End of Year Tax Tips: Impact of COVID-19

Written by: Evan Lowenstein
Normally at this time of year our minds turn to how to save a few tax dollars and what actions to take to minimise the end of year tax bill.
As we are this year faced with the advent of the impact of the Corona virus, many businesses – particularly SMEs – are focussed on surviving, knowing they’ll have tax losses (In fact, tax loss utilisation will be an enduring topic of interest because of COVID-19).
For these businesses, cash management will likely be top of the agenda.
As a key strategy it is essential not to feel overwhelmed or rushed into selling up or closing doors. It may be more effective to take a look at alternative methods of income and, even though you may sell some stock at a loss, at least it buys you valuable time until the economy recovers.
For some businesses year-end planning will bring challenges about how to best manage your business in the Covid environment.
Things that are Covid-19 specific include:
  • How to register for some of the government assistance packages?
  • If you have missed out, how to register for assistance?
  • How to account for rental /interest deferrals and other record keeping issues like Jobkeeper and the Single Touch payroll interfaces?

All of these questions require special attention in the light of this particular situation.
For some businesses it may be advantageous to reduce stock by selling it at reduced prices or selling old pieces of equipment, this would bring to account potential losses on selling assets and offers some tax advantages.
In addition the Federal Government has been spruiking its extended instant asset write offs that allows eligible businesses to write off in one hit equipment that has cost less than $150,000.
It may be prudent to examine old debts and see if they could be written off as bad. One needs to take heed that certain care has to be taken here.
In addition it may also be a good idea to see if one can legally defer income from one year to the next. This is quite a tried and tested method but again, care must be taken here as well.
Clients should be aware that superannuation deductions can only be claimed if the contributions are made by the 30 June 2020.They must have been received by the superannuation fund by that date and a form – called Notice of Intention to Claim must be completed by the client and sent to the fund. A return acknowledgement by the fund must be received in order to make the claim.
With so many people working from home at the moment, it may be the case that claims for home office expenses will rise. The ATO is sure to be alert to this and will no doubt review claims carefully. Expenses in question may include:
  • electricity expenses associated with heating, cooling and lighting the work area;
  • cleaning costs for a dedicated work area;
  • phone and Internet expenses;
  • computer consumables (eg, printer paper and ink) and stationery; and
  • home office equipment, including computers, printers, phones, furniture and furnishings (taxpayers who are employees can claim either the full cost of items up to $300 or the decline in value for items over $300).

As we know, the ATO has advised that taxpayers will be able to use a simplified method to claim home office expenses at a flat rate of 80 cents per hour based on the estimate of a record of hours spent working from home. A good way to do this is to keep a diary . It may be the case that claiming the actual expenses method may produce a better tax result for some clients.
It is sensible to seek advice from one of our accountants before embarking on any of these strategies.