2021 Tax Planning Issues

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Individuals | Small business | Trusts

Tax planning issues for individuals

Individual tax rates exceed the company tax rate at a fairly low level of profit, so tax planning issues for individuals does including considering the business structures you have in place. You can see more information about business structuring on our dedicated webpage.

Depending on your personal circumstances, you can consider the following general points about reducing your personal income tax for the tax year ending on 30 June 2021:

  1. streaming of income from family (discretionary) trusts;
  2. declaring franked dividends from private companies;
  3. use of salary packaging and salary sacrifice arrangements (eg. car, additional superannuation contributions);
  4. use of income protection policies;
  5. use of investment bonds for investments of at least 10 years;
  6. use of negative gearing strategies including; acquiring interests in registered managed investment schemes (MIS) which have product rulings from the ATO, use of margin lending products to buy shares and buying an investment property;
  7. offset any capital gains with capital losses to minimise capital gains tax (CGT) (NB: The ATO are reviewing 'wash sales' which could result in a capital loss being denied by the ATO);
  8. deferment of all or part of the sale of CGT assets to the next financial year;
  9. pre-payment of interest or insurance costs by 30 June up to 12 months in advance (NB: Specific rules apply to these types of deductions);
  10. self-education expenses;
  11. additional contributions to superannuation for you and your spouse (taking into account the contribution thresholds); and
  12. charitable donations to a registered charity, public ancillary fund or private ancillary fund.

Superannuation contributions

To obtain the benefit of the 15% tax rate on earnings in superannuation funds and tax-free income in retirement, you should consider:

  1. concessional contributions up to $25,000/year;
  2. catch-up contributions (for funds under $500,000); and
  3. non-concessional contributions up to $100,000/year if the fund is below $1.6m. Non-concessional contributions can be brought forward up to 3 years.

Tax planning issues for small business operators

If you are involved in a SME, consider these general points:

  1. company tax rates will reduce each year to 2022 for companies with under $50m in turnover, so consider bringing forward deductible expenses;
  2. consider restructuring your business to a company structure. CGT rollover relief may be allowed, depending on the restructure. Different issues arise for land owning businesses;
  3. make decisions on employee bonuses by 30 June;
  4. pay your employee superannuation before 30 June;
  5. pre-payment of interest or insurance costs by 30 June up to 12 months in advance (NB: Specific rules apply to these types of deductions);
  6. Until 30 June 2022, for businesses with up to $5 billion turnover, make tax deductible purchases by utilising the current unlimited instant asset write-off for eligible in-use assets;
  7. For businesses up to $5b in turnover, losses in 2020-2021 and 2021-2022 can be offset from profits in 2018-2019 and later tax years;
  8. attend CPD and training courses and pay for other self-education expenses;
  9. ensure withholding amounts are paid to the Australian Taxation Office to claim a deduction;
  10. valuation of trading stock at cost, market value or replacement value;
  11. write-off bad debts, plant and machinery (accruals taxpayers); and
  12. disposal of plant.
Sole traders and partnerships should consider starting a company for their business and utilise CGT roll-overs to reduce their income tax liabilities.

SMEs will also need to consider how any proposed changes to Division 7A loans will affect the beneficiaries of unpaid present entitlements (UPEs) because UPEs will now need to be repaid over time, or they will be treated as deemed dividends.

Tax planning issues for trusts

For Trustees:

  1. confirm that each beneficiary is eligible to receive a distribution from the trust;
  2. ensure that you document which beneficiaries obtain a share of the Trust’s income by 30 June and maintain a record of the trustee's distribution minutes; and
  3. make any family trust elections.
Trustees will also need to consider how any proposed changes to Division 7A loans will affect the beneficiaries of unpaid present entitlements (UPEs) because UPEs will now need to be repaid over time, or they will be treated as deemed dividends.

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