Whilst the pandemic has had a negative impact on the Australian economy generally, what we are seeing from many of our clients are quite strong results for the financial year. Industries like transport and logistics and building and construction have generally fared quite well. Many of our primary producer clients have had exceptional years.
So tax planning this year will be as important as ever.
Thankfully there are a few quite positive actions that businesses can undertake to help manage the taxation outcomes. I have categorised the measures into three broad categories – Savings, Investing or Timing measures.
A feature of the Australian economy is that you can save money for your future retirement and in doing so you can get a tax deduction. Grant Lewis has written a piece on the taxation aspects of superannuation which I recommend to you. Despite the tinkering by the government superannuation is still a wonderfully tax advantaged place to place your savings. Read Grant’s piece here.
A major feature of this year’s tax planning for our clients will be taking advantage of the various generous deductions available for investing in business assets. In recent times the government has introduced the following schemes in this area:
- Temporary full expensing of depreciating assets
- Backing business investment incentive
- Instant asset writeoff
Additionally, we have well known asset incentives such as:
- Allowances for capital works
- Primary production depreciating assets
- Small business pools
- Software and other pools
The rules and eligibility criteria for these schemes are complex and therefore it is essential that you talk to your Johnsons MME advisor about whether the investment that you need is eligible for outright deduction in your circumstance.
A significant issue this year is the ability to acquire some assets prior to 30 June.
The pandemic has contributed to lead times in acquiring assets being lengthened. Many classes of assets need to be “installed ready for use” prior to 30 June for the cost to be fully deductible in the current financial year. An invoice dated pre 30 June may not necessarily be enough!
Many businesses will be forced to writeoff the balance of their undeducted depreciation pools this year. Whilst this may result in a favourable tax outcome in the current year, it may have significantly negative impacts in future years by potentially wasting future tax free and low tax thresholds.
Often tax panning is as much about timing as anything else. This can either be about the timing of when income is brought to account as taxable or the year in which expenses are deductible.
The government has announced and legislated changes to tax rates. The company tax rates reduces from 26%* for the 2020/2021 financial year to 25%* in the 2021/2022 financial year. Personal income tax rates are scheduled to reduce in 2024/25.
Therefore, if you operate in a corporate structure the value of a deduction incurred prior to 30 June 2021 is slightly higher than the same deduction after that date. Bringing forward deductions into this current year could make good commercial sense. Likewise if sales can be deferred until next financial year, a slight tax saving could be had.
Given the good year that many of our primary producers are having we expect to see the use of FMD’s (Farm Management Deposits) this year. FMD’s again are not for everyone, but if you are eligible, they can be a terrific deferral mechanism in a bumper year. Again, please talk to your Johnsons MME advisor to assess whether an FMD is right for you.