As we enter the new fiscal year, we’ve put together a list of facts to consider when planning your EOFY tax return. If you are considering tax planning issues for June 30, 2022 and beyond, the following information will provide you with some information.
Tax planning in Australia involves several considerations, including: comparing the different tax rates for different entities. asset protection strategies; And estate planning.
Different tax rates apply to different types of entities such as corporations, trusts and individuals. You can also have a business and have created an entity to manage that business. Individual tax rates are higher than the low profit corporate tax rate, hence the tax planning problems for individuals, including considering the business structures you have.
The current Covid-19 pandemic raises questions about asset protection. Some sectors have been dramatically affected by state, territorial and federal government decisions aimed at addressing the health and economic effects of the pandemic. This may continue to happen in the future. Your tax planning decisions, therefore, will necessarily involve asset protection considerations due to the uncertainty and increased risk posed by the pandemic. Depending on your stage of life, you may also want to consider estate planning as part of your overall tax planning. Succession planning considerations are best approached holistically to suit individual circumstances.
Tax planning issues for individuals for 30 June 2022
Depending on your personal situation, you should consider the following general points to reduce your personal income tax for the tax year ending June 30, 2022:
- Family Trust (Discretionary) Income Stream (Section 7A or Section 100A may apply to certain agreements)
- Postpone salary bonuses until after June 30th
- Declare (or defer) dividends stamped by private companies
- Use of wage packages and wage supply schemes (e.g. auto, supplementary pension contributions)
- Use of income protection policies
- Use of investment bonds for investments of at least 10 years
- Using negative gearing strategies, including acquiring holdings in registered managed investment schemes (MIS) that have product rules from the ATO, using margin lending products to buy stock, and buying a real estate investment, subject to due diligence with a licensed financial advisor
- Offset any capital gains with losses to minimize capital gains tax (CGT), but be aware of ATO’s washing sale provisions
- Postponement of all or part of the sale of CGT assets until after 30 June
- Advance payment of rent, interest or insurance costs no later than 30 June up to 12 months in advance (NB: specific rules apply for these types of deductions)
- Self-study costs
- Apply for deductions for a home office, especially if you worked from home
- Supplementary social security contributions for you and your spouse (given the contribution thresholds) e
- Charitable donations to a registered charity, public supplementary fund, or private supplemental fund
Superannuation contributions
To benefit from the 15% tax rate on pension fund income and non-taxable retirement income, consider the following:
- Concessional contributions up to $27,500/year using salary waivers
- catch-up contributions (for people with less than $500,000 in Super) and
- Nonconcessional contributions up to $110,000/year if fund is less than $1.7M – nonconcessional contributions can be advanced for up to 3 years up to a specified age limit
SMSF directors should consider various investment options such as stocks and real estate as part of the SMSF investment plan. Real estate investing can involve owning your own business premises and using outside capital, but special rules apply. Members of retail pension funds should consider whether the performance of their fund and the management fees charged are satisfactory relative to the cost of managing your own SMSF.
Tax planning issues for small business operators by 30 June 2022
If you are involved in an SME (including a sole proprietorship, partnership or partnership), keep these general points in mind:
- Reorganization of your sole proprietorship or partnership status into a corporation or trust structure. A CGT relief may be granted subject to restructuring. Various problems arise for land companies
- Make decisions on employee bonuses by June 30
- Pay pension contributions before June 30
- Prepayment of rent, interest, or insurance costs by June 30 up to 12 months in advance (note: special rules apply to these types of deductions)
Until June 30, 2023, companies with sales up to $5 billion can make tax-deductible purchases using the current indefinite asset write-off on qualifying assets in use.
For businesses with sales not exceeding $5 billion, losses in 2020-21, 2021-2022, and 2022-2023 may be deducted from profits for the 2018-2019 tax years and subsequent tax years. You should also consider the following:
- Attend continuing professional development and training and pay other self-study expenses
- Make sure withholding taxes are paid to the Australian tax office to request a deduction
- Valuation of trading shares at cost, market value or replacement value
- Amortization of doubtful loans, plant and machinery (taxpayers’ accruals) e
- Removal of plants
Tax planning issues for trusts for 30 June 2022
For Trustees
- Confirm that each beneficiary is eligible to receive a distribution from the trust
- Be sure to document which beneficiaries received a portion of the trust’s income prior to June 30 and keep records of the trustee’s distribution notes and
- Conduct elections for the family trust where necessary
- Administrators will also need to consider whether Section 7A of the Income Tax Assessment Act 1936 or Section 100A of the Income Tax Assessment Act 1936 may apply to current unpaid fees (UPE).
A beneficiary cannot withdraw from a distribution after June 30.
Key Features of Budget 2022-23 Tax Planning
In the last federal budget, the government introduced concrete measures to stimulate economic activity. These include the following:
Stimulating Technology Investments for Small Businesses
Small businesses (with total annual revenue under $50 million) can deduct an additional 20% of costs incurred for business expenses and depreciation of assets supporting their digital adoption, such as B. portable payment devices, systems cybersecurity or cloud-based service subscriptions.
Businesses may continue to deduct expenses that are not eligible for bonus deduction under applicable tax law. There is an annual limit of $100,000 for each qualifying year of income.
Businesses can still deduct expenses over $100,000 under applicable law. This action applies to expenses incurred between March 29, 2022 7:30 p.m. AEDT and June 30, 2023.
- Claim expenses on your 2021-22 tax return as usual, and
- Claim the additional 20% deduction for this period on your 2022-23 tax return.
For eligible expenses incurred from 1 July 2022 to 30 June 2023:
- You can deduct the full 120% in your 2022-23 tax return
Small Business Skills and Training Boost
Small businesses with total annual revenue of less than $ 50 million can deduct an additional 20% from eligible employee training expenses. Entrepreneurs can continue to deduct expenses that do not qualify for bonus deduction under applicable tax law. This measure applies to expenses incurred between 7.30pm AEDT from 29 March 2022 to 30 June 2024.
The bonus deduction (the extra 20%) for expenses made from March 30, 2022 to June 30, 2022 is included in the next income year, 2022-2023.
The deduction of the bonus for expenses from 1 July 2022 to 30 June 2024 is included in the year in which the expenses were incurred.
For eligible expenses incurred between March 29, 2022 7:30 p.m. AEDT and June 30, 2022:
- Claim expenses on your 2021-22 tax return as usual, and
- Claim the additional 20% deduction for this period on your 2022-23 tax return.
For eligible expenditure incurred from 1 July 2022 until 30 June 2023:
- You can deduct the entire 120% in your 2022–23 tax return
For eligible expenditure incurred from 1 July 2023 until 30 June 2024:
- You can deduct the full 120% in your 2023-24 tax return
Since these measures are not yet legal, the deduction of the 20% bonus will be accrued in the financial year 2022-2023 only for expenses by 30 June 2022.
When does tax planning result in problems?
Tax evasion and Commonwealth fraud can occur when people engage in behavior that unduly reduces their tax liabilities. Often such schemes are designed as complex schemes involving fraudulent claims or revenue disguised as loan schemes. Serious criminal proceedings can arise for participants and initiators of tax evasion schemes. We recommend that you consult your accountant well before the end of the year to prepare your tax strategy
For more information, please contact our office.