Expert Knowledge You Can Trust
Business Tax Planning – 2019
Small Business
(Aggregated Turnover <$10M)
The definition of a small business for tax purposes was changed to increase the turnover test from $2M to $10M. Some of the relevant concessions available to small businesses include:
Accelerated Depreciation Instant Write Off
Small businesses will be able to claim an immediate tax deduction for most new or 2nd hand capital assets bought and used or installed ready for use in the business satisfying the following criteria:
| Asset first acquired & first used | Asset Cost* |
| 12 May 2015 to 28 January 2019 | $20,000 |
| 29 January 2019 to 2 April 2019 (7.30 pm AEST) | $25,000 |
| 3 April 2019 to 30 June 2020 | $30,000 |
| 1 July 2021 | $1,000 |
*excluding GST if the purchaser is registered for GST or inclusive of GST if the purchaser is not registered for GST
This concession has been extended to include medium sized businesses with turnover up to $50M effective from 2 April 2019 until 30 June 2020.
Prepaid Expenses
Small businesses can claim expenses prepaid up to 12 months in advance, many of which would include interest, insurances, rent or lease payments.
GST Accounting Method
With the turnover test now $10M there is now greater access to account for GST on a “cash” basis rather than an “accrual” or “invoice” basis. In many instances this can provide a one-off cash flow benefit to small businesses.
Often overlooked, is the ability for small businesses to make an annual apportionment of GST input tax credits as well as being able to pay GST by quarterly installments.
CGT Concessions
If you sell your business (or active business assets), or the entity that carries on your business, or are considering selling your business in the future, please contact us to discuss eligibility to access the specific small business concessions that may apply to reduce or defer the capital gain.
It is important to note that capital gain is determined at the date the contract was entered into and not settlement date. In one AAT case, it was held that the date of the contract for the sale of the business was when the parties signed the heads of agreement and not when the formal contract for sale was executed.
Medium Business
(Aggregated Turnover between $10M and $50M)
The definition of a medium business has only recently required defining for tax purposes due to recent legislative changes and proposed measures as follows:
Accelerated Depreciation Instant Write Off
Medium businesses will be able to claim an immediate tax deduction for most new or 2nd hand capital assets bought and used or installed ready for use in the business satisfying the following criteria:
| Asset first acquired & first used | Asset Cost* |
| 3 April 2019 to 30 June 2020 | $30,000 |
*excluding GST if the purchaser is registered for GST or inclusive of GST if the purchaser is not registered for GST
Reduced ASIC Reporting and Audit Requirements
There may be a massive win for small and medium sized business on the way under a Liberal Government.
The Liberal government announced in Nov 2018 that it will reduce the reporting burden for small and medium businesses by raising financial reporting thresholds which have not been adjusted since 2007. The proposed measures will mean significantly more businesses will not need to prepare and lodge financial statements or an auditors report with ASIC.
Currently, proprietary companies are considered to be ‘large’, for the purposes of ASIC reporting requirements, if they meet at least any two of the following three thresholds for a given financial year.
| Threshold | Current | Proposed |
| Consolidated Revenue | > $25M | > $50M |
| Consolidated Gross Assets | > $12.5M | > $25M |
| Number of Employees | > 50 | > 100 |
This change will more than likely mean lower accounting costs being charged by the bigger end of Town, and/or clients shifting to smaller firms to manage their less complex affairs.
Keep a close pulse in this space and us in mind if you require a change in accounting needs.
All Business
The following applies to all business entities:
Bad Debts
Review your aged debtors listing for any bad debts and physically write-off before 30 June from your debtors’ ledger. Bad debts are claimed as a tax deduction in the year they are written off. Remember to also claim back the GST.
Repair and Maintenance Expenses
If your business requires any significant repairs to machinery or premises, you may wish to do this before 30 June to secure your tax deduction for the financial year.
You can claim a deduction for repairs to machinery, tools or premises you use to produce business income, as long as the expenses are not capital in nature or an addition/improvement to an existing capital asset.
To repair something generally means to fix defects, including renewing parts. It does not mean totally reconstructing something. You do not have to own the property or item that is repaired.
Inventory (Stock)
If your business carries stock or inventory, you should complete a stocktake at 30 June. Identify any obsolete stock and scrap it prior to 30 June.
Any stock that has a lower market or replaceable value can be written down and a deduction can be claimed for the decrease in the cost. There are three different methods of valuing stock: cost, market selling value and replacement price. Different methods of valuation may be used to value the same item of trading stock in different income years, and similar items may be valued using different methods in the same income year.
Work in Progress (WIP)
For manufacturing businesses, ensure you have accurate records to track your WIP (costs) at 30 June. Work in progress must include, all direct costs e.g. material costs and direct labour and manufacturing overheads e.g. rent, which is involved in the manufacture of a product which has not been completed by 30 June.
For service businesses, ensure you have accurate records to record your WIP (time) balance at 30 June. You can also review the WIP for any amounts which can’t be billed and write off to clean up your WIP records (note this does not affect tax). Generally, in service businesses, WIP is not taxable until it is invoiced.
GST
Have you remitted GST to the ATO for all disposals of fixed assets, including trade-ins? Ensure you include any GST adjustments arising from the fringe benefits tax return, (e.g. GST on employee contributions) and any prior year balancing adjustments in the June BAS.
CGT Assets
If you have made significant gains on sale of CGT assets in the year and have other CGT assets which are worth less than what you paid for them, you may wish to consider selling them now and realising the loss. Be careful, as you can’t sell an asset and then buy it straight back to realise the loss as this would be seen as tax avoidance – known as “wash sales”. The loss can be offset against your gains and therefore reduce any CGT. To claim the loss in the year, you will need to ensure the sale contract is entered into before 30 June. Capital gains are assessable in the year in which a contract of sale exchanges rather than when it settles.
Depreciable Assets (plant, equipment, office furniture etc)
Review your asset register for any assets that have been scrapped during the year. The written down value of these obsolete capital items can be written off, which will increase the tax deduction for the year.
Company Loans to Shareholders and their Associates (Division 7A)
If your company has advanced funds to a shareholder or related party, paid expenses or allowed a shareholder or other related party to use assets owned by the company, then this can be treated as a taxable dividend.
The regulators expect that top-up tax (if any applies) should be paid by shareholders at their marginal tax rate once they have access to these profits. This is unless a complying loan agreement is in place.
As the tax rules in this area can be extraordinarily complex and can lead to some very harsh tax outcomes, it is important to talk to us as soon as possible if you think your company has made payments or advanced funds to shareholders or related parties.
If you have any shareholder loan accounts from prior years that were placed under complying loan agreements, the minimum loan repayments need to be made by 30 June. It may be necessary for the company to declare dividends before 30 June to satisfy these loan repayments.
Taxable Payments Reporting – Building & Construction Industry
Businesses in the building and construction industry that pay contractors for building and construction services must lodge a Taxable Payments Annual Report with the ATO by 28 August.
Personal services income
If your company conducts a business that relies on your personal effort and skill to generate income, then you need to be aware of the rules applying to the diversion of personal services income.
If the company earns personal services income, the ATO will treat the income as having been derived by you personally (rather than the company) unless certain tests can be satisfied. This means that your personal tax rates will apply to the business income and you will be denied access to a range of tax deductions normally available to businesses.
Even if the rules haven’t affected you in the past, this is an annual test and you might be caught if your circumstances have changed.
