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Article:

End of Financial Year Planning for Tourist Parks

29 June 2020

Angus Strachan , Director, Business Services |

As one of the most tumultuous financial years draws to a close, it is time for tourism industry operators to begin addressing the myriad of tax and business considerations related to EOFY planning.

Most business owners and park operators would already be aware of the more publicised government incentives offered in the last 6 months, these being:

  • The increase of the instant asset write-off threshold to $150,000: For businesses with a turnover of less than $500 million, this has now been extended to 31 December 2020. From 1 January 2021, the threshold will revert to $1,000 (subject to any budget announcements)
  • Accelerated depreciation of any new assets costing more than $150,000, with at least 50% of the purchase price being deductible in the first year (depending on the size of your business)
  • JobKeeper and Boosting Cash-flow for Employers.

Beyond face value, it’s important to consider what the above may mean for dividend/distribution to owners and tax planning. Sometimes these things are at odds with each other! A common issue for the industry is the lack of separation between tax and accounting depreciation.

SME businesses typically prepare special purpose financial statements, which utilise only a choice selection of accounting standards. While lowering tax expenses is welcome for most operators, running the very generous tax incentives available for SME tourist parks through financial accounts will increase losses, and may further deplete retained earnings already suffering from a year of forced closures. It also paints a less accurate picture of the assets actually in the business.

Having a conversation with your adviser to ensure that tax depreciation is only included in tax returns may seem like a little thing, but it could be the difference between being able to pay dividends at year-end without needing to think too much, or needing to spend time figuring out if you actually have available surplus for distribution. This is most relevant to company structures, but can equally apply to trusts in certain circumstances.

Where businesses have received insurance recoveries or grants for loss of income or property, the tax treatment can vary greatly. For example, JobKeeper is taxable but Boosting Cash Flow payments are not. Disaster recovery grants can be deemed to be tax-free, while regional development grants are typically taxable (even if you are buying a capital item). Insurance recoveries on depreciable assets are likely to be taxable income (as adjustments at least), whereas insurance recoveries on fixed buildings and structures are likely to be subject to capital gains tax and/or exempt from tax.

Stimulus aside, the capacity to pay dividends or distributions from retained profits (or other sources like revaluation reserves) will always need to be touched on from a compliance standpoint. For many operators, dividends are often the vehicle that they use to make their minimum yearly repayments on Division 7A (private) loans.

In practice, tax professionals will usually calculate the dividend when completing an annual return, but under the Corporations Act, any resolution and accompanying minute to pay a dividend must be made within one month of the dividend date. This means that effective forward planning is required to ensure the correct dividends are recorded in the company’s corporate register by 31 July.

Trustees of discretionary (typically family) trusts are already meant to have made their mind up on distributions for the financial year. Where a resolution hasn’t been made by a certain date (pre 30 June) some trust deeds will deem entitlement to these distributions. In old deeds, this could lead to very unwanted consequences from both a practical and tax perspective. It’s also important to remember that there is a distinct difference between a resolution and a minute.

Another Division 7A consideration for your end of year process is the impending requirement to convert 25-year loans into 10-year loans. Treasury still has not locked in any final dates for this move, however, it may still be beneficial to enter into 25-year loans where possible, rather than early adoption of 10-year loans.

Additional developments have also arisen in payroll. A recent case, (WorkPac v Rossato), has revealed that in some cases, long-term casual employees will be eligible for leave entitlements despite their 25% casual loading. This is not a ‘one size fits all’ finding, and there are specific considerations that need to be made (in the case in question, the employee was rostered several months in advance), however, in the tourist park industry where there are significant volumes of casual workers, this could be a material issue. 

At this stage, WorkPac have moved to appeal this decision with the High Court of Australia. The relevance of this has also coincided with the criteria for casual employees to receive JobKeeper payments, where a declaration that an employee is ‘regularly and systematically employed’ is made upon nomination to receive JobKeeper. This may be considered in determining whether the employees are entitled to leave and redundancies on termination.

Finally, the usual end of financial year process is an opportune time to review group structures and evaluate exit strategies. Should any Capital Gains Tax (CGT) events be occurring in the next 1-3 years, it is integral to ensure the best possible vehicle is currently holding the assets of your operation. This can substantially affect the final cash-in-hand sum you receive. A more general revision of your trust deed or company constitution is likely to be required if either are pre-2009 and 2001 respectively.

With luck, the 2021 financial year will be more predictable for operators – but when budgeting it may be appropriate to err on the side of caution, focus on what you can control and allow for some flexibility, even more so than usual, so you can move with what seems to be a constantly shifting target.

To discuss these or any other issues, please get in touch with the BDO Tourist Park team.