The end of the financial year is just around the corner. It’s a good time to arrange your financial affairs to minimise your tax. Having tax planning strategies in place before 30 June will help bring tax efficiencies for you and your business.
What is tax planning? Tax planning is a legitimate method to minimise your tax through legally and morally accepted strategies. Tax planning is legitimate when you do it within the intent of the law.
Be careful if a strategy sounds ‘too good to be true’. Therefore, it is important to seek advice from a qualified tax professional before you commit to an arrangement. The ATO has some examples of tax avoidance schemes to watch out for.
Tax Planning Strategies for Small Businesses
If you expect a profit for the current financial year, or higher income in the current financial year, there are a few strategies that you can implement as part of your tax planning:
1. Temporary Full Expensing
Until 30 June 2023, businesses with aggregated turnover of less than $5 billion can deduct the full cost of new or second-hand eligible depreciable assets (limited to the business portion of the assets).
Taking advantage of the temporary full expensing of depreciating assets means that you’ll get a bigger tax deduction. However, it is important that you buy business assets for the right reasons. Avoid spending on business assets for the sake of claiming a tax deduction.
2. Fringe Benefits Tax Exemption on Electric Vehicles
From 1 July 2022, certain zero or low emissions vehicles and associated car expenses provided as a car benefit can be exempt from FBT.
For small business owners operating their business through a company or a trust structure, this exemption can provide substantial tax planning benefits. Providing car fringe benefits, whether under a salary sacrifice arrangement, or through the personal use of company car can also help attract talents and retain the right employees.
The ATO has released a guidance on Electric Cars Exemption. We highly recommend talking to us before making major asset purchases, such as a motor vehicle, to ensure that you are maximising available tax benefits.
3. Personal Superannuation Contributions
If you’re a sole trader or in a partnership, you don’t have to make super payments to yourself. However, you can claim a tax deduction by making personal contributions to your super. Depending on your income, you may also be eligible for the super co-contribution payment. Talk to us about whether making personal super contributions may be the right option to minimise tax.
4. Pay Employee Superannuation by 30 June
If you want to claim a tax deduction for June quarter superannuation, you’ll need to ensure your employee superannuation payments are received by the super fund by 30 June.
5. Defer Income (If Appropriate)
If you are expecting to have a higher income this financial year, compared to your projections for next financial year, consider deferring income until after 1 July.
6. Prepay and Bring Forward Expenses
To maximise your tax deductions, you may consider pre-paying business expenses, such as insurance, subscriptions, rent. You can deduct up to 12 months of the following year’s expenses in the current year.
Similarly, purchase stationery, office supplies, computer consumables and carry out any repairs and maintenance before 30 June.
7. Write-Off Bad Debts
Review your debtors and write-off any unrecoverable debts before 30 June to claim as tax deductions.
8. Write-Off Obsolete Assets
Scrap any obsolete items in the asset register before 30 June. Also consider delaying sale of assets that will realise a profit on sale and bring forward if it will be a loss.
9. Loss Carry-Back Tax Offset
Loss carry-back tax offset allows eligible businesses to carry back tax losses to offset previous years’ taxable profits. By doing so, the entity can reduce their tax liabilities or receive a refund of taxes paid, improving its cash flow.
However, it is important to consider that implementing this strategy can also lower the franking account balance of a company, which may affect its capacity to pay fully franked dividends.
10. Review Your Trust Distributions
Many business owners operate their business through a family trust structure for various reasons, including legal tax minimisation and asset protection. One of the most common tax planning strategies for trusts is to make distributions to beneficiaries on lower marginal tax rates.
With a major crackdown announced by the ATO, targeting trust distributions made to adult children, corporate beneficiaries and entities that are carrying losses, it is important to rethink your approach to trust distributions within the family.
The tax planning strategies above would change if you expect a tax loss, or higher income next year. Have a chat with us to find out about tax losses and how you can claim a deduction for your business in a future year.
Other Tax Planning Considerations
1. Disaster Payments and Grants
If you or your business received disaster payments and grants, keep in mind that some payments are taxable and some are tax free. Review the payments you’ve received and include any taxable amount in your taxable income to avoid any surprises. You can find more information on the ATO website.
2. Review Your Compliance and Reporting Obligations
- Your car logbook validity (no older than 5 years).
- Single Touch Payroll, including finalisation and reconciliation.
- Taxable Payment Annual Report (TPAR).
- Prepare and sign Trustee Resolutions for Discretionary/Family Trust Distribution before 30 June.
- If you’ve borrowed money or withdrawn money from your company (not as wages/salary), contact us to review your Division 7A loans.
- If you’ve changed your residency status for tax, there are important tax consequences to consider.
Tax Planning for Individuals
If you are a salary/wage earner, you can consider some of these strategies. For more tips to maximise your tax deductions, check out our blog.
1. Personal Superannuation Contributions
All individuals under the age of 75, including salary and wage earners, can claim deductions for personal super contributions. Make sure you complete the Notice of intent to claim or vary a deduction for personal super contributions prior to lodging your tax return.
2. Investment Property
Get a Property Depreciation Report to claim the building write-off deductions if you haven’t done so.
Carry out and pay for repairs and maintenance before 30 June.
If you have the cash, consider prepaying interest on your mortgage.
3. Defer Investment Income and Capital Gains
If you expect to have a lower income next financial year, compared to this year and plan to sell an investment property, shares or other investment portfolio, consider arranging the contract date to occur after 30 June.
4. Salary Sacrifice Arrangement
If your employer offers salary sacrifice arrangement, it’s worth having a look into. This arrangement can be a valuable tool to reduce your taxable income. Some of the most common items that can be salary sacrificed include superannuation, cars, laptops and other electronic devices. Talk to us if you want to find out more about it.
Book a meeting with us before 30 June to see how we can work together to optimise your tax savings.