The end of the financial year is fast approaching which means preparations need to be made to ensure your Trade business is organised for the 2021 financial year tax season.
Financial Data
Making sure your financial data is recorded correctly in your accounting software will save you in accounting fees and ensure your data is accurate when you run management reports.
- Subcontractors: make sure every subcontractor paid is correctly recorded on the books: name, ABN and address. Check the subcontractors’ ABN through ABR website to establish if they are registered for GST. If the subcontractor is not registered for GST, the GST component of the invoice (if any) is not claimable and the bill will need to be recorded using GST-free tax code.
- Ensuring subcontractors are recorded correctly will also help in completing a Taxable Payments Annual Report (TPAR) which is required to be lodged annually by 28 August summarising subcontractors paid and the amount of GST paid to each subcontractor.
- JobKeeper Payments: JobKeeper payments should be recorded under Other Income. These payments are GST-free and are also assessable for tax purposes.
- Cashflow Boost payments: the Cashflow boost payments need to be recorded separately under Other Income. These payments are GST-exclusive, non-reportable and non-assessable.
- Personal expenses: ensure all personal transactions are coded to Director’s Loan account. Business accounts should only contain business income and expenses
- Single Touch Payroll: make sure all your pay runs have been filed under Single Touch Payroll (STP). Wages and superannuation data will need to be finalised through STP reporting by 14 July 2021. You are not required to provide payment summaries (including part-year payment summaries) to your employees for the payments you report and finalise through STP.
Tax Planning
Review your 2021 financial year performance (from 1 July 2020 to 30 June 2021).
If your Profit and Loss report is showing a large profit for the year, you may be able to reduce tax payable using some of the following tips:
Temporary Full Expensing of New Assets
Trade Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciating assets. The eligible new assets must be first held, and first used or installed ready for use for a taxable purpose, between 6 October 2020 and 30 June 2022. If your business has an aggregated turnover of less than $50 million, temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.
Important to note: A car limit applies to the cost of passenger vehicles designed to carry a load less than one tonne and fewer than 9 passengers. For 2021 financial year, the car limit is $59,136 (incl. GST).
Superannuation
June 2021 quarter’s superannuation is payable by 28 July 2021. If superannuation is paid prior to 30 June, your business will receive a tax deduction for the payment in 2021 financial year (instead of 2022 FY).
Extra Superannuation Contributions
The concessional contribution cap for the 2021 financial year is $25,000. Concessional contributions are employer contributions, such as super guarantee and salary sacrifice contributions. One of the options to get an extra tax deduction is to pay extra superannuation before 30 June 2021 (up to the concessional cap). Please contact your accountant/financial adviser to work out how much extra super contributions you can pay.
Structuring
Your business structure plays an important role in how much tax you pay. For example, being a sole trader is the simplest and cheapest business structure; however, individual tax rates apply to your business income (which marginally increase as the taxable income increases). In comparison, base rate companies pay 26% flat tax rate (for 2021 FY) on taxable profits.
If you not sure of other items items you can claim see our other article titled “Can I claim this as a tax deduction.
Tax planning and EOFY preparation may be overwhelming; however, we live and breathe this day in and day out and we are here to help you with your compliance needs give as a call or fill in our website form if you need help with your tax and compliance needs.