Tax tips 2020–21
With the end of 2020 approaching quickly, here are some tax tips to assist with managing your business accounting.
Varying your PAYG instalments
You can vary your PAYG instalments throughout the year if you think you will pay too much tax, compared with your estimated tax for the year.
To assist businesses affected by the COVID-19 pandemic, the ATO won’t apply penalties or interest for the 2020–21 income year for excessive variations when you make your best attempt to estimate your end of year tax. However, general interest charges may apply to outstanding PAYG instalment balances.
Variations don’t carry over into the new income year, so if you made variations in the 2019–20 income year, you might need to vary again in 2020–21. Your varied amount or rate will apply for all your remaining instalments for the income year, or until you make another variation.
Calculating and paying the right PAYG instalment amounts will help you manage your cashflow.
Talk to our KMT tax adviser if you want to vary your PAYG instalments.
Small business CGT concessions
The small business CGT concessions (aggregated turnover under $2 million – not $10 million) are important but very complex. Disputes with the ATO about the concessions are not uncommon.
In good news for small business, the Full Federal Court recently found that as the small business CGT concessions are intended to “help small business”, they should be construed beneficially rather than restrictively.
This approach assisted a taxpayer (Mr E) who sold a property used to store materials, tools, equipment and vehicles used in a building, bricklaying and paving business operated by Mr E (and his wife) through a family trust. Some materials, etc. were stored in two 4m × 3m sheds and other materials, etc. were stored in the open. The property was visited several times a day in between jobs and tools, and other items were collected on a daily basis.
The Court decided that the property was “used, or held ready for use, in the course of carrying on a business” and was, therefore, an “active asset”. This meant that Mr E could access the small business CGT concessions to reduce the capital gain made on the sale of the property.
Note: If you are thinking about selling a business or business assets, talk to our KMT tax adviser about how to minimise the tax that might be payable if you make a profit on the sale.
Calculating aggregated turnover
Whether a business is entitled to certain tax concessions – e.g. the simplified depreciation rules and the small business CGT concessions – depends on the business’ “aggregated turnover”.
Aggregated turnover is generally the business’ annual turnover plus the annual turnovers of affiliates of the entity and entities connected with the entity.
Annual turnover is all ordinary income the business derived in the ordinary course of carrying on a business for the income year.
The ATO has confirmed that JobKeeper payments are not included in annual turnover. This is because they are not derived in the ordinary course of carrying on a business, even though they are ordinary income (and therefore should be included in your assessable income). Other amounts that are not included in annual turnover are:
- GST charged on a transaction;
- amounts borrowed for the business;
- proceeds from selling business capital assets;
- insurance proceeds for the loss or destruction of a business asset; and
- amounts received from farm management deposit repayments
Closing a small business
Unfortunately, some businesses may need to close their doors – either temporarily or permanently – due to the COVID-19 pandemic. The ATO has called on such businesses that are closing temporarily to “do their best to keep up with tax and superannuation obligations”.
If you are in this situation and you need additional time or support, you should contact KMT Partners on 08 8431 0022 or the ATO on 1800 806 218.
If a business is forced to close permanently as a result of the COVID-19 pandemic, or for any other reason, it must still lodge any outstanding activity statements and instalment notices, make GST adjustments on the final activity statement and lodge final tax returns. This will enable the ATO to finalise the taxpayer’s account and issue any refunds that might be owed.
Once the entity’s tax affairs are finalised, the ABN and GST registration should also be cancelled. Business records must be kept for at least 5 years after the end of the financial year in which a business is sold or closed.
Are your ABN details up-to-date?
Did you know that emergency services and government agencies use ABN details to help identify businesses in affected areas during times of emergency or natural disaster? It is therefore important to ensure your ABN details are correct, including:
- authorised contacts;
- the physical location of the business;
- the postal address and the email address; and
- the phone number.
It is advisable to list your own contact details and not your tax adviser’s details.
The fastest way to update your details is through the Australian Business Register (ABR) online services.
Log in using myGovID and Relationship Authorisation Manager (RAM).
Are you changing your business structure?
If you are changing your business structure, for example, from a sole trader to a company, you will need a new ABN. Other situations where you need to cancel your ABN and apply for a new ABN include where changing from:
- individual/sole trader to partnership or trust;
- individual/sole trader to company or trust
- partnership to company or trust.
You must ensure that your ABN details are updated on your tax invoices. This is essential as your ABN is used to:
- identify your business identity to others when ordering and invoicing; and
- claim GST credits.
Other businesses and entities must withhold payment at the top marginal tax rate if the ABN quoted on the invoice is incorrect or the details do not match up.
Remember to ensure that you update your GST registration details whenever you get a new ABN.
Contact our KMT tax adviser if you are considering changing your business structure. There are likely to be tax issues.
Working out if you have to pay superannuation for your workers
It is not always easy to work out when you have to make contributions under the superannuation guarantee (SG) scheme.
Generally, if you pay an employee $450 or more (before tax) in a calendar month, you have to make SG contributions on top of their wages. This includes a family member working in your business.
If your employee is under 18, they must work for more than 30 hours per week to qualify.
You are required to make SG contributions regardless of whether the employee:
- is full-time, part-time or casual – working holiday-makers are also included;
- receives a superannuation pension or annuity while still working; or
- is a company director.
Although you generally don’t need to make SG contributions for independent contractors, you may be required to make contributions for a contractor where the contract engaging them is wholly or principally for their labour.
It is not always easy to decide if a person working for you is an employee or an independent contractor. If you are at all uncertain, talk to our KMT tax adviser.
Key tax dates
|8 Nov 2020*||Wage condition deadline for JobKeeper fortnight 16|
|14 Nov 2020*||October JobKeeper monthly business declaration due|
|21 Nov 2020*||October monthly BAS due|
|22 Nov 2020*||Wage condition deadline for JobKeeper fortnight 17|
|28 Nov 2020*||Lodge and pay September quarterly SGC (if required)|
|1 Dec 2020||Full self assessment companies – pay 2019–20 income tax
Non-full self assessment companies – lodge 2019-20 return
|6 Dec 2020*||Wage condition deadline for JobKeeper fortnight 18|
|14 Dec 2020||November JobKeeper monthly business declaration due|
|19 Dec 2020*||Wage condition deadline for JobKeeper fortnight 19|
|21 Dec 2020||Lodge and pay November monthly BAS|
|3 Jan 2021*||Wage condition deadline for JobKeeper fortnight 20|
|14 Jan 2021||December JobKeeper monthly business declaration due|
|21 Jan 2021||Lodge and pay December monthly BAS|
|31 Jan 2021*||Closely held trust – lodge December quarterly TFN report|
|14 Feb 2021*||January JobKeeper monthly business declaration due|
|21 Feb 2020*||Lodge and pay January monthly BAS|
28 Feb 2021*
Lodge and pay December quarterly BAS
Lodge and pay December quarterly instalment notice
Lodge annual GST return (if no tax return due)
Lodge and pay SMSF annual return for new SMSFs (unless otherwise advised)
*Next business day
Contact KMT Partners to confirm the correct due dates for your own tax obligations. For example, you may have more time to lodge and pay if impacted by the COVID-19 pandemic.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from your accountants at KMT Partners. Information is current at the date of issue and may change.
Your may also be interested in:
Latest SMSF updates 2020
Our KMT Spring Edition Newsletter 2020 is ready. Download here