With the tax year coming to a close on 30 June, it’s crucial to ensure that your business and tax affairs are well organised and ready for the year-end.
There are several ways you can optimise your tax position by either reducing your assessable income or increasing your allowable deductions for the 2022–23 income year. By doing so, you can effectively lower your business’s taxable income, ultimately reducing the amount of tax payable.
Reduce assessable income
If your business reports income on a cash basis, one strategy to reduce assessable income for the current year is to delay sending invoices to customers until after 30th June. However, it’s important to consider your cash flow requirements, as you may prefer to receive payments sooner despite the potential tax implications.
If you’re in the process of selling property and the resulting profit will be subject to capital gains tax (CGT), you might consider delaying the sale until the next income year. Remember that the liability to pay CGT arises in the income year in which you exchange contracts, not on settlement.
Increase deductible expenses
You can also increase deductible expenditure by bringing it forward from the next income year to the current one. This strategy is particularly useful for expenses that qualify for an immediate deduction, such as depreciating assets under the temporary full expensing rules, start-up costs, and certain prepaid expenses.
Temporary full expensing
It’s important to note that the temporary full expensing rules for depreciating assets will end on 30 June this year. However, the instant asset write-off will still be available for small businesses (with less than $10 million aggregated turnover) for 12 months starting from 1st July. The threshold for this write-off will be $20,000 per asset. Unlike temporary full expensing, there will be a threshold under the instant asset write-off. This may result in higher tax payable by the business for the next financial year.
Learn more how the temporary full expensing ending may affect you.
Charity donation
Donating to charities is another effective way to increase your deductions. If you’re unsure about the deductibility of a donation, you can verify the status of charities on the Australian Business Register website (https://www.abn.business.gov.au/Tools/DgrListing). Remember to request a receipt for your donation.
What are the benefits of reducing your taxable income?
If you’re a sole trader or a partner in a partnership, reducing your taxable income can provide several advantages, including:
- Lowering your marginal tax rate, which can result in substantial savings. For example, reducing your tax rate from 45% to 37% or from 37% to 32.5% can significantly benefit your overall financial position.
- Avoiding liability for the Medicare levy surcharge, which is at least 1% of your income if you don’t have appropriate private health insurance.
As the end of the tax year approaches, it’s wise to consult with our KMT tax adviser to explore additional strategies and ensure that your business is fully prepared for year-end.
Trustee Resolutions
If your business operates through a trust and you wish to make beneficiaries presently entitled to trust income for the 2022–23 income year, it’s crucial to ensure that your trustee resolutions are effective. This includes situations where you want to allocate franked dividends and capital gains, which are included in trust income, to specific beneficiaries.
To ensure compliance, your trustee should:
- Review the trust deed to confirm that the intended beneficiaries fall within the class of persons who can be appointed trust income or trust capital (if you intend to allocate a capital gain that is not characterized as trust income under the deed) and are not excluded as beneficiaries.
- Comply with any requirements in the trust deed that pertain to the valid appointment or distribution of trust income to beneficiaries.
- Understand that, for tax law purposes, beneficiaries must be made presently entitled to the 2022–23 trust income
Download our tax planning guide to learn strategies and tips on how to minimise your personal and business tax from our Free Resources
Contact KMT accountants now for your tax planning advice!
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.
