Tax Planning: Are You Organised For 30 June 2023?

When it comes to saving tax a well-organised and proactive approach will get you the best results. This is why attending to your annual taxation planning before 30 June 2023 is crucial.

A well-thought-out tax planning meeting will consider a range of factors such as deductions, timing of transactions, structuring and legislative changes. The meeting should also provide you with a range of solutions to deal with any issues raised.

Furthermore, it is important to note the Australian Taxation Office’s approach to compliance is becoming more aggressive and this creates a greater need for proper analysis and planning.

Why is tax planning so important this year?

The ATO has legislated, litigated, and proposed a number of key reforms and compliance approaches that may severely impact small to medium sized businesses. These changes should be taken into consideration as part of the tax planning process.

Some of these changes include:

1. Trust distributions to family members or bucket-companies (s100A):

• Physical payment to trust beneficiaries trust entitlements must be paid if you are to use the beneficiary in tax planning.
• Detailed accounting and tracking payments to beneficiaries must be kept.
• If the trust beneficiary is loaning the money back to the business in furtherance of growth/cash-flow then formal loan documentation is required.

2. Professional firm profit allocation for accountants, lawyers, medical professionals, architects and other professionals – please see our previous article here.

3. When a trust distribution converts from a present entitlement to a loan and Division 7A loan implications – Taxation Determination TD 2022/11.

So, what happens if you don’t consider the above in your tax strategy for this year?

• Increased risk of ATO compliance activity and audits
• Income assessed at 45% + Medicare Levy in certain instances
• Not properly knowing your tax exposure for the year and receiving a nasty surprise when lodging your income tax return

Strategically plan Division 7A loan repayments

Current legislation will see the individual marginal tax rates change in the 2025FY to be as follows;

Taxable income tax on this income: 

• $0- $18,200 | $NIL
• $18,201 – $45,000 | 19c for each $1 over $18,200
• $45,001 – $200,000 | $5,092 plus 30% for each $1 over $45,000

If the Government does not amend this legislation then there could be significant opportunity to delay the repayments of Division 7A loans in the 2023FY and 2024FY and repay higher amounts in 2025FY and onwards in which you should see a reduction in tax.

Basic tax planning ideas

Prepay expenses

• If you are a small business entity with an aggregated turnover of less than $50m (and cash flow allows), consider prepaying expenses for up to a maximum of 12 months to bring forward deductions.

Time your income transactions

• In certain circumstances you may consider invoicing or contracting on asset sales after 30 June 2023.

Consider asset acquisitions

• If you require new assets* then consider acquiring them before 30 June 2023 for an immediate deduction**.

*the asset is generally limited to plant & equipment assets or non-structural or fixed assets.

**under the temporary expensing regime for businesses with aggregated turnover of less than $50m they can receive an immediate deduction for new asset acquisitions.

Please note that for the deduction to be claimed the asset must be received and ready for use before 30 June 2023.

Pay employee superannuation before 30 June 2023

Superannuation payments made on behalf of employees can be claimed as a tax deduction in the financial year they are made if the SG requirements are met, so consider paying the June 2023 quarter super liabilities before 30 June:

• To ensure super contributions reach the super funds by the end of the financial year, they need to be paid early enough for the clearing houses to process them. For example, if using the auto super function in Xero, the batch must be approved by 14th of June 2023.

Consider making superannuation contributions for yourself

• Making additional concessional superannuation contributions can save you a lot of income tax depending on your marginal tax rate.

* If an individual’s Div 293 income is in excess of $250k they pay 30% tax on concessional super contributions tax rather than the usual 15%.

Please speak to your financial advisor prior to making any superannuation contributions.

Consider your entity structure

Considering the ATO’s numerous proposed changes, an entity restructure may be the best way to alleviate some risk and have the additional benefit of saving a lot in tax. The good news is that we can execute a lot of these restructures without Capital Gains Tax (CGT) or stamp duty implications.

Key indicators a restructure may be suitable:

• You are in a trust, partnership or sole trader structure; and
• You have high cash reserves within the business bank account; or
• You have high debtor balances owing to you; or
• You have a future plan of bringing unrelated parties into the ownership of the business; or
• You are concerned about risk with the business and losing your hard-earned cash

If you have any questions or would like to organise your tax planning meeting, please contact us today.

Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.