As the end of the financial year approaches, it is important to take the time to focus on tax planning and tax issues that affect you before 30 June 2023 arrives. We have outlined some of the key tax considerations below:
Trust Distribution Major Update
The ATO has recently issued a series of documents which will have a significant impact on how family trusts operate, especially in relation to distributions to adult children who are on lower marginal tax rates. It is vital to review the trust distributions and ensure the trust minutes and documentation are in place before 30 June. We highly recommend you contact your TAG adviser to discuss potential strategies for trust distributions.
Asset Disposals
Consider deferring the disposal of assets that will generate a capital gain until after 30 June. Where there are assets with unrealised capital losses, consider selling those assets before selling assets with unrealised capital gains. This will allow the capital loss to be used to offset the capital gain.
Company Tax Rate
The tax rate for a trading company will be 25% from the 2023 financial year onwards. A company that is not a base rate entity will be taxed at 30%. A base rate entity is a company that both:
- has an aggregated turnover less than the aggregated turnover threshold of $50 million.
- 80% or less of the assessable income is base rate entity passive income.
Superannuation Contributions
Ensure superannuation contributions are paid into superannuation funds before 30 June to ensure a tax deduction for your business in the current year. With super stream operating as a clearing house, please allow time for the contributions to be received by the fund (if the contribution is not in the fund’s bank account, it is not treated as being received). The contribution caps are currently:
- Concessional Contribution: $27,500 per annum
- Non-Concessional Contribution: $110,000 per annum
The ability for a member to contribute is dependent on their age and Total Superannuation Balance (TSB) at the previous 30 June. To make non-concessional contributions, a member’s Total Superannuation Balance must be less than $1,700,000 at the previous 30 June.
Single Touch Payroll (STP)
Single Touch Payroll requires businesses to report all wages paid, tax and superannuation information from each pay cycle to the ATO electronically. All businesses should be reporting via STP by now. If you have not started STP, please contact your TAG Financial Services adviser.
Instant Asset Write Off for Eligible Businesses
Currently, there are three temporary tax depreciation incentives available to businesses with an aggregated turnover of up to $500 million:
- Temporary full expensing
- Increased instant asset write-off
- Backing business investment
In broad terms, depreciating assets purchased before 30 June 2023 could be written off under one of the above rules. The amount that can be written off has been reduced in the May 2023 budget to $20,000, if the annual turnover is less than $10 million. Be aware of exclusions and limits that apply to car purchases!
Small Business Entity Concessions
If you carry on business and your aggregated turnover is less than $10 million or you own net assets of less than $6 million, you may be able to access certain concessions including:
- CGT concessions
- Immediate deductions for certain prepaid expenditure
- Simplified depreciation and trading stock rules
Wages or Dividend
In certain circumstances, it may be beneficial for a business owner to receive fully franked dividends from the company rather than wages. In particular, a dividend may be preferred where the company is in a break-even or loss situation. We encourage you to discuss this topic with your TAG adviser earlier in the financial year.
Income in Advance
Where you have received income that relates in part or in full to services or goods you have not provided before 30 June, record that income so that it can be taken up as income in advance rather than as earned, taxable income. This will defer the recognition of the income until the next financial year.
Valuation of Trading Stock
Businesses can value their stock at the lower of actual cost, replacement cost or market selling value. In addition, different methods can be applied to different stock lines. A reduction in the holding value of stock will reduce the profit of the business by the same amount.
Bonuses/Director Fees
Bonuses/Directors Fees that have been incurred and committed to (by minute) by the business before 30 June (and are not subject to discretion) may be claimed as a tax deduction by the business, as long as they are promptly paid (ideally in the next quarter).
Company Loans to Shareholders
Company loans to shareholders (and their associates) may become a deemed unfranked dividend (resulting in additional tax to be paid by the shareholder) if not repaid before the end of the financial year or put on loan terms. These rules also extend to:
- trusts, where there has been a loan to a shareholder and the trust owes money to a company, and
- distributions a trust makes to a company, which have not been paid.
These loans either need to be repaid or documented in a 7-year loan agreement (with repayments) to avoid the application of Division 7A rules. Proposed changes to the Division 7A rules are still in draft legislation and yet to be implemented.
Bad Debts
Analyse your list of debtors before 30 June to identify those debtors you consider unlikely to be collected. To claim a tax deduction for these bad debts, you need to physically write them off before 30 June.
Appropriate Structuring
One of the most effective and underrated tax planning tools is to ensure that your business operations are correctly structured through the use of companies, discretionary trusts and individual beneficiaries. Call us to discuss whether your current structure is right for you.
Any questions?
If you have questions or need any assistance, please do not hesitate to contact us on 9886 0800 or via email.
Join us for our Superannuation Strategies Seminar
We will be taking a deep dive into this topic at our upcoming Superannuation Strategies Seminar.
Specialist Advice
If you would like to discuss a project, please contact us. Our advice is quoted upfront for your approval before commencement.
Webinars On Demand
We have lots of informative webinars by our financial experts. Watch them any time on demand.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2023. Please do not reproduce without the expressed written consent of the author.