Another financial year end is fast-approaching, and with the world almost back to normal, it’s time to take a pause in the hustle and bustle of work and sit down to plan how to close the 2022 financial year so that you can have a fresh mindset and goals for the new 2023 financial year.
With over 30 years of experience advising clients just like you, the Prosperity taxation team has identified the following 7 things you must do before 30 June 2022.
Tell me more about it.
1. Claim temporary full expensing of business assets
You may already be aware of the current “instant asset write-off” allowances for small businesses, including the temporary full expensing measures. In short, if you have or are purchasing any business asset (except motor vehicles or capital works) and it is ready for use by 30 June 2022, you will be able to claim the full cost as a deduction in the 2022 year giving you an instant boost to your tax deductions.
What if you are unable to purchase and get the asset delivered and ready for use in time? Don’t worry, the Government legislated earlier in the year that the temporary full expensing measure will be extended for one more year, so anything ready after 1 July 2022 will still give you a deduction in the 2023 year.
There are basic eligibility criteria to be met, your Prosperity team member can help you ensure the correct claim is made in your accounts and tax returns.
2. Make prepayments of expenses
Speaking of deductions, why not consider a boost to your tax deduction for the year by paying certain business expenses upfront (i.e. prepaying)?
For all eligible small businesses, prepayment of any business expenses covering a period of no more than 12 months in advance is usually immediately deductible. This could include insurance, subscriptions, professional fees, or interest payments (where allowed by your lender).
If you are not a small business, you may still get an immediate deduction for paying upfront workers compensation or government licences or prepaying expenses under $1,000 in value.
We recommend you take the opportunity to check if your insurance and financing arrangements are adequate and at the best possible rate in the market. The Prosperity lending and financial planning teams are ready to receive your enquiries.
3. Pay any outstanding superannuation and top up your own
Under the law, a tax deduction for superannuation is only available when the amount is paid and received by the fund by the required due date (in the case of super guarantee). The only exception is payments made via a clearing house, in which case the deduction date will be when the clearing house has received the funds. Deduction generally also extends to payments made in advance.
To take advantage of this, you can in fact pay your business’s April to June quarter superannuation in advance and receive a tax deduction in the current income year. This is especially useful if your business earned an unusually large amount of income in the current year and you wish to bring-forward any expenses to reduce current year income tax.
Beside paying your business’s superannuation in advance, have you also considered maximising your own personal superannuation contributions? In the same manner as above, if you pay an amount of superannuation for yourself to maximise the $27,500 current-year concessional cap, you will also realise an immediate tax deduction in the current year. You may also be eligible to “access” any unused concessional caps from up to 5 previous years.
You may also consider the tax benefits in making spousal contributions if your spouse earns only low amounts of income. Examples include the spouse contributions tax offset, or arranging contributions splitting arrangement of your concessional super. Rules and limit applies so please speak with Prosperity Advisers or your super fund.
There are other superannuation strategies that may be beneficial to you. The Prosperity team are well-versed in the ins-and-outs of superannuation and can discuss with you appropriate strategies in partnership with our licenced financial planners.
4. Be informed about family trust arrangements
As you have no doubt heard by now, the ATO has taken a strong-handed approach to family trust arrangements in its recent draft rulings and interpretation of Section 100A. You can read our analysis of this here.
In light of this issue, we recommend family trust arrangements should be reviewed where distributions are made to family members other than you or your spouse.
While the ATO has since publicly acknowledged that these new rulings should not impact “the vast majority of small businesses”, the rulings are a major departure from what was previously considered basic planning so it is prudent to ensure that you are not inadvertently operating or continuing an arrangement considered “high risk” under the current ATO guidelines.
However, family trusts are still an extremely effective and relevant strategy for families and small-business owners, provided they are being used in the way intended under the law and not as part of a tax avoidance scheme.
5. Reconsider any tax losses brought forward
Do you have tax losses from previous years that you wish to utilise in the current year? It is not unusual for businesses to have made losses in the past few years during the COVID pandemic and now be in a position to start recouping these losses. However, if you have changed your business in a substantial way, e.g. changed the company structure, taken in external investment, or substantially changed the nature of your business, claiming the tax losses may not be as straight forward as you would think.
A company is required to satisfy the continuity of ownership test (“COT”), whereby shares carrying more than 50% rights in the company must essentially be beneficially owned by the same persons at all times from the time the losses were first incurred. If a company fails to satisfy the COT, it may nevertheless be allowed a deduction for prior year losses if it satisfies the similar business test (“SBT”) rules at the time of loss recoupment.
For individual taxpayers with losses, e.g. losses from investments or from sole trader businesses, there are also the non-commercial loss rules preventing you from deducting the loss against your other income (such as salaries) unless you meet certain criteria.
If on the other hand your business operated at a loss this year but was profitable in one of the previous years and you had paid income tax, have you considered utilising the temporary loss carry back rules? Rather than waiting for profits in future years to recoup current year losses, you have the opportunity to access the loss carry back rules to apply to any income years up to 30 June 2023. Loss carry back will cease after this date.
6. Review access to small business CGT concessions and rollovers
Small businesses are well-supported by the Government and a range of tax concessions and restructure reliefs are available to eligible small businesses.
Among these, the most notable ones are:
- Small business CGT concessions – available to eligible small businesses that meet a $2M aggregated turnover test, or for business owners who meet the $6M maximum net asset value test. Once you satisfy one of these, you can access special concessions and exemptions for any capital gains derived from small business assets.
- Small business restructure rollover – available to eligible small businesses that meet a $10M aggregated turnover test. Once the business satisfies this, it is possible to rollover the business assets to a different legal structure with no CGT consequences. For example, business owned in a trust can be transferred into a company (and vice versa).
End of financial year is the perfect time to review and assess your business and family needs. If you find that your business is growing, and you are already close to the relevant thresholds, it may be worth considering whether you could benefit from a group restructure to future-proof your business and move into a structure that could better meet your personal and business goals.
At Prosperity Advisers we pride ourselves on our honest and bespoke advice that puts the interest of your family first, to take the worry off your shoulders so that you can focus on what you do best – running your business!
7. Ensure you understand the new changes from 1 July 2022
There are a number of new changes taking effect from 1 July 2022 which will affect business owners and employers.
Who is an employer?
Did you know, if you hire a domestic worker and engage them for 30 hours or more per week, you are considered an employer and may need to pay super to the worker!
- Superannuation guarantee rate will increase to 10.5% of ordinary time earnings. This means for every $1,000 of wages paid, an additional $105 must be paid to the employee’s super fund. You'll need to use the new rate to calculate super on payments you make to employees on or after 1 July, even if some or all of the pay period is for work done before 1 July. This rate will rise to 11% next year.
- In addition to the rate increase, superannuation must now be paid to all eligible employees regardless of their earnings in a month. This means any employees that previously earned less than $450 a month for which you did not need to pay super, must now also be paid super from the first dollar.
- NSW payroll tax rate will revert to the original 5.45% (currently 4.85% as a temporary COVID support measure).
- Employee share scheme (ESS) law has recently changed to remove the cessation of employment taxing point for all deferred tax ESS grants where the taxing point occurs on or after 1 July 2022.
- If your company claims the R&D tax incentive, keep in mind there were changes to some of the rates and thresholds effective since 1 July 2021. This means your company’s FY2022 R&D claim prepared after 1 July 2022 will be subject to these changes. Please contact us if you are unsure how this will apply to your company.
Bonus topic – Skills & Training Boost, Technology Boost
In the 2022-23 Federal Budget announcement, two measures were introduced to provide eligible small businesses with a temporary “120% deduction” for eligible expenditure in supporting digital adoption, and for expenditure incurred on eligible training courses provided to employees. The “120% deduction” means businesses will be able to claim an additional 20% deduction. The measure was intended to take immediate effect from Budget night 29 March 2022.
However, as these measures were not yet introduced to parliament, and with the recently change in Federal Government, it is unclear whether these measures will be re-introduced by the current sitting Government, and if so when do they expect these measures to be enacted as law.
If you are considering expenditure in these eligible areas, keep in mind that you are generally still allowed the standard deduction (i.e. 100% of cost), with these two boosts intending to give an additional 20 cents in the dollar of tax deduction to be claimed in your 2023 and/or 2024 year tax returns.
Don’t delay, come speak with Prosperity Advisers today!
To discuss any taxation concerns you have regarding anything in this article please contact Charles Yuan, Taxation Manager at cyuan@prosperity.com.au.
