It always pays for a business owner in mining and resources to be proactive, particularly towards the end of the financial year. While careful tax return preparation is important, the fact is, most tax saving mechanisms need to be implemented before 30 June. The earlier you can identify the issues, the more time you have to explore the options, arrange your cashflow and implement a plan to reduce or avoid the need to pay unnecessary tax.
There’s a myriad of tax planning measures with both short-term and long-term tax-effective outcomes available to you.
Accountants and business advisors David Pennell and Brenden Yantsch are contributors to Resources Unearthed. In this article they highlight the 10 tax planning measures that are most relevant in 2020 for business owners in mining and resources.
Although these items apply to all businesses, those clients with businesses operating via a company structure, with a group turnover of less than $50 million, will have extra incentive to review their tax planning this year: The company tax rate changes on 1 July 2020. The tax rate for the year ended 30 June 2020 will be 27.5% and changes to 26% for the year ended 30 June 2021. This creates many tax planning opportunities for consideration.
2020 TAX PLANNING for your M&R BUSINESS: 10 MUST-DO’s
#1 Income strategies
- Review invoicing and income in advance.
- It may be possible to defer the recognition of accrued income to the following income year. Review your invoicing, contracted performance and stock delivery for the current tax year and postpone some income until next financial year, if appropriate.
- Generally, income received in advance of you performing the work and for work in progress are not income. Review your contracts and terms of trade and determine if all of the income invoiced or received in the current year is actually income in advance and may be deferred into next year.
#2 Expenditure strategies
- Prepayments – clients with group turnover of less than $10 million may have the ability to pre-pay expenses and claim a deduction in this year. Up to 12 months of the coming year’s expenses can be deducted in the current tax year.
#3 Bad debts
- Review your debtors and write off any that are unrecoverable. Bad debts are deductible when written off and you must keep written records to prove that such debts have been written off before year-end.
#4 Depreciation and immediate asset write-off
- Review your asset register, identify any sold, scrapped or obsolete items and write them off completely.
- Consider accelerating the purchase of plant and equipment items. The current tax stimulus allows the immediate write-off of equipment up to $150,000 for some businesses. This equipment must be installed and ready for use before 30 June 2020.
#5 Review staff entitlements and superannuation
- Accrued staff commissions and bonuses are deductible when incurred rather than when paid. You should review your staff entitlements and document any accrued entitlements.
- Superannuation is deductible when paid. Review staff superannuation entitlements and consider paying before year-end.
- Top up your personal voluntary superannuation contributions. Remember, you have an annual cap of $25,000 in deductible super contributions.
- Consider taking advantage of the Superannuation Guarantee Amnesty if you have identified that employees’ super has not been paid correctly.
#6 Declare dividends and reconcile shareholder/director loans
- The change in company tax rate at 1 July 2020 will also impact the franking rate. It may be beneficial to declare dividends prior to 30 June 2020.
- Ensure that shareholder or director loans are repaid or minimum repayments and interest is applied under complying loan agreements.
#7 Trust resolutions
- Trustees must make income distribution resolutions by the end of an income year (i.e. 30 June), or earlier if required by the trust deed. Accurate income estimates and carefully considered resolutions will ensure that the desired beneficiaries are taxed at the most tax efficient rates.
#8 Year-end tax administration
- Review all your compliance and reporting obligations including:
- Motor vehicle log books
- Single Touch Payroll and annual finalisation and reconciliations
- Taxable Payments Annual Report (TPAR)
- JobKeeper reporting obligations
#9 Set 2021 forecasts, budgets and KPI’s
- Use the opportunity while considering this financial year to plan for the next. Set goals, budgets and KPI’s for monitoring your business performance in 2021.
- Start your 2021 tax planning from the beginning of the new financial year.
#10 Are you using the right entity structure?
- Tax planning should also involve long-term decision making and a review of your current structure. Does your current structure provide you with the desired tax efficiency, governance and asset protection, flexibility for change and ease of administration? If not, then you may want to consider whether a change to your structure is appropriate and whether the current small business CGT concessions may assist in this restructure.
Your next step…
As always, to ask any questions or further discuss tax planning for your mining and resources business in 2020, please contact Resources Unearthed on (07) 3007 2000 or email email@example.com
Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in mining and resources.
The information contained here is general and not intended to serve as advice. Any information supplied is not a substitute for independent professional advice. We do not warrant the accuracy, reliability, completeness or adequacy of the information or material. All information is subject to change without notice.