As the end of the financial year approaches, now is the time to consider which tax planning strategies are best suited to your business.
Some of the tax planning strategies to consider include:
1. Immediate tax deduction for asset purchase
Immediate tax deductions are available for depreciating assets acquired and first used by 30 June 2023, with no threshold limit on the cost of the asset. SMEs with less than $50 million can immediately write-off second-hand assets.
2. Small business consessions
Small business tax concessions are available for businesses with turnover up to $50 million. These concessions include:
- Immediate deduction for prepaid expenditure when payment covers a period less than 12 months.
- Immediate deduction for certain costs incurred in relation to starting a business.
- Simplified rules for trading stock.
- A small business tax offset for individuals up to a maximum of $1,000. This offset is calculated as 16% of the tax payable on any Small Business net income (turnover under $5 million).
3. Prepay interest on loans
If you’ve borrowed money for investments, check with your lenders to see if they can prepay interest to gain an early tax-deduction, by paying 12 months interest in advance as a one-off tax benefit. This option applies to investment loans on properties, margin loans on share and business loans.
4. Interest deductibility on financing business expenses
Interest on the financing of business expenses is tax-deductible, in most cases. If you’re maintaining a line of credit or overdraft to finance your day-to-day business expenses, the interest will be tax-deductible except in the following circumstances:
- Payments from the account for personal purposes,
- Payments made for the payment of personal income tax (including PAYG instalments)
- Payments made for personal superannuation contribution.
5. Small business digital technology investment boost
Small businesses with less than $50 million annual turnover, can deduct $1.20 for every $1 spent on business expenses and depreciating assets that support digitalisation.
Expenditure must occur between 7:30pm 29 March 2022 until 30 June 2023 and assets such as portable payment devices, cyber security systems and subscriptions to cloud-based services may be eligible.
Claims can be made in FY23. An annual cap of $100,000 dollars expenditure applies.
6. Small business skills and training boost
Small businesses with less than $50 million annual turnover, can deduct $1.20 for every $1 spent on external training courses for employees. The training must be provided by registered training organisations in Australia or online.
Claims can be made in FY23 and FY24 for expenditure occurring between 7:30 pm 29 March 2022 until 30 June 2024. There is no cap on the amount of expenditure which can be claimed.
7. Superannuation Contributions
Maximise your superannuation deductions before 30 June 2022 by:
- Ensuring superannuation contributions for employees are paid and cleared by 30 June 2022.
- If your superannuation balance is less than $500,000 and you’ve made concessional contributions less than $27,500, you can make additional concessional contributions in subsequent financial years for any unused amounts. Unused cap amounts can be carried forward for up to five years.
- If you earn less than $56,112 p.a., you could be eligible for the government co-contribution. The government will contribute 50 cents for every dollar of after-tax contributions you make to your superannuation fund up to a maximum of $500. The full benefit is available for income earners under $41,112 and phases out where adjusted taxable income is between $41,112-$56,112.
8. Bad debts
Review your aged debtors and determine if any debts are bad debts. If they are, write them off before 30 June 2022 to receive a tax deduction this year. Records must be kept showing you’ve taken reasonable steps to recover the debt prior to writing off.
9. Stock management
Review your stock and identify anything obsolete or unusable. Write off these items prior to 30 June 2022.
10. Capital Gains Tax (CGT)
If you’ve derived capital gains from the sale of investments or business assets this year, consider whether your eligible for CGT small business concessions or if you can offset them by crystallising any capital losses on the sale of other assets.
11. Cryptocurrencies and digital assets
If you hold cryptocurrency or other digital assets such as Non-Fungible Tokens (NFTs) personally or within your business, you should consider the tax treatment of any gains or losses. The ATO believes there has been under reporting of income and gains from cryptocurrency transactions and has access to extensive data from exchanges and designated service providers which it will match to income tax returns. If you’ve undertaken any cryptocurrency transactions, you should seek advice on how to report this correctly in your tax return.
12. Do not overdraw
Finally, and this is a big one, if you have a company and you take money out of the business, make sure the net position of funds introduced less any funds you withdrew is not overdrawn.
If you’ve taken money out of the company, work with your advisors prior to year-end to determine whether the amount represents the following:
- Salary and wages (report this on your BAS)
- Dividend (Dividend resolutions and statements to be prepared)
- Formal loan agreement in place to meet the Division 7A requirements including the required term and ATO interest rates.
If you don’t get the treatment correct, you may end up with a deemed dividend that will usually be a poor outcome for the company and yourself.
Beyond Advisors offers professional advice for businesses of all shapes and sizes. For any help or assistance with tax planning can get in touch with our helpful team today.