BY THE TIME you read this month’s column, you will have less than three weeks to take advantage of a number of important opportunities to reduce the tax payable on your 2020 income tax return, be it your business tax return or your individual tax return.
COVID-19 stimulus package — instant asset write-off
The income tax law was amended earlier this year, as part of the COVID-19 stimulus package, to increase the cost threshold, for eligible businesses from $30,00 to $150,000, allowing eligible businesses to “immediately write off the cost of each asset that costs less than the threshold”.
This change to the rules is only available for acquisitions made between March 12, 2020 and June 30 2020.
For an asset to be eligible for this immediate write-off it must be first used for business income purposes, or installed and ready for use within this period, and the business must have an aggregated turnover of less than $500 million.
Note, the threshold for assets purchased between July 1, 2019 and March 11, 2020 is $30,000 and restricted to businesses with an aggregated turnover of less than $50 million.
Unless the law is further amended, as of July 1, 2020, the instant asset write-off threshold will revert to its original level of $1,000 and will only be applicable to businesses with an aggregated turnover of less than $10 million.
This is an enormous incentive for businesses to obtain a significant tax saving, and may be well worth bringing planned future asset investments forward to take advantage of the current, generous, threshold.
Furthermore, if you are considering purchasing a motor vehicle for your business, car dealers are offering significant discounts to buy before June 30.
Please note: If you are contemplating purchasing a car at a price above the luxury car limit of $57,581 you can only claim a write-off up to that amount.
If you have been able to access the JobKeeper and Cash Boost COVID-19 incentive packages, the additional liquidity may assist in funding asset purchases eligible for the instant write-off.
Added to these incentives, business loan finance is currently available at historically low interest rates, so paying up to say 5 per cent per annum to save tax at the company rate of 27.5 per cent could be tempting.
Note this concession is only available to business entities such as companies, trusts, partnerships and sole proprietors, but only if you are operating a business.
Now, for a cautionary word, do however consider your projected cash flow position and don’t be tempted to buy an asset just for the sake of saving tax if it is not essential to your business.
Personal super contributions
There are three positive reasons to contribute funds into your super fund that are additional to your employer’s 9.5 per cent super guarantee contributions.
- There are significant tax savings available by making personal concessional (deductible) contributions up to the $25,000 cap, which of course includes employer super guarantee contributions.
- Virtually all super fund balances have suffered a significant reduction in value due to the impact of COVID-19 on super fund’s assets, yet currently, many sound long-term financial investments are undervalued and are expected to recover in the future as many did after the global financial crisis.
- Many of us are significantly under- funded for our retirement and need to restore value into our superannuation funds.
If you plan to make personal super contributions, you must ensure your contributions are credited to your fund account by Tuesday, June 30.
To be on the safe side, please transfer your contributions no later than Wednesday, June 24, to allow sufficient time for processing.
Personal concessional (deductible) contributions
If you are thinking of making a personal deductible super contribution please read my February and March articles entitled Using Super Contributions to Reduce Your Tax – Part A & B before proceeding.
These articles may be accessed on both the Warrandyte Diary and PTAS websites.
The low incomes superannuation tax offset (LISTO) – low income earners
If at least 10 per cent of your adjusted, taxable income, of up to a maximum of $37,000, is from business or employment, or a combination of both, the Government will make a contribution to your super fund of up to a maximum of $500.
This being an amount equal to 15 per cent of concessional contributions you have made — up to $3,333.
This amount is inclusive of employer super guarantee contributions, so if they are less than $3,333, topping up with a personal concessional contribution may be well worth while.
Because the payment goes directly to your super fund you need to make sure your fund has your tax file number which should be quoted on your member statement.
Personal non-concessional deductions
If you are considering making a personal non-deductible super contribution this financial year, please refer to my February 2020 article.
The Government co-contribution — low to middle income earners
If you are less than 71 years of age on June, 30, 2020 and:
- Have a total superannuation balance of less than $1.6 million at June, 30 2019 and,
- an adjusted taxable income of up to $53,564 this year and,
- have made non-concessional contributions of at least $1,000 and,
- had total income of at least equal to or less than $38,564 and,
- lodge your tax return for 2020 and,
- 10 per cent or more of your total income has come from employment related activities and or from carrying on a business…
You may qualify for the Government co-contribution to your super fund of up to $500, at the lower income threshold, tapering down to zero at the upper threshold.
In this instance, investing $1,000 as a non-concessional super contribution may offer a very attractive tax free rate of return.
If your spouse has an income of $40,000 or less, has less than $1.6millon in super and has not exceeded the non-concessional contributions cap for the year.
Then you could be kind to your spouse (married or de facto) and at the same time receive a tax offset of up to $540 on the first $3,000 you contribute to your spouse’s super fund from your after-tax income.
The maximum tax offset applies when your spouse’s eligible earnings are below $37,000.
The maximum tax offset tapers off when your spouse’s income increases above $37,000 and reducing to zero at $40,000.
Claim your home office expenses
If you are entitled to claim home office expenses this year, make sure you read my April and May 2020 articles for a comprehensive update on how to maximize your home office deductions.
The content of this article is not intended to be relied upon as professional advice and should not be used as such. Many of the issues covered in this article are quite complex so if you are preparing your own tax return and have any questions give some thought to consulting a registered tax agent.
Brian Spurrell FCPA, CTA, Registered Tax Agent.
Director, Personalised Taxation & Accounting Services Pty Ltd
P O Box 143 Warrandyte 3113. Ph: 0412 011 946
Web: www.ptasaccountants .com.au