Tax planning considerations in a COVID-19 world

In times of crisis, it is normal to overlook certain aspects of life as health and safety become a focus. As is with the common cliché, the reality is that taxes are still a prevailing issue for everyone despite the challenges they may be facing.

With this in mind and with the end of this financial year fast approaching, we discuss a handful of items that must be considered when undertaking a tax planning exercise.

(1) Best use of the instant asset write-off before year-end

It may have been lost within the array of COVID-19 related stimulus announcements made by Treasury, in particular, surrounding JobKeeper, however, one of the first measures announced was an increase in the instant asset write off threshold to a very generous $150,000.

Small business (less than $10 million turnovers) and Medium business (less than $50 million turnovers) entities have been able to deduct assets that cost less than $30,000 immediately. This new threshold applies for a limited time only, being only available for assets purchased between 12 March 2020 and 30 June 2020. The threshold will then return to the original $1,000 amount.

(2) Bad debts

An unfortunate consequence of COVID-19 has been the end of struggling businesses, in particular in the retail & hospitality industries.

However, if your business has debt outstanding with an affected business, and there is a genuine concern regarding the recoverability of the debt (i.e. the debt is more than merely ‘doubtful’), then your business is able to claim the debt as a tax deduction.

(3) JobKeeper and cash flow boost tax treatment

It has been well publicised that businesses that experienced a decline in turnover from April 2020 that met certain thresholds and criteria were eligible to receive JobKeeper payments to assist with retaining staff.

Prior to JobKeeper, Treasury had also provided a cash flow boost to employers who employ staff through an activity statement credit. Unlike the cash flow boost which is a tax-free payment, businesses will be required to include JobKeeper payments received prior to year end in assessable income.

Should JobKeeper payments cover the majority of a business's wage costs, the business may have little or no net wage deduction, and this will need to be considered when planning for the business’s income tax liability.

(4) Home office expenses

As a result of COVID-19, many businesses were required to close their doors for a period of time and direct employees to work from home. Consequently, working from home may include various running expenses such as:

• Electricity expenses on heating, cooling, and lighting.
• Cleaning costs.
• Phone and internet expenses.
• Computer consumables and stationery.
• Home office equipment, including computers, printers, phones, furniture, and furnishings.

These expenses are allowable tax deductions. However, occupancy expenses such as mortgage interest, rent, and rates or general household items are not deductible.

If it is difficult for you to determine and maintain records for these costs, the ATO has allowed a temporary simplified method for calculating running expenses from 1 March 2020 to 30 June 2020.

You are able to claim a deduction of 80 cents for each hour you work from home due to COVID-19, provided you are:

• Working from home to fulfill your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls; and
• Incurring additional deductible running expenses as a result of working from home.

You are only required to keep a record of the number of hours worked, such as through the use of timesheets, diary notes, or rosters.

(5) Superannuation amnesty

After almost two full years since being first introduced to Parliament, the Superannuation Guarantee (SG) Amnesty Bill was finally passed during 2020. The SG Amnesty provides a one-off amnesty to encourage employers to self-correct historical SG non-compliance from 1 July 1992 to 31 March 2018.

Under normal conditions, should SG be paid to an employee’s superannuation fund late (i.e. not within 28 days of the end of each quarter), the employer is ineligible to claim a deduction for the payments made. Furthermore, employers are required to lodge SG surcharge statements to make the late payments, which result in the imposition of penalties and administration fees. Not only will SG payments made under the amnesty be tax-deductible, but there will be no penalties or administration fees levied on the late payments.

This provides a golden opportunity for employers to draw a line in the sand with their SG obligations.

(6) Scrapping / disposing of plant and equipment before year-end

Does your business hold plant and equipment that is no longer used due to obsolescence? Or does your fixed asset register contain items that your business does not actually hold anymore?

Depending on the written down value of the assets involved a deduction can be claimed for this amount should the asset be ‘scrapped’ or disposed of prior to year-end. This becomes even more relevant should a business find themselves no longer able to use certain plant and equipment as a result of COVID-19 restrictions or concerns.

(7) Valuing closing stock at the lowest value

Does your business have a certain product line or range that is either no longer saleable or is moving slowly due to COVID-19?

The ATO allows a business to value its closing stock at the lower of:

• Replacement value.
• Cost or;
• Market selling value.

In addition, a taxpayer business may also be entitled to a deduction for a write-down of obsolete stock where appropriate valuations and measures are taken. If your stock has lost its value, you may be able to include little to no stock value as assessable income based on adopting an alternate valuation method.

How can RSM help?

If you need assistance with any COVID-19 related tax queries, RSM Australia has tax specialists across the country ready to help.
For an initial conversation, please get in touch with your local RSM office.