- General Year End Tax Planning Strategies for Businesses
- General Year End Tax Planning Strategies for Individuals
- Capital Gains Tax
General Advice Disclaimer:
The information in this Tax Planning Guide is of a general nature only and is not intended to be, and is not a complete or definitive statement of the matters described in it. It has been prepared without taking into account your personal objectives, financial situation or needs. It should not be relied upon as a substitute for financial or other specialist advice.
General Year End Tax Planning Strategies for Businesses
Company Tax Rate
|Income Year||Aggregated turnover threshold||Tax Rate for Base Rate Entities||Tax rate for all other companies|
|2018–19 – 2019–20||$50 million||27.5%||30.0%|
|2021–22 +||$50 million||25.0%||30.0%|
For the 2021/22 year, the aggregated turnover threshold is $50m and the base rate entity tax rate is 25.0%.
The small business income tax offset remains the same, which is 8% discount of the income tax payable on the business income received from a small business entity (other than a company) with aggregated turnover of less than $5m, up to a maximum of $1,000 a year
Subject to cash flow requirements, consider deferring income until after 30 June, especially if you expect lower income for 2021/22 compared to 2020/21.
Most businesses are taxed on income when it is invoiced. Some small businesses may be taxed only when income is received. Income from construction contracts is generally taxed when progress payments are invoiced or received.
Claiming Deductions – General Strategies
- Bad debts must be written off in your accounts before 30 June.
- Depreciation can be claimed for assets first used, or installed ready for use, before 30 June.
- Employer and/or personal superannuation contributions must be paid to and received by the superannuation fund before 30 June and must be within the contributions cap ($25,000 for all individuals regardless of age). Please refer to superannuation section below for further details.
- Small business (turnover less than $10 million), can claim expenses prepaid up to 12 months in advance. For larger businesses, this is generally limited to expenses below $1,000.
- Wages paid to your spouse or family members must be reasonable for the work performed and must be processed through the single touch payroll system except in limited circumstances.
Small businesses planning major purchases or replacement of capital equipment should contact us for advice. Careful timing of those transactions can result in substantial tax savings.
Scrap any obsolete items in the asset register before 30 June. Consider delaying sale of assets that will realise a profit on sale and bring forward if it will be a loss.
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.
This may change if you expect a tax loss for 2021/22, or substantially higher income in 2022/23 compared to 2021/22, which could be very common considering the impact of the COVID-19 pandemic.
Temporary Full Expensing
Businesses with an aggregated turnover of less than $5 billion can claim asset deductions immediately in the year that the asset was first used or set up, rather than being claimed after that current year (regardless of the cost).
These assets can be:
- New depreciable assets
- Improvements to existing eligible assets, and
- Second-hand assets
This was introduced in the 2020-21 Budget and has now been extended until 30 June 2023. It covers assets that will be first used or installed by 30 June 2023.
Some expenses are excluded, including improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year.
For companies, it is important to note that the loss carry back rules have not been extended to 30 June 2023 yet as the relevant legislation is waiting to be passed.
Instant Asset Write-Off Car Limit
A car limit applies to the cost of passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than one tonne and fewer than 9 passengers.
The car limit is:
- $60,733 for the 2021–22 income year.
The one tonne capacity is the maximum load your vehicle can carry, also known as the payload capacity. The payload capacity is the gross vehicle mass (GVM) as specified on the compliance plate by the manufacturer, reduced by the basic kerb weight of the vehicle.
Payload capacity = GVM – basic kerb weight
Exclusions & Limitations:
- The car limit does not apply to vehicles modified for use by people with disability.
- You cannot claim the excess cost over the car limit under any other depreciation rules.
- The instant asset write-off is limited to the business portion of the car limit for the relevant income tax year.
Fringe Benefits Tax
The FBT rate is 47% for the 2021-22 and 2022-23 FBT Year. Due date for lodgement for 31 March 2022 FBT returns is 27 June 2022.
For any potential fringe benefits provided to employees, make sure you have appropriate documentation and declarations in place.
Key items this year:
- COVID-19 benefits – including working from home equipment, RAT tests and protective equipment.
- Work-related COVID-19 tests are tax deductable and exempt from FBT.
- Changes to Car Parking rules
- FBT could apply if an employer provides car parking facilities for employees within 1km of a commercial parking station, and that commercial car park charges more than the car parking threshold ($9.25 for the year ended 31 March 2022).
- Employee’s salary sacrifice superannuation contributions can no longer be used to reduce the amount of superannuation guarantee paid by the employer (since 2020).
- Make sure you are using a logbook for all company vehicles.
Other Tax Planning Considerations
Contact us for advice if you have moved to or from Australia for an extended period. You may need to review your residency status for tax purposes. There are important tax consequences if you change residency.
Trustees of trusts should ensure that all necessary documentation is completed before 30 June, where you intend to stream capital gains or franked distributions to specific beneficiaries.
Be sceptical of year-end tax shelter schemes. You should not enter a scheme without advice regarding both its tax consequences and commercial viability.
The impact of JobKeeper and other COVID-19 stimulus packages and grants will need to be taken into account. Make sure you contact us for specific advice on these matters.
General Year End Tax Planning Strategies for Individuals
Here’s a snapshot of individual income tax rates going forward under the Government’s current proposals:
|Income Thresholds||Rate||Tax Payable|
|$0 – $18,200||0%||Nil|
|$18,201 – $37,000||19%||19c for each $1 over $18,200|
|$45,001 – $120,000||32.5%||$5,092 plus 32.5 cents for each $1 over $45,000|
|$120,0001 – $180,000||37%||$29,467 plus 37 cents for each $1 over $120,000|
|$180,000 and over||45%||$51,667 plus 45 cents for each $1 over $180,000|
Personal Income, Deductions and Tax Offsets
Subject to cash flow requirements, set term deposits to mature after 1 July, rather than before 30 June.
Consider realising capital losses if you have already realised capital gains on other assets during 2021/22. Conversely, consider realising capital gains if you have un-recouped capital losses, or you expect substantially higher income in 2022/23 compared to 2021/22.
If you expect lower income in 2022/23, consider deferring income until after 1 July, when you will be in a lower tax bracket. If you are a primary producer and you expect a permanent reduction in income, consider withdrawing from the income averaging system.
Arrange for deductible donations to be grouped in the higher income year, if you expect substantially higher or lower income in 2022/23 compared to 2021/22. Make all donations in the name of the higher income earner.
Travel expenses relating to inspecting, maintaining or collecting rent for residential investment properties are not deductible, unless you are carrying on a business of property investing.
Deductions for depreciation will be limited to costs that the taxpayer actually incurred to purchase the plant and equipment in the current year, not to successive investors in the property.
Low Income Earners
The spouse contributions tax offset will be available for individuals contributing to the superannuation account of a spouse whose income is up to $37,000. This will fade out completely when the spouse’s income reaches $40,000.
Individuals with an adjusted taxable income up to $37,000 will receive a refund into their superannuation account of the tax paid on their concessional superannuation contributions, to a cap of $500 under the low income superannuation tax offset.
High Income Earners
High income earners become liable to pay Division 293 tax when their income for surcharge purposes reaches $250,000.
Employer Superannuation Contributions
Employer Super Guarantee changes from 1 July 2022:
- Super guarantee rate goes from 10% to 10.5%.
- Employers will need to pay super to employees who earn less than $450 per month.
- Please check your payroll and accounting systems have been updated before 30 June 2022, so you can correctly calculate your employees’ super guarantee payments.
If you are intending to pay any outstanding superannuation contributions relating to employees prior to 30 June 2022 to claim a tax deduction in the current financial year, we strongly advise that you do so no later than Tuesday 14 June 2022.
If you are paying via a clearing house such as the Small Business Superannuation Clearing House, it takes time to first be received by the clearing house and then be forwarded and received by the employees nominated superannuation fund.
If your employee does not provide the choice of fund information before you are required to make a payment, you must make the payment to your default fund.
|Date||Super Guarantee Charge Rate|
|From 1 July 2022||10.5%|
|From 1 July 2023||11%|
|From 1 July 2024||11.5%|
|From 1 July 2025||12%|
Personal Superannuation Contributions
- The concessional contributions cap is $27,500 for all individuals regardless of age.
- The the non-concessional contributions cap is $110,000.
- From 1 July 2022, if you are under 75 years old you can make or receive personal superannuation contributions and salary sacrificed contributions (within your existing contribution cap limits) without needing to meet the work test. You may also be able use the Bring Forward Rule.
- Note: you may still need to meet the work test to claim a personal superannuation contribution deduction.
Deductions for personal superannuation contributions are now allowed for all individuals under the age of 75 (including those aged 65 to 74 who meet the work test). If you would like to receive further information, please contact us to discuss.
If you do make personal superannuation contributions, it is critical that you complete an “Intention to Claim a Tax Deduction” declaration and forward it to your superannuation fund provider before you lodge your tax return. If you don’t the ATO may deny your superannuation contribution as a tax deduction.
|Contributions Cap||Cap from 1 July 2021|
|Concessional contributions cap||$27,500|
|Non-concessional contributions cap||$110,000|
|Non-concessional bring-forward||Up to $330,000|
Bring Forward Rule
- The bring forward rule enables you to contribute up to three years’ worth of non-concessional contributions in the one year.
- You can currently use the bring forward rule if you are 67 or younger on 1 July of the relevant financial year of the contribution.
- From 1 July 2022, the Bring Forward Rule will be accessible to anyone 75 years or younger.
- If you utilised the bring forward rule in previous years, your non-concessional cap will not change. You will need to wait until your three years has expired before utilising the new cap limit.
|Total Super Balance at 30 June 2022||Personal Non-Concessional Contributions Cap|
|$1.59m < $1.7m||$110,000|
|$1.48m < $1.59m||$220,000|
Removing the Work Test
Work Test: You must work at least 40 hours over a 30-day period in the relevant financial year.
Currently, if you are aged 67 to 74 years old you can only make or receive voluntary contributions (both concessional and non-concessional) to your superannuation if you meet the work test.
From 1 July 2022 this requirement is being removed except for individuals wishing to claim a personal superannuation contribution deduction.
Unused Concessional Contributions
Carry-forward rules allows you access unused concessional cap amounts from previous years to make extra concessional contributions above the general concessional contributions cap without having to pay extra tax.
You can look up your balance and find out exactly how much is available to carry forward.
Retirees or Those Approaching Retirement
Since 1 July 2017, earnings of a transition to retirement pension are taxed at 15%, the same as they are in a super accumulation account. The earnings of ordinary retirement pensions are still tax free.
Transfer Balance Cap
- From 1 July 2021, all Individuals will have a personal transfer balance cap between $1.6 million and $1.7 million.
- Individuals who start their first retirement phase income stream on or after 1 July 2021 will have a personal transfer balance cap of $1.7 million.
Capital Gains Tax
Foreign Resident CGT Withholding
When a foreign resident (vendor) disposes a taxable Australian property with a market value of $750,000 or more, the purchaser is required to withhold 12.5% of the sale price, unless the vendor has a clearance certificate from the ATO.
Non-Resident CGT Main Residence Exemption
The main residence exemption is no longer available to foreign and temporary tax residents.
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