (wages, super, tax declarations, contracts)
- vehicle records
- lists of debtors and creditors
- asset purchases.
Records can be kept on paper or electronically, but should be easily retrieved.
Assess your business and personal financial goals for the year and understand what you can do to meet those needs. Whether that includes growing your business, improving productivity or planning for an exit, you need time and good advice to put the plans in place that will enable you to meet your goals.