Small business owners must act fast to take advantage of several changes that could help their bottom lines when they need it most, after a brutal year of Covid-19, bushfires and drought, Chartered Accountants Australia and New Zealand says.

With company tax cuts on the horizon, a further extension of the instant asset write-off and continued Covid-19 support, 2021 is a critical end of financial year period for Australia’s more than 2 million[1] small business owners.

“We know many businesses are still hurting from the effects of Covid-19 in Australia, which is why we’re reminding small business owners to take advantage of tax relief as soon as possible,” CA ANZ Senior Tax Advocate Susan Franks said.

“There are a number of changes and concessions that are available to business owners as part of the broader economic recovery package provided by government, but only a small window to take advantage of them.

“Delaying tax affairs could cost small businesses significant cashflow this year, when they may need it most.”

Company Tax Rate

The Company Tax rate for most small businesses is currently being cut from 27.5% for the 2019-20 year to 26% in 2020-21, then 25% in 2021-22.

Business should consider opportunities to:

    Bring forward expenses to get a deduction at a higher company tax rate.
    Delay income so it can be taxed at a lower company tax rate.
    Consider how it affects planned dividend payments – as the different tax rates affect how your dividends are franked. 

Instant Asset Write-Off

The popular instant asset write-off has been extended to 30 June 2023. This is where business owners can write-off the cost of new, eligible expenses required to run a business. These expenses may include new machinery, plant or equipment like phones, point of sale systems and technology.

Businesses should consider their finances and business plan and ask themselves whether it is beneficial for them to take advantage of this policy.

Importantly:

    With company tax rates being cut, this provision is worth more now than in the future.
    For businesses that use simplified depreciation, the balance of your pool will be written off.. 

The government has also extended concessions to small businesses (under $50 million turnover) with the ability to immediately deduct start-up expenses, like professional advice from a lawyer or accountant.

Loss Carry Back

Everyone knows you can carry forward a loss, but for a limited period, you can also carry a loss back. Eligible corporate tax entities that previously had a liability to pay corporate income taxes in a relevant year and have subsequently made a tax loss can claim a refundable tax offset.

If you end up with a loss this year and have paid tax in prior years, you may want to consider carrying back your loss and claiming a tax refund. To do this you will need to check the tax that you have paid and your franking account. The ATO have said many people have errors in their franking account, so now is a good time to double check.

Before you claim that loss carry back, have a discussion with your accountant about your future dividend plans. There are scenarios where it might not be the best option for you.

New Hires

If business owners recruited any new, young workers since October, they may be eligible to claim JobMaker hiring credit payments. Employers can receive payments of up to $200 and $100 a week for new eligible employees aged 16 to 29 and 30 to 35 respectively. The JobMaker hiring credit is available for 12 months for employers who hire eligible new workers between 7 October 2020 and 6 October 2021, as part of the government’s response to Covid-19.

Ms Franks says this year’s end of financial year will be more challenging than most for many small business owners because of the ongoing financial effects of Covid-19.

“This financial year has been one of the toughest in living memory and also one of the most complex tax-wise,” Ms Franks said.

“But it does provide business owners with the opportunity to assess how they went and make fresh plans for the year ahead.

“Whether small businesses are pressing pause or planning ahead for next financial year, we recommend getting in touch with your Chartered Accountant to make the most of the end of financial year to access the tax concessions available.”

About Chartered Accountants Australia and New Zealand

Chartered Accountants Australia and New Zealand represents more than 128,000 financial professionals, supporting them to make a difference to the businesses, organisations and communities in which they work and live. Chartered Accountants are known as Difference Makers. The depth and breadth of their expertise helps them to see the big picture and chart the best course of action.

www.charteredaccountantsanz.com