Why Is End Of Year Planning So Important?
Business planning is a key element to success. Businesses with a formal business plan perform far better than those that don’t, and with good reason. If you know where you want to get to, there is far more chance of getting there.
Bring the team together, find a facilitator and brainstorm all of the ideas that you could use to grow your business. Your team will be more engaged when they have input into what your growth activities will be.
Don’t forget the business formula – that your total revenue is your number of customers times the number of sales per customer by the average value per sale. A 10% increase in each could drive your growth by more than 30%.
FBT For Your Business
The end of the 2021/22 fringe benefits tax financial year has come, and it is now time for us to do our part for your returns. However, there are some items that we might need your help with, particularly if you haven’t been forthcoming with information.
COVID-19 & FBT
Due to the impacts of COVID-19 over the last financial year, your FBT return may look a little different this year. Here are some of the areas that you might need to consider:
- Working From Home
- Cars
- Car Parking
- Entertainment
You may need to start a conversation with your accountant if you have been providing your employees and their associates with non-cash benefits and private expenses you have paid on their behalf. This is information that they will need to help prepare your tax return.
Remember, if you are reaching out to us for assistance with your FBT tax return, the lodgement date will be 25 June 2022, otherwise it will be 21 May 2022 if you lodge it yourself.
Last Chance To Apply As COVID-19 Tax Deduction Deadlines Approach
Tax deductions introduced by the Australian Taxation Office to lessen the impact of COVID-19 are approaching the end of their eligible timeframe.
Loss-Carry Back Rules
Eligible businesses with an aggregated turnover of less than $5 billion or corporate tax entities that meet an alternative $5 billion total income test are able to use the temporary full-expensing measure again this year
Shortcut Method
If you have had to work from home over the last year between 1 July 2021 to 30 June 2022, you can claim a deduction for working from home.
You can claim $0.80 for every hour that you worked from home, but you are not able to claim for anything else if using this method.
To claim this, you need to:
- keep a record of how many hours you worked from home
- work out your deduction amount
- write the deduction amount in your tax return in the ‘Other work-related expenses’ section
- write ‘COVID-19 hourly tax rate’ in your tax return.
If you are consulting with a registered tax agent for your return, they may recommend this as your best course of action.
Essential Record-Keeping At Year-End For Your Business
Good record-keeping makes it easier to meet your tax obligations, manage your cash flow and make sound business decisions going forward. Essential business records that must be kept include:
- Expense Or Purchase Records. You must keep records of all business expenses, such as receipts, tax invoices, cheque book receipts, credit card vouchers and diaries to record small cash expenses.
- Year-end Records. These records include lists of creditors or debtors and worksheets to calculate depreciating assets, stocktake sheets and capital gains tax records.
- Income & Sales Records. You must keep records of all income and sale transactions such as tax invoices, receipt books, cash register tapes and records of cash sales.
- Bank Records. Documents such as bank statements, loan documents and bank deposit books need to be kept in preparation for your tax return.
- Fuel Tax Credits. To claim fuel tax credits for your business, records must show that you acquired the fuel, used it in your business, and applied the correct rate when calculating how much you are eligible to claim.
- Payments To Employees & Contractors. Records of your workers need to be kept, including tax file numbers, withholding declaration forms, contributions to their superannuation, wages and any other payments made to them.
By maintaining consistent records throughout the year of your major and minor expenses, you will be in a better position to face the end of the financial year.
Superannuation Strategies To Employ Before The EOFY
With superannuation being the key to a comfortable retirement, here are some of the strategies to consider that could help with streamlining your finances (while also taking into account some considerable tax breaks).
Concessional Contributions
Also known as the before-tax contributions, these are the funds that go into your super account from your income before tax. The concessional contributions cap is $27,500 for all ages for the 2021-22 financial year. Your cap may be higher if you did not use the full amount of your cap in previous years. This is called the carry-forward of unused concessional contributions.
If your combined income and concessional contributions are more than $250,000 in total, you may have to pay extra tax. This is something to consider if you are looking to make personal contributions for the sake of the tax deduction.
Non-Concessional Contributions
Before-tax contributions are not the only way to top up your super account. Non-concessional contributions are made into your super fund from after-tax income. For the 2021-22 financial year, the non-concessional contributions cap is being increased to $110,000. If you contribute more than this, you may have to pay extra tax on this.
Preparing For Your Rental Property’s Tax Deductions
If you are a landlord, you may be looking for ways to reduce your tax liability this year. This may assist you in turning your property’s cash flow from a negative into a positive. Here is a list of the main tax deductions that landlords should bear in mind when tackling their income tax returns:
Maintenance & Repairs
Repairs can be claimed as an immediate deduction if they relate directly to wear and tear (e.g replacing broken tiles after a storm with professional help). You will need to also understand the difference between renovations and repairs. This is because there are different tax treatments to renovations and repairs, and getting the two confused can be costly.
Rental Advertising Costs
It’s a common saying: you have to spend money to make money. So if you have spent money on marketing your property using online or print media, brochures and signs, you can claim these advertising expenses against your income in the same year that you paid for them.
Loan Interest
You can claim the interest charged on a loan for an investment property and any bank fees for servicing the loan. You cannot however claim your repayments on the principal sum of the loan, nor claim interest on the entire size of the loan if you refinanced a portion of the loan for private purposes (regardless of whether equity in an investment property was used as security in that loan.
Council Rates & Strata Fees
Council rates can be deducted in the year that they are paid, but can only be claimed for the periods in which the house was being rented out.
Building Depreciation
Depending on when your investment property was built, you may be able to claim a deduction on the depreciation of the building’s structure and any renovations you make to the property.
Pest Control
Either the landlord or the tenant can claim an immediate deduction for the hire of a pest control professional
Insurance
You can claim the cost of insuring a rental property. This may be especially important to note for those who have flood-affected properties, or whose insurance in the area that their property is has increased in cost as a result.
Trust Planning This Year Needs To Be Done Carefully
In order to prepare your trust for the end of the financial year, there are multiple obligations that you need to fulfil as a trustee. Planning for your trust’s future is just as important as tax planning or business planning, so it’s encouraged that you take an active role.
Trust Deed
Make sure that there is a complete original copy of the trust deed, including any amendments. You will need to be sure that any resolution that is made to distribute the income from the trust or the capital is consistent with the terms of the deed. A lost trust deed can cost well over $10,000 to rectify.
Trust Distributions
The simplest way to look at trust distributions is to understand that this process is about working out who is getting what and when from the trust.
Generally, discretionary trusts (and some fixed trusts) are required to prepare and execute distribution minutes prior to 30 June for each financial year.
When preparing the trust distribution minutes, it may be an idea to retain a nominal amount in the trust for the 30 June 2022 income year. This will assist with generating a notice of assessment for the trust and effectively limiting the amendment period to 4 years (or 2 years for trusts that are considered a small business entity) from the date of that notice.
Compliance Concerns
A commonly recommended structure for investment and business, family trusts income distributions are a concern for the Australian Taxation Office (ATO) when it comes to compliance. Recent rulings around trust distributions could complicate the way your trusts are operated and structured and will come into effect on 1 July 2022.