What is tax planning?
Tax planning is the process of organising tax deductable expenses in order to reduce your year-end tax position. By structuring your finances more efficiently you can manage the amount of tax you pay.
You have the right to arrange your financial affairs to keep your tax to a minimum. This is often referred to as tax planning, or tax-effective investing.
The 2020 Federal Budget has created both unprecedented tax planning opportunities and risks.
Tax planning is not limited to complex, high risk or sophisticated arrangements. Taxpayers contemplating even the most ordinary transactions should consider tax planning (and, in particular, to CGT issues) to ensure that they do not suffer adverse tax consequences.
Advisors and taxpayers need to ensure that tax arrangements and schemes are within the law.
In summary, tax planning is the process of acquiring the latest tax knowledge and taking the necessary steps to reduce your income tax burden.
How did the budget announcements impact your tax position?
The tax relief measures shown in the 2021 financial year can significantly reduce your tax liability in the short term. These measures include:
- No dollar limit to the deduction for the cost of most depreciating assets acquired from 6 October
- Full deduction for depreciating assets costing less than $150,000 (mostly overridden since 6 October by the above).
- 50% up-front deduction for depreciating assets costing $150,000 or more (also mostly overridden).
- Immediate deduction for the 30 June 2021 closing balance in their depreciating asset pool (for small businesses only)
- Expanded access to small business concessions where group-wide turnover is below $50 million (up from $10 million) including prepayments.
- Cash refunds for companies carrying back a tax loss to a prior year that had a tax liability.
These tax relief measures can be assisted and optimised greatly by your trusted JBC tax specialist.
Adverse tax outcomes:
It is extremely important to ensure you firstly do you tax return yearly and secondly include all deductions, as you will not be able to claim after expedition after 30 June.
Generally, depreciation and capital expenses cannot be immediately deducted. Instead you claim the cost over time, reflecting the asset’s depreciation (or decline in value).
The full deduction simply replaces what would have been the normal depreciation deductions spread over a few years. Even with only business-as-usual acquisitions of depreciating assets, this results in lower-than-otherwise taxable income in 2020/21 (or even a tax loss), followed by higher-than-otherwise taxable income in subsequent years.
Next steps
The whole point of tax planning, whether for 2020/21 or any other time, is for your JBC Corporate adviser to help guide where your tax burden may land, with no nasty surprises, and no opportunities missed.
JBC Corporate has developed strategies post the 2020 budget which can:
- Significantly reduce your Division 7A liability by incorporating the accelerated deductions for plant and equipment.
- Generate wind fall refunds from franking credits again by incorporating the accelerated deductions for plant and equipment.
- Accelerate the tax refunds from the carry back loss concessions by increasing the losses in the 2021 using the accelerated deductions announced.
The time is now to discuss tax planning opportunities with your trusted JBC Corporate adviser. Should you require assistance regarding the above, please do not hesitate to contact our office on (08) 6323 7000.
