As the end of another financial year approaches and with COVID-19 now a distant memory, Australian businesses are yet again navigating a whole range of new economic and financial issues, at the same time as a new Government coming into power in both NSW and Federally.
Particularly for small business owners and family groups, end of financial year is always a crucial time to consider tax planning opportunities and matters that can benefit you in the lead-up to June 30th. In this article, we will explore the latest Australian tax measures and other changes for the year 2023 – including some of the unique challenges to those operating in the healthcare industry.
Opportunities for Individuals
Individual Tax Rate
The Federal Government has ruled out any changes in the most recent Federal Budget to the already legislated Stage 3 Tax Cuts which is set to commence on 1 July 2024.
The tax cuts will mean taxpayers earning between $45,000 to $200,000 will be taxed at only 30% on those income within the bracket, instead of the current rate of 32.5% for $45,000 - $120,000 and 37% for $120,000 - $180,000. This is an effective tax cut of around $9,000 for those with taxable income of more than $200,000 but also benefits anyone earning over $45,000 of income.
Superannuation Contributions
There have been no recent changes to superannuation contributions. Therefore, individuals wishing to contribute up to the concessional cap ($27,500 for the 2023 financial year) and/or the non-concessional cap ($110,000, or up to $330,000 using the "brought forward" rule) should also make their contributions before 30 June 2023. Money not received by the superannuation fund by 30 June will not provide a deduction in the 2023 financial year.
To further maximise your super contributions, individuals with a superannuation balance of less than $500,000 on June 30 of the previous financial year can contribute more than the $27,500 concessional contribution limit using any unused amounts of their superannuation cap from the 2018 financial year onwards.
This is a great strategy to reduce your tax if you’ve made significant capital gain or extraordinary income during the year. Unused amounts can be carried forward for up to five years and does not need to be used in any single year.
Electric Car Tax Saving for Employees
With the passing of legislation last year exempting eligible low or zero emission vehicles purchased and delivered from 1st July 2022 and costing under the luxury car tax threshold of $84,916, from Fringe Benefits Tax (FBT), this opens up a significant tax saving opportunity especially for high-income earners getting into electric vehicles. You can realise this benefit by entering into a novated lease arrangement with your employer (including those that are self-employed).
In even better news for interested buyers, the luxury car tax threshold will be raised to $89,332 from 1st July 2023, meaning a greater range of vehicle choices will be available for the FBT exemption.
Trust Distribution Minutes and Planning
As always, trust distribution minutes should be prepared and signed before 30th June. Distribution planning will be necessary to allocate income, capital gains, and franked dividends among multiple beneficiaries.
One key area of note particularly for the current and future financial years is ensuring your family trust arrangements comply with Section 100A which seek to assess the trustee on any payments or economic benefits provided to persons that did not receive a trust distribution. While this is not a new area of law, it is something the ATO has taken action to ensure compliance in recent years.
Warning for healthcare industry businesses!
Payroll Tax on Medical, Dental and Allied Health Practices
In recent years, various state governments have increased scrutiny on medical practices to ensure compliance with payroll tax obligations, with this view applied to all healthcare services. Following precedents set by cases such as The Optical Superstore and Thomas and Naaz, medical practice operators have faced the prospect of backdated payroll tax liabilities and penalties under the view of revenue offices that contracting practitioners will be treated as employees for payroll tax (including doctors, nurses, consultants and allied health providers). This significantly increases the exposure on any healthcare providers to payroll tax, particularly in NSW, VIC and QLD. Practice owners particularly should urgently review their current arrangements, service agreements, internal processes, and patient income flow to understand their risks, as the potential review and amendment period extends back at least 5 years.
Note that the recent QLD payroll tax amnesty announced is only appliable to QLD GPs.
What else is new for businesses?
Temporary Full Expensing – Ends on 30 June 2023
The Federal Government has not extended the temporary full expensing measure again, meaning it will end on 30 June 2023. Instead, the Government has replaced it with the old ‘Instant Asset Write-off” provision with an increased cap of up to $20,000 for businesses under $10 million annual turnover. This means if you are intending to purchase new capital assets for your business worth more than $20,000, you must ensure the asset is purchased, delivered and ready for use by 30 June 2023 in order to benefit from the immediate deduction. The provision also extends to the purchase of car for the business, although write-offs are subject to the luxury car limit, which is currently set at $64,741 up to 30 June 2023.
Boost in Tax Deductions for Certain Expenditures
Originally introduced in the March 2020 Federal Budget, the Government has provided measures to allow an additional 20% tax deduction on expenditure on technology (cap of $100,000 on expenditure which must occur between 29 March 2022 and 30 June 2023), on skills and training (No cap but expenditure must occur between 29 March 2022 and 30 June 2024), as well as a new proposed measure for expenditure on energy saving and renewables (cap of $100,000 and expenditure occurred between 1 July 2023 and 30 June 2024). All of these are available only to small businesses with up to $50 million annual turnover.
We advise readers however that none of the above measures has to date been legislated, therefore there is currently no entitlement to receive the additional tax deductions yet. Please ensure you speak with your trusted tax advisers on this before committing any expenditure in this area.
Electric Car Tax Saving – Three Wins Before & After 30 June 2023
Firstly, with the electric car FBT exemption, this means business owners as a can “treat” their spouse and other family members working in the business to a new electric car without worrying about FBT. Secondly, businesses can claim temporary full expensing on EV purchases, allowing deductions of up to $64,741, if the vehicle is delivered and ready for use by 30 June 2023. Lastly, by installing EV charging facilities at your business premises after 1 July 2023, and by combining the installation with a solar system and other energy-efficient upgrades, your business not only get the $20k instant asset write-off, it may also receive the additional bonus tax deductions and at the same time providing a great benefit for you and your employees charge their electric cars at work without any FBT cost.
Loss Carry-Back for Companies – Also ends on 30 June 2023
The Federal Government has not extended the loss carry-back provisions, meaning it will also end on 30 June 2023, with the latest year it can be used being the 2023 financial year.
The temporary business support introduced during the height of the pandemic allowed corporate tax entities with aggregated turnover less than $5 billion to apply tax losses from the current financial years against previously taxed profits from 2019 or later, resulting in a refundable tax offset. The refundable tax offset is limited to the tax paid in the financial year to which the losses are carried back or the balance of the taxpayer's franking account in the year the offset is claimed. If no choice is made to utilise the carry-back measures, the loss can be carried forward and utilised in future years, provided the continuity of ownership or same business tests are satisfied.
Single Touch Payroll – Phase 2
The Single Touch Payroll (STP) system had commenced Phase 1 on 1 July 2018 and is now applicable to all employers.
As part of the development of the STP system, the ATO has now commenced Phase 2 of STP (STP2) from 1 January 2022, although a deferred starting date may have been available via your payroll provider or payroll software. If you are paying employees, including family members, you must ensure all the obligations with both STP and STP2 are being complied by your business.
What is staying the same?
Company Tax Rate
The company tax rate remains at 25% for companies with aggregated turnover below $50 million and less than 80% of their income in the form of "base rate entity passive income".
Superannuation Contributions
There have been no recent changes to superannuation contributions. Therefore, to ensure full tax deductions in the 2023 financial year for Superannuation Guarantee contributions, employers need to make those contributions before 30 June 2023.
Other Key Tax Planning Considerations
Here are a few classic tax planning strategies that are just as relevant for 2023 as they had been in years gone by:
- Prepay expenses for up to 12 months – insurance, interest, subscriptions. Small businesses (turnover less than $10m) can claim expenses prepaid up to 12 months in advance.
- Review valuations of trading stock in the lead up to 30 June. Best practice is generally to value stock at the lower of cost or market selling value.
- Loans, payments and debts from Private Companies to their shareholders and associates will require minimum loan repayments to minimise deemed dividend income. Shareholders and entities should consider repaying loans and/or making minimum loan repayments on loans by 30 June 2023.
- Self-Managed Superannuation Funds in pension mode should ensure the minimum pension amounts have been paid to members in the year ended 30 June 2023. Also keep in mind the temporary halving of minimum pension drawings will end after 30 June 2023, meaning it is back to the pre-COVID levels for financial year ending 30 June 2024.
- If your business is trading through a Discretionary Trust and 2023 has been a large income year, consider the use of a “Bucket Company”.
- Review your asset register to write off any obsolete or destroyed items.
- Staff Bonuses. For accrued staff bonuses to be deductible in the 2023 tax year the decision to pay the bonus and the determination of the bonus must be made and documented prior to 30 June 2023.
- Consider deferring invoicing and the receipt of income until after 30 June 2023 if you have not yet performed the work or not contractually obliged to invoice before 30 June.
For more information and personalised advice, it is recommended to consult with your Prosperity Adviser who can provide guidance tailored to your specific circumstances and objectives.
Disclaimer: The information provided in this article is intended as general guidance only and should not be considered as professional advice. Tax laws and regulations are subject to change, and individual circumstances may vary. It is advisable to seek advice from a qualified tax professional or accountant regarding your specific situation.
