As the end of the financial year approaches, many Australians begin to think about tax planning strategies. While there are a number of different strategies that can be used to minimize tax liability, some may be more effective than others in the current economic climate.
As of June 30 2022, gets closer, we start nearing the end of the 2022 income tax year.
To ensure that you are properly managing your financial affairs, not only to understand your tax position but also to assist you in achieving your business and personal objectives, it is critical to think about year-end tax planning methods. Please don’t hesitate to contact us at Ingrams Accounting for all your tax planning strategies.
Tax Planning Strategies
Here are some pointers to think about while preparing for companies and individuals:
Cash Flow Management
The first step to creating a successful tax planning strategy is understanding your current financial status. This will allow you to see your current tax situation for the year and how much money you have in your company, allowing you to focus on development opportunities or areas where you may enhance your organisation. Please don’t hesitate to contact us at Ingrams Accounting for all your tax planning strategies.
Tips to maximise cash flow from tax savings includes:
- Prepayments of specific tax-deductible costs (for example, interest or income protection insurance);
- Before June 30 2022, check your depreciation schedule and tell us if any assets have been destroyed or abandoned. These things may be taken advantage of to reduce your expenses and deductible;
- At the end of 2022, perform a stocktake and ensure that obsolete inventory is written off, which may save you money on taxes.
- Write off any uncollectable debts before June 30, 2021, and do some research about trade creditors. &
- Review inventory before June 30 2021, and write off any obsolete stock.
If you know your position, calculating your tax may allow you to vary instalments so that you don’t overpay taxes throughout the year and have money left over.
It may also be worth considering and marking the due dates for your tax payments, as late payments might result in fines or interest charges that will negatively influence cash flow.
Superannuation
Tax planning includes thinking about the 2022 income tax year, but it also includes considering future years.
By contributing to a superannuation fund, you may save money throughout your career while still taking advantage of current-year tax deductions, which lowers your taxable income.
Individuals can claim a tax deduction for concessional contributions up to the concessional cap of $25,000. It’s critical to consider any additional concessional contributions you may have made throughout the year, such as compulsory or salary sacrifice contributions your employer has required you to make.
The ATO allows unused cap balances from the 2019 and 2020 financial years to be used for additional superannuation contributions. Exceeding this limit entails penalties, including excess contributions tax of 46.5 percent. Please don’t hesitate to contact us at Ingrams Accounting for all your tax planning strategies.
Tax Rate Cuts
The corporate income tax rate has been reduced from 27.5% to 26% as part of a government initiative (aggregated turnover less than $50 million; and 80% or less of the entity assessable income is base rate entity passive income). The rate will be lowered to 25% from July 2021.
All other entities that do not meet these criteria may be taxed 30%.
Also, if you intend to pay a franked dividend in the 2021 tax year, keep in mind that the corporate tax rate (30% or 26%) at which the dividend is franked must be considered (as there are various conditions to satisfy in order to frack a dividend using the 30% rate). Please don’t hesitate to contact us at Ingrams Accounting for all your tax planning strategies.
Small Business Concession
There are numerous concessions available if your firm is classified as a small business (aggregated turnover of less than $10 million), including:
- Simplified depreciation rules – If your company has used simplified depreciation methods and a small business pool before, you may still deduct the whole amount of the small business pool by June 30 2022.
- Immediate deduction for Prepayments – for expenses that are prepaid within 12 months or less, and the prepayment ends no later than June 30 2022.
- Simplified trading stock rules
- Small company rollover – If certain conditions are fulfilled, changes to company structures are tax-free.
- A $7,000 threshold has been introduced. Individuals with a turnover of up to $1,000 will be eligible for the small business tax offset, which is worth 8% of their small business net income if turnover is less than $5 million.
Certain small business concessions have recently been expanded to include firms with an aggregated turnover of $10 million or more but less than $50 million.
- Immediate deduction from July 2020 for prepaid and specific start-up expenses
- Starting in April 2021, businesses with fewer than 50 employees will be eligible for FBT concessions that were previously available only to small enterprises.
There are Small Business CGT concessions that may enable you to defer or ignore capital gains from assets utilised in small businesses if you’re planning for the long term.
The Government announced that the Instant Asset Write-off will be extended until June 30, 2023. Businesses with an annual turnover of less than $500 million are eligible for the instant asset write-off.
Businesses that qualify are eligible to deduct 100% of the cost of qualifying assets (new or second-hand) purchased for less than $150,000 and placed in service by June 30 2021. Also, keep in mind that for the year ended June 30 2021, automobile limits are $59,136. Please don’t hesitate to contact us at Ingrams Accounting for all your tax planning strategies.
Company Loss carry-Back
Eligible firms with an aggregated turnover of less than $5 billion may carry back tax losses incurred during 2020, 2021, and 2022 financial years to offset earnings previously taxed in 2019 or later years.
Firms that elect to disclose their 2020-21 or 2021-22 income taxes can choose this tax-saving option, and they will receive a refundable tax offset in the year the loss was incurred. They must not exceed current tax earnings to carry back the losses and must not result in a franking account deficit. A firm may also have to make an adjustment if it carried losses back from a previous income year. Please don’t hesitate to contact us at Ingrams Accounting for all your tax planning strategies.
SMSF related issues
In addition to tax issues, the following are some SMSF concerns to be aware of, especially if you’ve taken advantage of certain COVID-19 relief provisions:
Contributions
From July 2020, individuals who were under the age of 67 could make voluntary contributions without fulfilling work criteria. Previously, this was only available to people under the age of 65.
If you earn less than the threshold, you will have to pay tax on any amount you brought into your superannuation fund in 2020-21. In addition, if the work test does not apply to you because it was the first year that you were dissatisfied with it, you may still be eligible for a work test exemption if your TSB was under
As a result, before the end of June 2021, you should evaluate your contribution methods to ensure you get the most out of them while staying under your cap.
Non-concessional contributions (after-tax) are limited to $100,000 in 2021 and are only available if your TSB was less than $1.6 million on June 30, 2020.
If you are under age 65 at any time during the 2020-21 financial year, you could contribute up to three times the non-concessional cap (or $300,000) in one go. The maximum brings forward non-concessional contribution amount was determined by your TSB on June 30, 2020.
However, it’s important to note that no bill has yet been enacted to enable older people to make up to three years of non-concessional superannuation contributions under the bring forward rules.
Starting in 2021, the $25,000 limit for concessional (before-tax) contributions is eliminated. If you have any unused concessional contribution cap from the 2019 financial year onwards, you may be eligible to make greater concessional donations subject to your TSB.
If you have made personal contributions and intend to claim a tax deduction for 2020-21, you must reconcile all employer contributions and salary sacrificed amounts from your superannuation account. This is to make sure you don’t exceed the annual concessional contribution limit. It’s also vital to confirm that the correct notice requirements are met so that you can claim a
On July 1 2021, the annual cap on non-concessional and concessional contributions will increase to $110,000.
Inurnment also announced that the Government also announced to allow voluntary non-concessional contributions and salary sacrificed contributions to be made up to the age of 75. The work requirement will be done away with completely. These modifications are anticipated to go into effect on July 1, 2022, if they are enacted.
Investment & Covid Relief messures
In terms of assets, SMSF trustees must value the fund’s assets at market value as of June 30 each year in their annual financial statements. When it comes to term deposits or listed shares and managed funds, valuing assets is simple. However, determining the worth of real estate or private companies and unit trusts can be difficult.
You must follow the ATO’s valuation standards for SMSFs when valuing an SMSF’s assets. If you have any queries or want assistance, don’t hesitate to contact us.
For the 2020-21 financial year, it’s critical to get the fund’s asset value correct to assess the COVID-19 effect on your superannuation benefits. It is absolutely essential for SMSFs that rely on the ATO’s in-house asset COVID-19 relief. These SMSFs will have until June 30 2022, to
For SMSFs that took advantage of the Government’s property relief initiatives to cut the rent in 2020-21, any rental relief must terminate by June 30 2021. From July 1 2021, COVID-19 will no longer be a permissible cause for any rental assistance, and SMSF trustees will need to ensure that all rent is at an arm’s
There are additional factors to consider for SMSFs with a restricted remedy borrowing arrangement (LRBA). The relief granted under COVID-19 loan repayment assistance should terminate by June 30 2021, if your SMSF received COVID-19 loan repayment relief to assist in meeting financial obligations. Any LRBA should return to the original terms of the lending instrument beginning on
The COVID-19 loan relief has resulted in a variation to the original term of the LRBA. Provided that interest continues to accrue on loan and you repay any delayed principal and interest payments according to the modified conditions, the LRBA will be considered consistent with an arm’s length dealing. Please don’t hesitate to contact us at Ingrams Accounting for all your tax planning strategies.
Meeting New Pension Requirements
To assist manage the economic ramifications of COVID-19, the Government reduced drawdown requirements by half on account-based and market-linked pensions for 2020-21. According to recent announcements, the 50% reduced minimum pension drawdown requirements would be maintained throughout 2021-22.
If the Personal Superannuation Supplement is taken, you may be entitled to another reduction of $1,000. If you do not take advantage of this offer before June 30 2021, you will underpay your pension payments by $500 per year until then. Instead of being tax-free, SMSFs will be taxed at a rate of 15%
The deadline for paying out retirement benefits for 2020-21 in cash is June 30, 2021, and they may not be accrued or adjusted with a journal entry, so it’s critical to deal with it as soon as feasible. For example, if you’re making pension payments via electronic transfer, you must ensure that the money goes from your fund’s bank.
The FCM calculates each member’s TSB and whether or not a member will exceed their transfer balance cap (TBC) by ensuring that each member’s benefits are presented at market value.
The $1.6 million TBC limits the number of tax-free assets that can contribute to a pension for SMSF members receiving a pension. SMSFs must submit a transfer balance account report (TBAR) to the ATO in order to track the relevant events against their personal TBC (Tender Board Account Record). The TB
With the general TBC set to the index to $1.7 million on July 1, 2021, it’s more crucial than ever to double-check that all of your TBAR lodgments are up to date and that you calculate your rights for any proportional indexation of the TBC correctly.
Need help?
The following are a few thoughts to consider while preparing taxes and superannuation arrangements. The Australian tax system is always changing, with numerous proposed modifications implemented.
Thank you for reading! We hope this article was helpful. If you have any questions or want to learn more about our services, please don’t hesitate to contact us at Ingrams Accounting for all your tax planning strategies.
This information is general and prepared without considering your objectives, personal or business circumstances, financial situation, or needs. Because of this, you should, before acting on this information, consider in consultation with your adviser its appropriateness, having regard to your objectives, personal or business circumstances, financial situation and needs.
Chris lives and breathes numbers and has been finding the fun in accounting for quite some time. The more complex the tax issue, the more you need Chris.
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