This has probably been the most difficult year ever for business owners due to the impact of COVID-19.
And this makes Tax Planning for 2020 and key actions before 30 June more important this year than for any previous year.
As a business owner, there are many obligations that you need to consider and action just before and after 30 June.
Your 2020 EOFY Reminders & Action Items
SINGLE TOUCH PAYROLL – UPDATE
Small businesses with 19 or less employees and that employed family members were due to start reporting these employees (known as “closely held”) through Single Touch Payroll (STP) from 1 July 2020.
However, due to COVID-19 the start date of this has been extended to 1 July 2020. Your small business can start voluntarily using STP earlier than this date.
All other employees should now be reported through STP.
REPORTABLE FRINGE BENEFITS
Where you have provided fringe benefits to your employees in excess of $2,000, you need to report the FBT grossed-up amount. This is referred to as a `Reportable Fringe Benefit Amount’ (RFBA) amount it needs to be updated for each employee as part of your Single Touch Payroll finalisation procedure for 2020.
STOCKTAKE
Businesses that buy and sell stock generally need to do a stocktake at the end of each financial year as the increase or decrease in the value of stock is included when calculating the taxable income of your business.
If your business has an aggregated turnover below $10 million, you can use the simplified trading stock rules. Under these rules, you can choose not to conduct a stocktake for tax purposes if the difference in value between the opening value of your trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year is less than $5,000. You will need to record how you determined the value of trading stock on hand.
If you do need to complete a stocktake, you can choose one of three methods to value trading stock:
- Cost price– all costs connected with the stock including freight, customs duty, and if manufacturing, labour and materials, plus a portion of fixed and variable factory overheads, etc.
- Market selling value– the current value of the stock you sell in the normal course of business (but not at a reduced value when you are forced to sell it).
- Replacement value– the price of a substantially similar replacement item in a normal market on the last day of the income year.
A different basis can be chosen for each class of stock or for individual items within a particular class of stock. This provides an opportunity to minimise the trading stock adjustment at year-end. There is no need to use the same method every year; you can choose the most tax effective option each year. The most obvious example is where the stock can be valued below its purchase price because of market conditions or damage that has occurred to the stock. This should give rise to a deduction even though the loss has not yet been incurred.
TRUST DISTRIBUTION RESOLUTIONS
Trustees (or directors of a trustee company) need to consider and decide on the distributions they plan to make by 30 June 2020 at the latest. Decisions made by the trustees should be documented in writing, preferably by 30 June 2020.
If valid resolutions are not in place by 30 June 2020, the risk is that the taxable income of the trust will be assessed in the hands of a default beneficiary (if the trust deed provides for this) or the trustee (in which case the highest marginal rate of tax would normally apply).
ACTION STEP: We will prepare your Trust Distribution Resolution based on the strategies from our 2020 Tax Planning meeting, we will prepare this document for you to sign in the next couple of weeks.
PAYROLL TAX
Payroll tax applies to all entities that have an Australian payroll that exceeds state-based limits.
You should note that in addition to normal salaries and wages, the following items are generally also included in payroll expenses if payroll tax applies:
- fringe benefits based on the grossed-up taxable value of fringe benefits;
- all employer contributions to superannuation on behalf of employees; and
- some contractor or sub-contractor fees.
For more detailed information about whether payroll tax applies to your business, please contact our office.
ACTION STEP: The Annual Return/Reconciliation for payroll tax must be lodged by 21 July 2020 (Queensland, Victoria, Northern Territory, Tasmania and WA) or by 28 July 2020 (NSW and South Australia) with your State Revenue Office.
WORKCOVER / WORKSAFE
Your WorkCover/WorkSafe insurer sends an annual reconciliation to all registered employers at the end of the financial year.
In completing your annual reconciliation, you will need to include the following items in addition to normal salaries and wages:
- fringe benefits based on the taxable value of fringe benefits (do not gross-up);
- all employer contributions to superannuation on behalf of employees; and
- some contractor or sub-contractor fees.
Because of the complexity about what items to include in the reconciliation statement, we advise that we should complete this on your behalf.
Once the reconciliation is received and processed by your WorkCover/WorkSafe insurer, you will be issued with a final assessment or a refund depending on the instalments you have paid during the year.
ACTION STEP: Complete and lodge the Annual Reconciliation with your WorkCover/WorkSafe insurer by the due date.
ATO AUDIT ACTIVITY
Please note that the ATO and State Revenue Office are constantly increasing their audit activities. There has been an increase in audit activity for PAYG Withholding, Payroll Tax, WorkCover, GST, Division 7A loan accounts from companies, and Trust distributions from Discretionary Trusts.
We can offer a review of your records and record-keeping procedures if you are concerned about your ability to satisfy an audit.
ACTION STEP: Please contact our office if you would like to request this service.
