Tax Planning – Why It’s Time To Sit Up And Take Notice

As accountants, we’re always banging on about tax planning but in particular, we’re talking to those small to medium-size businesses that tend to let the matter of tax wash over their heads. While you may have muddled through in the past, 2021 is the year to sit up and take notice of what we’re telling our clients.

A heck of a lot has been going on that will impact how much money you have left in your pocket. You can either roll the 2020/21 tax dice and take your chances as to what numbers turn up or exercise some sort of control over the outcome.

Our main objectives at all times when advising clients is to:

  • Put money into their pockets
  • Stop if from leaving, and
  • Help them sleep at night

Tax planning facilitates all 3, and even more so in 2021.

So, what’s been happening in the tax world?

Several changes have been announced by the Government over the past financial year that could impact your year-end tax planning. Read below to learn more about new developments that may need to considered by businesses and individuals when preparing for the year-end.

Company Tax Rate

In 2020, base rate entities were looking at a company tax rate of 27.5% but this has now been lowered to 26% for 2021.

A base rate entity, incidentally, is a company with an aggregated turnover of under $50 million that derives 80% of its income from rent, interest, dividends, royalties and net capital gains.

The reduction in the corporate tax rate for such base entities means they need to be more aware of the implications of over-franking and under-franking as these will be more pronounced than in previous years.

Marginal Income Brackets

Some individuals will benefit from an increase in the upper limit of marginal income brackets as follows:

  • The 19% tax band has increased from $37,000 in 2020 to $45,000 in 2021
  • The 32.5% tax band has increased from $90,000 in 2020 to $120,000 in 2021

Temporary Full Expensing

Businesses with an aggregated turnover of below $50 million can deduct the business portion of the cost of eligible depreciating assets immediately. To be eligible, the assets must have been purchased between 7.30 pm on 6 October 2020 and 30 June 2022. The new threshold amount means this limited tax planning opportunity is worth your business investigating.

Loss Carry-Back

This was recently announced to enable businesses currently with a tax liability (but that have paid tax in recent income years) to obtain a ‘refund’ of the tax that they have paid.

In other words, businesses that report tax losses in the 2019-20, 2020-21 and 2021/22 income years can choose to offset those losses against taxable profits that they have reported in previous periods. Essentially, this converts their carried back losses into cash payments

Given the considerable tax benefits on offer, entities need to give careful consideration as to whether choosing to use this scheme will be of benefit to them in view of existing and future business plans and strategies.

Personal Superannuation Contributions

Making personal Super contributions into an elected super fund is another thing you might want to talk to us about since it could be a great opportunity to minimise tax.

Concessional Contributions

Government changes to legislation last year mean that the unused $25,000 tax- deductible superannuation cap may be carried forward for up to 5 years. We can have a look at this for you and recommend options to help you save tax.

JobKeeper Income

If your business was one of the many recipients of the JobKeeper Wage Subsidy Scheme did you know that this income is taxable? While most businesses would be aware of this if they were receiving it for employees, you could have overlooked it if you were receiving it as an Eligible Business Participant under a sole trader or partnership entity. To avoid any nasty surprises, don’t forget to review the payments you received.

What you should do now

Speak to the experts at JSM Accounting before 30 June 2021 to see how we can optimise tax savings together.

Call us on 07 3814 6512 or book an appointment online.