2023 Year-end Tax Planning Guide

The end of the financial year is fast approaching. To assist with your year-end tax planning, Pilot have compiled a guide for you and your business.

Year-end tax planning starts well before 30 June and many 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.

Individuals

Revisit retirement planning

Review your wealth creation structures and ensure that they remain appropriate and continue to meet your requirements prior to 30 June 2023.

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 2023. The minimum pension payments for the 2023 financial year are based on the member account balance as at 30 June 2022, and are as follows:

Age of Beneficiary Percentage Factors %
Under 65 2
65-74 2.5
75-79 3
80-84 3.5
85-89 4.5
90-94 5.5
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 2023.

For planning beyond 30 June 2023, we note that the temporary reduction in the minimum pension factors will cease as of 1 July 2023 with rates returning to the standard, double the above listed percentage factors.

Increase in Superannuation Guarantee rate

As of 1 July 2023, the Superannuation Guarantee (SG) rate rises to 11%, 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.

Increase in tax on super balances >$3 million

The Government has proposed a change to tax on superannuation ‘earnings’ for those with total super balances above $3 million. This will effectively increase tax payable to 30% (from 15%) to be implemented from 1 July 2025.

In preparation for this change, we recommend reviewing you super balances and where possible determine if implementing an early strategy such as equalising spouse balances is beneficial. See here for further details on the proposed changes.

Super contributions – individuals

Concessional contributions

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 2023. The tax deduction is only deductible in the 2023 tax return where the superannuation fund receives the contribution by 30 June 2023. The general concessional contributions cap is $27,500 for the 2023 financial year.

Where you have an unused concessional cap amount from the 2019 through to 2022 financial years, the carry-forward arrangement may be utilised to make extra concessional contributions in the 2023 financial year. This arrangement is available if your total superannuation balance as at 30 June 2022 was less than $500,000 and you have, or are planning to, make concessional contributions in the 2023 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 2023, it is important to:

  1. Identify your specific contribution cap – is it limited to $27,500 or can you access the carry-forward arrangement?;
  2. Confirm the amount of superannuation contributions that have been received by your superannuation fund during the financial year; and
  3. Understand what your employer (if applicable) will still contribute prior to 30 June 2023.

This will assist with ensuring the concessional contributions cap is not exceeded for the period ended 30 June 2023. If a taxpayer exceeds the 2023 cap of $27,500 (and any carry-forward cap), the excess amount is included in their 2023 income tax return and taxed at their marginal tax rate.

Non-concessional contributions

Individuals are able to make non-concessional contributions for the year ended 30 June 2023 where their superannuation balance is less than $1.7 million. These contributions are not tax deductible and are not taxable in the superannuation fund. The non-concessional contributions cap for the 2023 financial year is $110,000.

If you are under 75 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 2022. The relevant bring-forward limits for the 2023 financial year are as follows:

Super balance at 30 June 2022 $ 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 2023 has past (being 2 May 2023), employees may apply until 2 August 2023 to receive the exemption certificate for the quarter beginning 1 October 2023.

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.

Rental properties

For rental property owners, it is important to begin assembling relevant documentation including expenditure receipts to prepare for your 2023 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, and 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 2023 to crystallise a tax deduction in the 2023 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 2023 income year individuals must return to utilising either the actual cost or a revised fixed rate method to calculate a deductible working from home amount.

The revised fixed rate method is 67 cents per hour worked from home and covers energy expenses, internet, stationery and computer consumables without the requirement for a dedicated home office. Additional deductions can be claimed for the decline in value of assets such as computers and office furniture; repairs and maintenance of these assets; and cleaning costs for a dedicated home office.

Record keeping requirements have also been revised for those choosing to utilise the revised fixed rate. From 1 March 2023, taxpayers are required to keep a record of all hours worked from home for the entire income year; estimates or a 4-week representative diary is no longer acceptable. In addition, evidence that you paid for all expenses covered under this rate must be held as substantiation.

Businesses

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 2023 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 2023, the SG rate is set to increase by 0.5% to 11% 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 will result in 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 superannuation guarantee contributions was removed. This has expanded the superannuation guarantee coverage to all eligible employees over 18 years old regardless of their monthly pay.

Understanding the cash flow implications of this is 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 are 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 2023.

Allocation of professional profits

Further to the above personal exertion rules, from 1 July 2022 the ATO has commenced a new compliance program as outlined in PCG 2021/4 in relation to the allocation of professional firm profits. Professional firms include but are not limited to those providing services in the accounting, architectural, engineering, financial services, legal, medical and management consulting professions. These guidelines are concerned with whether there is a risk that professional profits are not appropriately taxed to the individual professional practitioner.

Highlighted are two key factors to be considered:

  1. Is there a sound commercial rationale for operating the arrangement or structure in place?
  2. Are there ‘high risk features’?
    1. financing arrangements relating to non-arm’s length transactions
    2. exploitation of the difference between accounting standards and tax law
    3. arrangements where a partner assigns a portion of a partnership interest to an individual that is not an owner or equity holder in the partnership or to an individual who is akin to a contractor or employee of the partnership
    4. multiple classes of shares and units held by non-equity holders.

Should you have concerns regarding your professional profits allocation or require assistance here, we recommend contacting your Pilot advisor to assess your risk level in line with ATO guidance prior to 30 June 2023.

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 2023 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 2023 tax return; or
  • the lodgement due date of the 2023 tax return.

The interest rate for these loans (known as Division 7A loans) has increased to 4.77% for the 2023 financial year.

Fringe benefits tax

Exemptions and lodgement of a nil return

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.

The Government recently introduced an FBT exemption for zero or low-emissions vehicles; however, following the release of the recent Federal Budget they are proposing to exclude plug-in hybrid electric cars from 1 July 2025. It is noted that any arrangements for plug-in hybrid vehicles entered into from 1 July 2022 and 31 March 2025 will supposedly continue to be exempt.

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 2023, thereby generating an FBT assessment.

Car parking benefits

Generally, car parking fringe benefits apply where an employer provides car parks to employees at their place of employment which is within a 1km radius of a commercial car park. Effective 1 April 2022, the ATO has extended the definition of a ‘commercial car park’ to specifically include hospital and shopping centre car parks.

Employers that provide car parking to employees should consider whether these changes will impact them, particularly if they haven’t paid FBT on providing parking to employees in the past. Although, the small business parking exemption may apply for particular entities that satisfy the conditions.

Trust distributions

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 2023 financial year distribution minutes to be effective, they must be prepared and executed by 30 June 2023.

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 2023 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 2023, the amendment period may be greater than 2 or 4 years.

Bad debts

Bad debts should be identified before 30 June 2023 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 these should be written off prior to 30 June 2023.

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 2023, you may claim a tax deduction for it in the 2023 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, unless the continuity of business tests are satisfied.

Temporary full expensing

Businesses should consider bringing forward certain expenses to claim as a tax deduction in the year ending 30 June 2023. The temporary full expensing incentive may assist here.

Temporary full expensing (TFE) 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

This concession has not been extended and as such, will cease on 30 June 2023. However, the Government announced in the recent Federal Budget plans to extend the instant asset write-off threshold for small businesses (aggregated turnover less than $10 million) to $20,000 for the period 1 July 2023 to 30 June 2024. We note this measure is not yet law.

It is important to consider the timing of the purchase, installation and use of the relevant asset to determine eligibility for this deduction. 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 2023. 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.

Prepayments

Broadly, businesses with an aggregated turnover below $50 million may deduct prepaid expenditure for the 2023 income year where:

  1. The total period covered by the prepaid expenditure is 12 months or less; and
  2. The period covered by the prepaid expenditure ends in the following income year (i.e. by 30 June 2024).

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 2023 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 2023.

Loss carry back tax offset

The loss carry back tax offset may be available to an eligible company in its 2023 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 2023 income year;
  • had an income tax liability for the 2019, 2020, 2021 or 2022 income year;
  • has a surplus of franking credits as at 30 June 2023;
  • lodges its 2023 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 2023 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 2023 income tax return is subject to taxes paid in prior years and limited to the franking account surplus as at 30 June 2023.

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 2023 that have not quoted their TFN should do so by 30 June 2023. This will ensure the trust is able to lodge the June 2023 quarter TFN report by 31 July 2023.

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

General

Where a business has Australian taxable wages that exceeded $1.3 million for the 2023 financial year, the entity must lodge the Queensland annual payroll tax return by 21 July 2023. 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.

Medical practices

A NSW court decision made together with a ruling released by the Queensland Revenue Office (QRO) during the 2023 financial year has put businesses in the medical and allied health industries under examination with regards to the application of the payroll tax law.  The new interpretation of the payroll tax law is a challenging new area and all entities running medical practice centres should be wary and review their practices and affairs.  In many cases we have reviewed, the new interpretation will require the medical practices to register and pay payroll tax or consider restructuring the business operations and/or structure.

In relation to the new payroll tax interpretation, the QRO has announced an amnesty that will apply to General Practitioners in defined circumstances. If successfully applied for by 29 September 2023, the practice will not be required to pay payroll tax in respect of the period 1 July 2017 to 30 June 2025. This amnesty does not apply to any allied health or other medical practitioners. See here for further details on the amnesty.

It is recommended that medical practitioners seek assistance to consider the impact of the new payroll tax interpretation on their businesses and consider if any risk mitigation strategies can be implemented.

Upskilling incentives

In the March 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 current 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.

Small business energy incentive

In the 2023 Federal Budget, the Government announced a new incentive which may allow for greater business deductions on eligible expenses for small business with an aggregated annual turnover of less than $50 million. If legislated, it will allow small businesses to claim an additional 20% of expenditure incurred to support ‘electrification and more efficient use of energy.’ However, it appears that electric vehicles, energy generation assets (such as solar panels) and fuel powered assets will be excluded.

The incentive will be available for eligible expenditure up to $100,000 incurred from 1 July 2023 until 30 June 2024.

Learn more

Now is the time to contact your advisor to understand the timing and quantum of your tax liabilities. Tax planning should be considered annually in June or earlier to take advantage of relevant strategies where it is commercially practical for you and/or your business.

If you would like assistance with tax planning or have any questions, please contact Kylee Smith at ksmith@pilotpartners.com.au or your Pilot advisor on (07) 3023 1300.