The end of the financial year is fast approaching. The following is a list of the EOFY tax planning matters you may wish to consider.
Small Business Tax Saving Strategies
In order to minimise liability to taxation for the current year, the general strategy options for most taxpayers are as follows:
- Delay deriving assessable income;
- Pay wages before 30 June;
- Make superannuation contribution payments for the June quarter before 30 June (It is safe to pay the super contributions to the Super Clearing Account by 23 June to allow processing time for the employees’ super funds to receive the payments by 30 June);
- Consider instant asset write off for assets purchased during the financial year;
- Pre-pay expenses before they are due (e.g. Insurance premiums, membership of organisation, travel, advertising and interest);
- Bring forward repairs and maintenance by 30 June;
- Write off bad debts;
- Make donations – donations of $2 or more to a deductible gift recipient are tax deductible.
- Finalisation of Single Touch Payroll by 14 July;
- Preparation of Taxable Payment Annual Report by 28 August (building and construction services, cleaning services, courier services, security services & IT services only);
- Preparation of Stock Take Report as at 30 June;
- If you use a car in producing your income you may need to:
- Record Motor Vehicle Odometer readings at 30 June;
- Prepare a 12 week log book if your existing one is older than 5 years.
- If your Directors Loan Account in your business in debit, you must either:
- Fully repay the loan before the earlier of the due date for lodgment and the date of the lodgment of the lender’s tax return for the year of income or
- Have Division 7A loan agreement in place.
- Dates and cost of any purchases made during the year and/or proceeds from the sale of any plant equipment or property and details of any finance arrangements including hire purchase or chattel finance;
- Details of any government-related payments, grants or rebates (including COVID-19 support payments or grants);
- Copy of statements for all loans owed by the business (and total interest paid for the year), with balances as at 30 June.
If you are a trustee and you make beneficiaries of a trust entitled to trust income by way of a resolution:
- The trustees must make the resolution and have evidence of this by 30 June at the latest;
- The trustee must lodge a TFN report with the ATO by the last day of the month following the end of the quarter where the distribution is either paid or resolved to be paid to a new beneficiary for the trust.
Instant Asset Write-Off Threshold of $20,000 for Small Business
Small businesses (group-wide turnover less than $10 million) currently benefit from an unlimited instant asset write-off which is due to end on 30 June 2023. The Government will temporarily retain an instant asset write-off for the full cost of eligible assets costing less than $20,000 (excluding any GST credit) that are first used or installed for use between 1 July 2023 and 30 June 2024.
Assets costing $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
Please be aware that a car limit applies to the cost of passenger vehicles designed to carry a load less than one tone and fewer than 9 passengers. The car limit is $64,741 for the 2022-23 year. You cannot claim the excess cost over the car limit.
Temporary Tax Loss Carry-back
Eligible companies incurring tax losses for the 2019-20, 2020-21, 2021-22- or 2022-23-income years could carry them back to offset tax paid in the 2018-19 or later income years. Tax refunds resulting from loss carry back will be available to companies when they lodge their tax returns.
If companies do not elect to carry back tax losses, the losses can still be carried forward as normal.
Deduction Boost for Small Business
External Training: An eligible business will be able to deduct an additional 20% of expenditure incurred on external training courses provided to its employees. The training course must be provided to employees in Australia or online and delivered by entities registered in Australia. The deduction will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2024.
Digital Adoption: An eligible business will be able to deduct an additional 20% of the cost incurred on business expenses and depreciating assets that support its digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services. The deduction will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2023.
Small Business Energy Incentive
Businesses with an annual turnover of less than $50 million will receive an additional 20% deduction on investments that support energy-efficient practices and implementing energy-saving technologies. The purpose is to encourage making investments like electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.
Up to $100,000 of total expenditure will be eligible, allowing a maximum bonus tax deduction of $20,000 per business.
Eligible assets or upgrades will need to be installed and ready for use between 1 July 2023 and 30 June 2024 to qualify for the bonus 20% deduction.
Compulsory Superannuation Guarantee Increase
From 1 July 2023, the Superannuation Guarantee (SG) rate for compulsory superannuation contributions by employers will increase from the current 10.5% to 11%.
From 1 July 2026, employers will be required to pay an employee’s superannuation at the time that they pay their wages. This change will affect all employers, but the Government has provided a three-year lead-in period in order to allow employers adequate time to adjust their systems accordingly.
Personal Super Contribution
From 1 July 2017, most people, regardless of their employment arrangement, will be able to claim a full deduction for personal super contributions they make to their super until they turn 75.
You may be eligible to claim a tax deduction for your personal super contributions up to $27,500. If you wish to claim a tax deduction for personal contributions, you must complete and lodge a ‘Notice of intention to claim a tax deduction’ with your super fund and have this notice acknowledged (in writing) by your fund.
Please note that the contributions that you claim as a deduction will count towards your concessional contributions cap ($27,500, including superannuation guarantee, additional employer contributions and any salary sacrificed contributions). If you exceed your cap, you will have to pay extra tax and any excess concessional contributions will count towards your non-concessional contributions cap.
However, your cap may be higher if you did not use the full amount of your cap in earlier years. This is called the carry-forward of unused concessional contributions. You can check your available concessional contributions cap on ATO online services (accessed via myGov).
If you’re a low or middle-income earner (with taxable income less than $57,016 for 2022-23FY) and make personal (after-tax) contributions to your super fund, the government also makes a contribution based on 50% of your contributions up to a maximum amount of $500.
Additional Tax on Higher Super Account Balance
From 1 July 2025, an additional 15% tax on the “earnings” will apply to individuals with a Total Superannuation Balance (TSB) of more than $3 million on any subsequent 30 June.
The additional tax will be assessed to the individual, who can pay it personally, or choose for the tax to be paid from their superannuation fund.
Individuals with a TSB balance of less than $3 million at 30 June in a year will not be affected.