Has Your Business Done Everything Possible to Minimise Tax Prior to 30 June?

As we have done in previous years we are trying to ensure all our clients take advantage of every legal strategy to ensure they do not pay any more tax than they absolutely have to. There are only a couple of weeks left to put your strategies in place. Following are the strategies that your business should be looking at before 30 June.

The usual tax planning strategies you need to review by year-end are as follows:

1. Defer income by delaying invoicing. While it only defers the tax, it can provide significant cash flow relief by deferring the tax for a year.
2. Bring forward expenditure by incurring the expense prior to year-end.
3. Review trading stock for possible write-downs of obsolete or slow-moving lines. This must be done prior to 30 June to be able to write down the stock.
4. Write off bad debts in the accounts prior to 30 June.
5. Prepay expenses if relevant to the size of your business. You can claim prepaid expenses this year if your turnover is <$50M. Please note prepayments can only be claimed for 12 months in advance
6. Pay superannuation contributions for yourselves, if relevant, and ensure paid, along with employees’ contributions, before 30 June to get the deduction this year.
7. Write off plant and equipment that is not used, or has been scrapped.
8. Access to the Temporary Full Expensing (TFE) of assets concessions is now widely available to all businesses, up to a turnover of $5 billion. In fact, by current law, it is available until 30 June 2023. For most businesses, there is no threshold on the asset’s cost. Motor vehicles have some special rules we should discuss if you plan to purchase a motor vehicle from now on. Please note, after 30 June 2023, the upfront write-off of assets will be limited to assets costing less than $1,000.
9. Have you made a loss in the 2022 financial year? Did you pay tax on profits in your company in 2019, 2020 or 2021? If so, you should look to use the Loss Carry Back provisions that allow you to receive a refund for previously paid tax, if you made a loss this year. Please note these provisions have been extended until the 30 June 2023 year as well,
10. Do you undertake Research and Development? If so, ensure you take the necessary actions to receive the ATO concessions available.
11. Review what suits your circumstances before 30 June. Do you pay a dividend prior to 30 June and you pay the top-up tax around May 2023 or do you defer the dividend until 1 July, in which case the top-up tax will be deferred until May 2024. The company tax rates are not changing on 1 July this year so there is no difference to the percentage franking of dividends pre and post 30 June.
12. Ensure loans to shareholders are under control with adequate repayments and loan agreements in place.
13. Any bonuses due to employees should be paid before 30 June to get tax deductions this year, or if committed to this year, but based on a profit calculation that can’t be done until after 30 June, minuted in the statutory records that they are to be paid. This action will ensure that the bonuses are deductible in the 2022 financial year, notwithstanding they are actually paid in the 2023 financial year.
14. Any issues with the Personal Services Income rules need to be resolved with the required salary by 30 June.
15. Trustees of trusts need to ensure that the necessary distribution minutes are put in place and signed prior to 30 June, especially if you intend to stream different types of income to different beneficiaries. Please review the other article in the May KSW Insight to review the issue this year with trust distributions where the benefit of the distribution does not end up in the beneficiaries’ hands. Extra care needs to be taken with trust distributions this year.
16. Company directors must ensure that dividend minutes are prepared and signed for any dividends declared during the 2022 financial year.
17. Have you made capital gains this year? Do you have the ability to crystallise capital losses before 30 June to offset them?
18. Are there any donations you can make prior to 30 June to get the deduction this year?
19. If you wish to change the structure, 1 July is the easiest and cheapest time to start the new structure.

Last year we discussed the planned changes to the Division 7A laws, whereby there were to be significant changes which were to make it more costly to have outstanding loans after the legislation changes. The law has still not been passed and, with a new government in power, there is some uncertainty about how the planned change might evolve. We will keep you informed but, in the short term, there will not be any changes this 1 July.

As a reminder, these changes included replacing the current 7 and 25 years loans with 10-year loans (with transitional measures put in place for existing loans), new higher interest rates on the loans and changes to repayment and loan agreement requirements. There would also be a catching of existing exempt loans if not dealt with by the end of a transitional period.

As always, we have and will be, contacting all our business clients prior to year-end to talk them through what they need to do.

In the meanwhile, the above lists should remind you of any areas you may have forgotten. Please feel free to reach out to us, if you have any clarifications.

Author: Michael Goodrick

*Correct as of 30 May 2022

*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.