As accountants in agribusiness, tax planning is arguably one of the most important conversations we have with our clients. These conversations can reduce your tax bills and allow you to make informed and well-timed business decisions.
If you are in the agricultural industry, top priority should be given to your 2021 business tax plan as this is a financial year that cannot be neglected or left to the last minute.
The ‘instant asset write-off’ and ‘temporary full expensing’ rules are tax game-changers. Note, at the time of writing this article these changes have not received royal assent (they are not yet law).
These changes affect all businesses with an annual aggregate turnover under $5 billion. This article will focus on the proposed new laws that impact small business entities with aggregated turnover under $10 million, a group that makes up 98% of our Australian businesses (according to the Australian Bureau of Statistics, July 2019).
- Option to claim 100% of new or second-hand assets purchased from 7.30pm (AEDT) 6 October 2020, this will continue until 30 June 2022
- Claiming the full small business entity (SBE)* pool balance at 30 June 2021
- Option on an asset by asset basis to opt-out of the temporary full expensing rules and treat the asset under the “normal” depreciation rates
- Suspension of the lockout rules until 30 June 2022
Multiple considerations and care must be taken when making decisions around the treatment of your assets in the 2021 financial year.
Consider the future financial years when assets are sold or traded in as this may give rise to taxable income, when ordinarily the trade in would be absorbed by the pool balance.
A tax loss in your entity, depending on your business structure, is a planning opportunity to withdraw those long-term farm management deposits that have been rolling over for years. Higher expenses may present an opportunity to sell all your grain instead of deferring it into the next financial year. Similarly, reviewing the timing of large chemical and fertilizer accounts may be better in the period post 1 July 2021.
Tax planning is now more important than it has ever been before.
From making the most of a potentially sizeable tax deduction to getting the best tax result for your business both in the current and future financial years, the earlier you start, the better prepared you will be.
There is a multitude of options available to those primary producers that do not wait, make haste and meet the 2021 tax planning season head-on, alongside their trusted accountants.
*A balance sheet account carried forward to future years, the pool equals the cost of all assets less depreciation claimed, the pool depreciates all assets at a flat 15% or 30%
HOW RSM CAN HELP?
If you have any questions regarding tax planning, get in touch with your local RSM office.