With the end of the 2023 financial year upon us, meeting with one of our Accounting Advisers for a Tax Planning session is a great way to address future planning, cash flow management and preparing for your tax lodgement.

Finding some time well before the June 30 deadline to understand and explore your tax planning options could help minimise your tax liability and increase any potential refund. To help you be ready for EOFY '23, we've outlined below our top tax planning and cash flow planning strategies.

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 BUSINESS ASSET PURCHASES

The instant asset write-off scheme allows an immediate full tax deduction for depreciating assets acquired and first used by 30 June 2023, with no maximum limit on the cost of the asset. The scheme applies to businesses with an annual turnover less than $50 million, and second-hand assets are also eligible to be immediately written-off as a tax deduction.

IMPORTANT: If you run a business and thinking about upgrading your vehicles, equipment or other business assets, it may pay to act before 30 June. From 01 July, the instant asset write-off scheme will revert to a maximum $20,000 asset value and the small business definition will lower to less than $10 million turnover.

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 LOAN INTEREST AND EXPENSES

Expenses relating to investment activities can be prepaid before 30 June 2023 – just check with your lender first to confirm that interest prepayments are allowed on your specific loan type.

You can prepay up to 12 months of interest before 30 June on a loan for a property, share investment (margin loan) or business loan and claim an early tax-deduction this financial year.

Also, other expenses in relation to your investments can be prepaid before 30 June, including rental property repairs, memberships, subscriptions, and journals.

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).

Unless Government extends the existing rules, the Small Business Technology Investment Boost will end on 30 June 2023 - so if you're thinking about spending on digital adoption for your business – such as portable payment devices, cyber security systems and subscriptions to cloud‑based services – time is limited to take advantage of the 120% tax-deductibility.

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.

The Small Business Skills and Training Boost is available until 30 June 2024, so the 120% tax-deductibility benefit for training expenditure will continue into next FY.

For eligible expenditure incurred from 01 July 2022 until 30 June 2023, you can deduct the entire 120% in your 2022–2023 tax return. Likewise, 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.

SUPERANNUATION

Maximise your superannuation deductions before 30 June 2023 by:

• Ensuring superannuation contributions for employees (Superannuation Guarantee @ 10.5% of wages) are paid and cleared by 30 June 2023. Also note that from 01 July 2023, the Super Guarantee rate increases to 11%.
• 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 $58,445 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 $43,445 and phases out where adjusted taxable income is between $43,445—$58,445.

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 2023 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 2022-2023 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 2023 to minimise or eliminate any potential CGT.

PRIVATE HEALTH INSURANCE REBATE

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.

SUPERANNUATION 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.

With super contributions taxed at a maximum of 30% and investment earnings in super currently taxed at a maximum of 15%, both these tax points are more favourable when compared to the highest marginal tax rate of 47% (including the Medicare levy).

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.

HOME OFFICE EXPENSES

If you have been working from home, you may have expenses you can claim a tax deduction for. The ATO allows you to claim using a “Revised Fixed Rate Method” an amount of $0.67 per work hour for the 2023 year. This amount covers most expenses from working from home.

From 01 July 2022 to 28 February 2023 – you must keep a record which is representative of the hours you have worked from home. From 01 March 2023 to 30 June 2023 you must record the total number of hours you have worked from home and provide evidence that you paid for each of the expenses incurred.

You can also claim expenses using an “Actual Cost” method – so please keep all invoice and receipts during the entire year to prove all claims.

Learn more at our ATO changes to Work from Home Deductions blog post.

Also, don’t forget to keep any receipts for work-related expenses such as uniforms, training courses and learning materials, as these may be tax-deductible.

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.