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EOFY planning for 2022

With the end of the 2022 financial year fast approaching, meeting with one of our Advisers for a Tax Planning session is a great way to address future planning, cash flow management and preparing for your tax liabilities. Taking the time – well in advance of the June 30 deadline – to understand and explore your tax planning options could help minimise your tax liability and increase any potential refund.

To ensure you are in the best position possible, we've outlined below our top tax planning and cash flow planning strategies for 2021-2022.

EOFY Planning

We believe tax planning is one of the best tools available and should be re-visited by small business owners at least once a year.

Immediate Tax Deduction for Asset Purchases

Take advantage of the immediate tax deduction available for depreciating assets acquired and first used by 30 June 2023, with no threshold limit on the cost of the asset. Small and medium businesses, with annual turnover less than $50 million, are also able to immediately write-off second-hand assets.

Small Business Tax Concessions

Tax concessions available to Small Businesses with annual turnover of less than $50 million include:

  • Immediate deduction for prepaid expenditure when payment covers a period of less than 12 months.
  • Immediate deduction for certain costs incurred in relation to establishing a business.
  • Simplified rules for trading stock.
  • A Small Business tax offset for individuals up to a maximum of $1,000, calculated as 16% of the tax payable on any Small Business net income (turnover under $5 million).

Prepay Interest on Loans

Taxpayers who have borrowed money for investments can check with their 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 is an option for investment loans on properties, margin loans on shares and business loans.

Interest Deductibility on Financing Business Expenses

Interest on the financing of business expenses is tax-deductible in most circumstances. If you are 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 cases:

  • where payments from the account are for personal purposes,
  • where payments made for the payment of personal income tax (including PAYG instalments),
  • where payments made for personal superannuation contributions.

Consideration should be given to external finance if you are currently using your personal funds to finance your business activities and would prefer to use your personal funds elsewhere.

Small Business Technology Investment Boost

Small businesses with less than $50 million annual turnover will be able to deduct $1.20 for every $1.00 spent on business expenses and depreciating assets that support their digital adoption (such as portable payment devices, cyber security systems and subscriptions to cloud-based services).

For eligible expenditure incurred between 7:30 pm AEDT 29 March 2022 (Budget night) until 30 June 2022, your eligible small business should:

  • claim the expenditure as usual in your 2021–2022 tax return, and
  • claim the additional 20% bonus deduction for this period in your 2022–2023 tax return.

An annual expenditure cap of $100,000 applies, so those who expect to maximise their claim will benefit from spreading their expenditure between the 2022 and 2023 financial years.

Small Business Skills and Training Boost

Small businesses with less than $50 million annual turnover will also be able to deduct $1.20 for every $1.00 spent on external training courses for employees provided in Australia or online by registered training organisations.

For eligible expenditure incurred between 7:30 pm AEDT 29 March 2022 until 30 June 2022:

  • claim the expenditure as usual in your 2021–2022 tax return, and
  • claim the additional 20% bonus deduction for this period in your 2022–2023 tax return.

For eligible expenditure incurred from 01 July 2022 until 30 June 2023:

  • you can deduct the entire 120% in your 2022–2023 tax return.

For eligible expenditure incurred from 01 July 2023 until 30 June 2024:

  • you can deduct the entire 120% in your 2023–2024 tax return.

There is no cap on the amount of boost which can be claimed.

These Small Business Boosts were announced in the 2022 Federal Budget, however they are yet to be enacted through Parliament. We will monitor for updates, especially now that there has been a change in the Federal Government.

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 of less than the concessional contributions cap of $27,500, you may be able to 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.

Bad Debts

Review your aged debtors and determine if any debts are bad debts (ie. not recoverable). If they are, write them off before 30 June 2022 to receive a tax deduction this year.

For a debt to be bad, there must be little or no likelihood of recovery, such as when the debtor is in receivership or cannot be traced. Records should be kept to show you have taken reasonable steps to recover the debt prior to writing off. If circumstances later change, you can recommence pursuing the debtor.

Read our Tax Deduction for Bad Debts blog for tips about the correct way to write-off a bad debt.

Business Stock Management

You should account for the value of your trading stock at the end of each financial year. Trading stock is anything your business acquires, produces, or manufactures for the purpose of manufacturing or selling.

Current trading stock rules allow businesses to choose whether they value closing trading stock at cost; at market value; or at replacement value. Because of the flexibility in these rules, you may choose a closing value for stock that results in the greatest possible deduction.

You should also review your stock in detail on a line-by-line basis prior to June 30 to determine whether any of it is obsolete. Obsolete stock can be claimed as an immediate deduction and may include stock that is going out of use; is out-of-date; or is outmoded.

If you’re a small business with an aggregated turnover of less than $50 million for the 2021-2022 year and you estimate that the value of your trading stock changed by no more than $5,000 in the year, you don’t have to conduct a formal stocktake or account for the changes in your trading stock’s value.

Capital Gains Tax (CGT)

If you have derived any capital gains from the sale of your investments or business assets this year, consider whether you can offset them by crystallising any capital losses on the sale of other assets (where possible), or be able to use the CGT Small Business concessions.

Capital Gains Tax concessions for small business can be complex, so it's best to contact us to discuss prior to 30 June 2022 to minimise or eliminate any potential CGT.

Private Health Insurance Rebate Changes

Entitlements to the private health insurance rebate are income-tested, which means that if you have a higher income, your rebate entitlement may be reduced, or you may not be entitled to receive any rebate at all.

No private health insurance also means you'll pay the Medicare Levy surcharge. Having your own private health insurance may deliver a number of benefits including:

a. being eligible to receive the private health insurance rebate;
b. avoiding the Medicare levy surcharge; and
c. avoiding the lifetime health cover loading if private insurance is not taken out before turning 30 years of age.

Super Tax for high income earners

Division 293 tax is an additional tax of 15% on concessional super contributions, if you earn over $250,000. This means your concessional super contributions will be taxed at 30%.

Income for the purposes of Division 293 tax includes:

  • Your Taxable Income
  • Reportable Superannuation Contributions
  • Reportable Fringe Benefits
  • Total Net Investment Loss (these are added back to your taxable income)

Concessional contributions include employer contributions, salary sacrifice and personal deductible contributions.

Company Loss Carry-Back

A temporary tax relief allows eligible companies, with an aggregated turnover of less than $5 billion, to carry back tax losses incurred in the 2020 to 2023 financial years, to be used against profits taxed in a previous year, 2019 or later.

These companies will receive a refundable tax offset in the year they made a loss, if they elect to use this mechanism when they lodge their 2022-2023 tax return. The losses carried back must not be more than earlier taxes profits and must not result in a franking account deficit.

Any tax losses that are not fully offset against previous taxed profits, or not elected to be used, will be carried forward as normal.

Last thing – why tax planning is important

We believe tax planning is one of the best tools available and should be re-visited by small business owners at least once a year. It’s a great opportunity to take a moment analyse what your business has and hasn't achieved, and envisage where you want your business to be in three months, next year and even further into the future.

As business advisers, tax planning is a great opportunity for us to help you be proactive with your business, provide valuable input around your projected earnings and tax position, and show you how the business is performing compared to how you think it’s performing. This planning can be extremely important for the short and long-term success of your business.

If you have questions, or if you'd like us to review any aspect of your business or personal tax planning, feel free to contact our advisers at The Peak Partnership.

You can even jump over to our Year End Planning page to make an appointment with one of our advisers.

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