The end of the financial year is fast approaching. To assist with your year-end tax planning, Pilot have compiled a year-end tax planning guide for you and your business.
Year-end tax planning starts well before 30 June and many tax planning strategies need to be addressed before the end of the financial year. Planning early can be beneficial for cash flow and understanding your tax liabilities and due dates will help with strategic business planning.
Revisit retirement planning
Review your wealth creation structures and ensure that they remain appropriate and continue to meet your requirements prior to 30 June 2022.
If you have started a pension from superannuation, it is important that you have drawn the required minimum pension for the current financial year before 30 June 2022. The minimum pension payments for the 2022 financial year are based on the member account balance as at 30 June 2021, and are as follows:
|Age of Beneficiary||Percentage Factors %|
|95 or more||7|
There is no maximum limit, except for transition to retirement pensions which is limited to 10%. The payment amount will be calculated based on the member account balance as at 30 June 2021.
For planning beyond 30 June 2022, we note that the minimum pension factors will remain at the reduced rates listed above for the 2023 financial year.
Increase in Superannuation Guarantee rate
As of 1 July 2022, the Superannuation Guarantee (SG) rate rises to 10.50%, with further increases to come each year until 1 July 2025. Employees should review their employment agreements to determine the impact the SG percentage increase may have on their take-home pay.
Super contributions – individuals
Individuals are able to make personal concessional contributions from pre-tax funds to claim a tax deduction in their income tax returns for the year ended 30 June 2022. The tax deduction is only deductible in the 2022 tax return where the superannuation fund receives the contribution by 30 June 2022. The general concessional contributions cap is $27,500 for the 2022 financial year.
Where you have an unused concessional cap amount from the 2019 through to 2021 financial years, the carry-forward arrangement may be utilised to make extra concessional contributions in the 2022 financial year. This arrangement is available if your total superannuation balance as at 30 June 2021 was less than $500,000 and you have, or are planning to, make concessional contributions in the 2022 year that exceed the general concessional contributions cap.
The additional concessional contributions relate to any unused cap amounts from previous years starting from the 2019 financial year. The unused cap is able to be carried-forward and used in a future year, although it expires after five years.
When making any additional concessional contributions before 30 June 2022, it is important to:
- Identify your specific contribution cap (is it limited to $27,500 or can you access the carry-forward arrangement?);
- Confirm the amount of superannuation contributions that have been received by your superannuation fund during the financial year; and
- Understand what your employer (if applicable) will still contribute prior to 30 June 2022.
This will assist with ensuring the concessional contributions cap is not exceeded for the period ended 30 June 2022. If a taxpayer exceeds the 2022 cap of $27,500 (and any carry-forward cap), the excess amount is included in their 2022 income tax return and taxed at their marginal tax rate.
Individuals are able to make non-concessional contributions for the year ended 30 June 2022 where their superannuation balance is less than $1.7 million as at 30 June 2021. These contributions are not tax deductible and are not taxable in the superannuation fund. The non-concessional contributions cap for the 2022 financial year is $110,000.
If you are under 67 years of age, you may be eligible to make contributions above this annual non-concessional contributions cap by gaining access to future year caps under the bring-forward arrangement. This is reliant on the bring-forward arrangement not being utilised in the previous three years.
The bring-forward arrangement allows you to make extra non-concessional contributions without the requirement of paying extra tax. The availability of this arrangement in this financial year will depend on your age and total superannuation balance as at 30 June 2021. The relevant bring-forward limits for the 2022 financial year are as follows:
|Super balance at 30 June 2021 $||Maximum non-concessional contribution for the first year $||Bring-forward period|
|Less than 1.48million||330,000||3 years|
|1.48million to 1,589,999||220,000||2 years|
|1.59million to 1,699,999||110,000||No bring-forward period, general non-concessional contributions cap applies|
|1.7 million and over||Nil||N/A|
Individuals with multiple employers – Opt out of receiving SG
If you are an individual with multiple employers, you may be eligible to opt out of receiving SG from some of your employers.
This may help you prevent unintentionally going over the concessional contributions cap, and avoid paying extra tax. In order to opt-out, the ATO must receive the employee’s application for a shortfall exemption certificate a minimum of 60 days before the first quarter for which the exemption is wanted. While the application period for the quarter beginning 1 July 2022 has past (being 2 May 2022), employees may apply until 2 August 2022 to receive the exemption certificate for the quarter beginning 1 October 2022.
If you are considering applying for an exemption certificate, discuss this with your employer first. The employer is able to choose to disregard the exemption certificate and continue to pay SG.
For rental property owners, it is important to begin assembling relevant documentation including expenditure receipts to prepare for your 2022 tax return.
This includes determining deductible expenses and considering what capital gains tax implications may arise in the event of a sale. For eligible expenses such as rates, property management fees, capital works and depreciation, the timing of the deductions available may vary.
Subject to sufficient cash availability, you may consider prepaying interest or paying for other expenditure before 30 June 2022 to crystallise a tax deduction in the 2022 income tax return.
It is also important to review loans and policies to ensure that any interest only periods are not nearing expiry.
Working from home expense deductions
Following the pandemic, is has become increasingly common for individuals to work from home for a number of days each week.
For the 2022 financial year, you may consider utilising the shortcut method to claim a fixed rate of $0.80 per hour worked from home. This covers expenses including telephone, interest, electricity and depreciation on furniture and equipment. To substantiate this, individuals should have some record of the hours worked from home, including a timesheet, roster or diary.
However, depending on your records available, you may find that a higher deduction is available using either the actual cost or fixed rate method (see details here).
For financial years following 2022, the shortcut method ceases (unless extended by the Government) and individuals must return to utilising either the actual cost or fixed rate methods to calculate a deductible working from home amount.
Super guarantee – employers
Employer superannuation contributions
Superannuation is deductible when paid. Therefore, to claim superannuation as a tax deduction for the June quarter (or month where the business pays superannuation monthly), the business must ensure that this superannuation is paid before 30 June.
Importantly, if you use a clearing house such as the Small Business Superannuation Clearing House, you may have to make the superannuation payment to the clearing house by 23 June 2022 to ensure the payment is made to the employees’ funds by 30 June.
SG rate changes
Employers need to be aware of changes to superannuation in the new financial year.
From 1 July 2022, the SG rate is set to increase by 0.5% to 10.5% for all employees. The SG percentage will increase to 12% by 1 July 2025 with increases of 0.5% scheduled each financial year through to 1 July 2025 (refer here for details).
Due to the business cash flow implications of these changes, it is important for employers to factor these changes in when negotiating new salary and wage packages. Employers should also understand if the change in superannuation rates for current employees is a change in the allocation of their employment package or an additional payroll cost.
SG $450 de minimis threshold
As of 1 July 2022, the $450 de minimis threshold for SG contributions will be removed. This will expand the SG coverage to all eligible employees over 18 years old regardless of their monthly pay.
Understanding the cash flow implications of this will be important, particularly for businesses that rely on a number of casual staff.
Personal exertion income
Broadly, personal exertion income is income derived by the personal efforts or skills of an individual. Typical industries where personal exertion income is derived include (but not limited to) medical professionals, financial professionals, information technology consultants and engineers.
Where personal exertion income is derived through structures such as trusts, partnerships or companies, the income (less certain deductions) is attributed to the individual who performed the services. It is important to ensure that profits earned from personal efforts when operating via a trust, partnership or company are appropriately paid out to the relevant individuals before 30 June 2022.
Personal loans from companies
If you are a shareholder or associate of a private company and have borrowed money from the company, it is important you have made the necessary minimum loan repayments before 30 June 2022 to ensure no adverse tax consequences arise.
Additionally, any new loans created during the current year will be required to be repaid or put on a complying loan agreement before the earlier of:
- the date the company lodges its 2022 tax return; or
- the lodgement due date of the 2022 tax return.
The interest rate for these loans (known as Division 7A loans) has remained at 4.52% for the 2022 financial year.
Fringe benefits tax
Fringe benefits tax (FBT) broadly applies to non-cash benefits provided to an employee unless an exemption applies. The commonly applied exemptions include (but are not limited to):
- minor and infrequent benefits provided for less than $300
- private use of a panel van, ute or other commercial vehicle (broadly being, one not designed principally to carry passengers where the private use is limited)
- the provision of portable electronic devices mainly for use in the employee’s employment.
Where employers are providing non-cash benefits to employees that are exempt from FBT and not lodging FBT returns, we recommend lodging an FBT return annually to limit the amendment period.
The ATO has the right to audit and amend FBT relating to prior years, for a period of up to six years from the date of an FBT assessment. If an entity has never lodged an FBT return, and therefore never received an assessment, the ATO can audit the entity for an unlimited number of prior years. This exposure can be limited by lodging an FBT return for the year ended 31 March 2022, thereby generating an FBT assessment.
Discretionary trusts (and some fixed trusts) are required to prepare and execute distribution minutes prior to 30 June for each financial year. These distribution minutes detail how the income of the trust will be distributed to beneficiaries for the relevant financial year. Minutes must be prepared in accordance with the trust deed and detail any use of income streaming. For the 2022 financial year distribution minutes to be effective, they must be prepared and executed by 30 June 2022.
When preparing the trust distribution minutes, it is recommended to prepare the minutes in a way to retain a nominal amount in the trust for the 30 June 2022 income year. This will assist with generating a notice of assessment for the trust and effectively limiting the amendment period to 4 years (or 2 years for trusts that are considered a small business entity).
Broadly, the amendment period is a particular tax period that the ATO and taxpayer is able to review and amend tax forms to include any under or overpayment of tax. The period is determined from the date of relevant notices of assessments. Where there is no retention of income, trusts are generally not taxable and therefore do not receive notices of assessment. As such, without completing the distribution minutes and retaining a nominal amount in the trust by 30 June 2022, the amendment period may be greater than 2 or 4 years.
Bad debts should be identified before 30 June 2022 to understand the commercial and tax implications. Therefore, a review of trade debtors should be conducted to identify any amounts that are considered uncollectable and written off prior to 30 June 2022.
Broadly, where a bad debt is written off and been determined unlikely to be recovered through any reasonable and commercial attempts prior to 30 June 2022, you may claim a tax deduction for it in the 2022 financial year. This is on the basis that the debt is still in existence and has not been waived, forgiven, sold or extinguished in any other way.
However, the bad debt may not be deductible where there has been a change in ownership or control of a company or trust. Where this is the case, additional requirements must be satisfied.
Temporary full expensing
Businesses should consider bringing forward certain expenses to claim as a tax deduction in the year ending 30 June 2022. The temporary full expensing incentive may assist here.
Temporary full expensing allows a business to claim an immediate deduction for the full cost of eligible depreciating assets, where they are first used or installed after 7 October 2020. The conditions to access the immediate deduction are:
|Eligible business aggregated turnover||Condition||Date range – first used or installed||Asset cost threshold $|
|Less than $5 billion||New||7 October 2020 to 30 June 2023||Unlimited|
|Less than $50 million||New or second hand||7 October 2020 to 30 June 2023||Unlimited|
The former Government recently extended this concession to continue until 30 June 2023.
It is important to consider the asset, timing of the purchase, installation and use of the relevant asset to determine eligibility for this deduction. Noting that the available deduction for a car may be limited to the car limit of $60,733 for the 2021-22 income year. We recommend contacting your Pilot advisor to determine whether these deductions apply to you.
Year-end finalisation report
Employers should have procedures in place to ensure they are able to lodge the Single Touch Payroll (STP) year-end finalisation report by 14 July 2022. This will allow their employees to complete their tax returns.
Remember to include fringe benefits provided to employees in the STP finalisation report where the benefit provided is more than $2,000.
Broadly, businesses with an aggregated turnover below $50 million may deduct prepaid expenditure for the 2022 income year where:
- The total period covered by the prepaid expenditure is 12 months or less; and
- The period covered by the prepaid expenditure ends in the following income year (i.e. by 30 June 2023).
Businesses with an aggregated turnover below $50 million should review their expenses and, subject to cash availability, consider bringing forward any payments which are currently being paid monthly such as subscriptions and insurance.
In order to claim a deduction for this financial year, determine what expenses may be prepaid prior to 30 June 2022 using excess cash available.
Stock and depreciating assets
For tax purposes, most businesses that trade stock are required to do an annual stocktake as at 30 June. It is important to plan and execute a stocktake in a way which gives a reliable and accurate stock figure. As part of stocktake, you should identify any old, obsolete or damaged stock which can be written off or written down.
The fixed asset register should also be reviewed to write off obsolete, scrapped or damaged depreciating assets before 30 June 2022.
Loss carry back tax offset
Eligible companies may utilise the loss carry back tax offset in their 2022 company tax returns. Additionally, the Government has extended this offset so it may be utilised in the 2023 financial year.
The loss carry back tax offset may be available to an eligible company in its 2022 tax return where the company:
- carried on a business and its aggregated turnover did not exceed $5 billion in the loss year;
- made a tax loss in the 2022 income year;
- had an income tax liability for the 2019, 2020 or 2021 income year;
- has a surplus of franking credits as at 30 June 2022;
- lodges its 2022 income tax return and lodged the previous five income tax returns; and
- the company loss tests have been satisfied.
Choosing to carry back losses (made in the 2020 through 2022 income years) to earlier years (in which there were income tax liabilities) may result in a cash refund, reduced tax liabilities or a reduction of debt owing to the ATO. The availability of this offset for the 2022 income tax return is subject to taxes paid in prior years and limited to the franking account surplus as at 30 June 2022.
Tax File Number reporting
Closely held trusts (including family trusts) are required to report the Tax File Number (TFN) and other personal details of any new beneficiaries. This is done by completing a TFN Report for the quarter the beneficiary quotes their TFN to the trust. The TFN report must be lodged by the end of the month following the relevant quarter. As such, any beneficiaries of a trust for the year ended 30 June 2022 that have not quoted their TFN should do so by 30 June 2022. This will ensure the trust is able to lodge the June 2022 quarter TFN report by 31 July 2022.
Where a beneficiary’s TFN has not been quoted, the trustee is required to withhold tax at the top rate from any payments or distributions made to them.
Payroll tax – Queensland
Where a business has Australian taxable wages that exceeded $1.3 million for the 2022 financial year, the entity must lodge the Queensland annual payroll tax return by 21 July 2022. In the event that the entity has overpaid tax for the year, the amount will be applied to other outstanding debts or refunded.
It is important to note that a business must register for payroll tax within seven days after the end of a month in which the Australian taxable wages exceed $25,000 a week. This is required even if the business expects the Australian total taxable wages for the financial year to be less than the $1.3 million threshold.
In the 2022 Federal Budget, the Morrison Government announced two new incentives for small businesses with an aggregated annual turnover of less than $50 million, which may (subject to being legislated) allow for greater business deductions on eligible expenses. The 20% boost for eligible expenses made by 30 June 2022 are proposed to only be claimed in the 2023 income year.
These incentives are not law and will be subject to review by the incoming Government. As such, it is important to be aware of these new measures, however we caution upon assuming these measures will be made law and making purchases on the assumption that the 20% boost (i.e. additional deduction) will be available.
The proposed incentives as announced are:
Skills and Training Boost
The Skills and Training Boost will allow small businesses to deduct an additional 20% of expenditure incurred on external training courses provided to employees.
To be eligible for the boost, the external training courses will need to be delivered by entities registered in Australia, provided to employees in Australia (or online), and incurred from 29 March 2022 until 30 June 2024. Specific expenditure will be excluded from this boost, including in-house training, on-the-job training and training courses for persons other than employees.
Technology Investment Boost
The Technology Investment Boost will allow small businesses to claim an additional 20% of their costs incurred on business expenses and depreciating assets supporting their digital adoption. This boost will apply to eligible expenditure incurred from 29 March 2022 until 30 June 2023, and will be limited to an annual cap of $100,000.
Where the announced measures are legislated with no changes, for eligible expenditure incurred by 30 June 2022 under the above incentives, the 20% boost will be claimed in the 30 June 2023 income year. However, the 20% boost on eligible expenditure incurred from 1 July 2022 to 30 June 2023 or 2024 (depending on the incentive) will be claimed in the financial year the expenditure is incurred.
There are a range of deferrals and concessions available from the ATO to assist with cash flow including:
- The ability to change GST reporting cycle to monthly to get quicker access to GST refunds. Note that this may not suit all taxpayers and is locked in for a minimum of 12 months.
- Where you believe you may have overpaid tax, you may vary your PAYG instalments with no penalties for the 2022 year provided you make a genuine attempt to estimate your end of year tax liability. This may allow you to reclaim funds before the lodgement of your 2022 tax returns.
- For taxpayers wanting a deferral to pay their outstanding or future tax liabilities, the ATO is providing payment arrangements on a lower interest (or possibly nil) rate depending on your circumstances.
- If your business was impacted by natural disasters, such as flooding, the ATO will consider remitting penalties and interest in certain circumstances and potentially stop interest being charged while you continue to be affected.
Now is the time to contact your advisor to understand the timing and quantum of your tax liabilities. Tax planning should be reviewed annually in June or earlier.
If you would like assistance with tax planning or have any questions, contact Kylee Smith or your Pilot advisor on (07) 3023 1300.