Now is as good a time as any to start implementing tax minimisation strategies in your business. We’ve listed our best tips below.
Is your business a “Small Business” entity?
Small businesses can access a range of tax concessions from the ATO. To qualify as a“Small Business Entity”, the business must have an aggregated turnover (group turnover of related entities) of less than $10 million and be carrying on a business.
Reduction in company tax rates for small business
The current company tax rate for companies with less than $50 million turnover is25%, provided the company is carrying on a business and any investment income is minor.
Plant and Equipment - temporary full expensing
On14 October 2020, the Federal Government passed into law temporary full expensing, which allows the cost of plant and equipment to be claimed 100% in the year it is first installed and ready for use. This measure applies to all new plant and equipment purchases to 30th June 2023 for entities with a turnover of less than $5 billion.
Entities with a turnover of less than $50 million can also claim second-hand plant and equipment acquired prior to the 30th of June 2023.
Maximise deductible super contributions
The individual tax-deductible superannuation contribution limit is $27,500 from 1st July 2021, this is also known as the individual concessional contribution cap.Up to this amount can be claimed by the individual provided it is received by the fund and allocated to the member's account by the 30th of June each year.
Note that employer super guarantee contributions are included in this limit of$27,500. For example, if employer contributions are $10,000, then the employee can claim up to $17,500 in their individual tax return. Exceeding these limits will lead to the excess being taxed at your marginal rate, less a 15% rebate.
From the 1st of July 2018 if you have less than $500,000 in superannuation you can carry forward to the current year any unused contribution cap from a prior year. This is best explained with an example; let’s assume the contribution for2021/2022 was $20,000, this leaves $7,500 as an unused cap that can be carried forward to a future year. So in 2021/23 the maximum amount claimable becomes the unused cap carried forward plus the current years limit. This is calculated as $7,500 + $27,500 = $35,000 and therefore $35,000 rather than $27,500 can be claimed in 2021/23.
Pay employee superannuation
To claim a tax deduction for the current financial year, you need to ensure that your employee superannuation payments are received by the super fund or theSmall Business Superannuation Clearing House (SBSCH) by 30 June.
You should avoid making last-minute superannuation payments as processing delays may cause them to be received after year-end.
If you are on a cash basis, receipt of income can be deferred until after the 30th of June.
If you are on an accruals basis, customer invoicing can be deferred until after the 1st of July and the income taxed in the following year. This is subject to there being a justifiable commercial reason to defer issuing an invoice, as otherwise under an ATO investigation the general anti-avoidance of income tax provisions may apply, and if upheld substantial penalties could be levied.
We need to remember this is only deferring the income being taxed, that is to say, the income is subject to tax in the following year.
Bring forward expenses
In the same vein, one can bring forward expenses into the current tax year by purchasing consumable items before 30 June. These may include marketing materials, general consumables, stationery, printing supplies, and general office or workshop supplies.
Repairs and maintenance
Bring forward known repairs and maintenance expenditure so it is incurred and expensed prior to the 30th of June.
Defer investment income and capital gains
If possible, arrange for the receipt of Investment Income (e.g. interest on TermDeposits) and the Contract Date for the sale of Capital Gains assets, to occur after 30 June.
Motor vehicle log book
Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30June. You should make a record of your odometer reading as at 30 June and keep all receipts/invoices for motor vehicle expenses.
An alternative is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method which is currently 72 cents per kilometre.
Investment property building write off
If you own a rental property and haven’t already done so, arrange for the preparation of a Property Quantity Surveyors Report to allow you to claim the maximum amount of building write-off deductions on your rental property. The building write-off is generally 2.5% per year of the capital cost of the building including improvements. This applies to residential and commercial properties.
Private company (“DIV 7A”) loans
Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 Jun.Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.
Year-end stocktake / Work in progress
If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June. Review your listing and write off any obsolete or worthless stock items.
Write-off bad debts
Review your Trade Debtors listing and write off all bad debts before 30 June. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June.
Small business concessions – prepayments
Small Business Entities taxpayers can make prepayments (up to 12 months) on expenses(e.g. loan interest, rent, subscriptions) before 30 June and obtain a full tax deduction in the current financial year. This concession also applies to other entities with a turnover of less than $50 million, effective from 1st July2020.
Skills Training and Digital Adoption
The recent budget handed down on 29th March 2022 allows small business (turnover less than $50 million) a 20% bonus deduction for eligible external training and courses for upskilling employees. In house or on the job training is excluded.The boost will apply to eligible expenditures up until 30th June 2024.
In addition, a similar 20% bonus deduction will apply to expenditure on digital technologies for example portable payment devices, cloud computing subscriptions, eInvoicing systems and cyber security and other depreciating assets related to digital adoption, with a limit of $100,000 per year. This measure applies to all eligible expenditures until 30th June 2023.
Chat to us or phone us on (08)9217 2400 for more information that relates to your individual needs and how you can minimise your business tax.