SMB business owners should consider some practical strategies before June 30, 2022, to reduce this year’s taxes liability.
Small Companies
The following two strategies only apply to small businesses that meet overall billing requirements:
1. Deduction for expenses paid in advance
A small business with total billings of less than $50 million can claim an immediate deduction for certain prepaid business expenses when the payment covers 12 months or less and that period ends before the end of the following year of revenue. Is. The most common expenses you should consider before June 30, 2022. Include lease payments, interest, rent, business travel, insurance, and business subscriptions.
Please note that your company will have to make an advance payment under the relevant contractual agreement. To get an immediate tax deduction in this financial year; You can’t just choose to prepay the expense.
2. Other Tax Benefits
A small business with a total turnover of less than $10 million is also entitled to the following. Additional tax exemptions for the year 2021/22:
simplified stock trading rules, which give small businesses the option to avoid year-end listings if the value of their stock. Has declined by less than $5,000 from the previous year; You
Account for GST in cash and the option to pay GST dues as calculated by ATO.
The temporary total expense of depreciable asset expense (replacing immediate asset write-off allowance)
Under the previous government’s COVID-19 stimulus measures in its budgets in 2020 and 2021. And now legislated entirely, immediate asset cancellation concessions were replaced. By a more liberal regime that allows the total cancellation of the cost of depreciable. New assets. Allows for. and improvements to existing depreciable assets, carried out by a business. With a total turnover of less than $5 billion and installed and ready for use by 7:30 p.m. M. From 6 October 2020 to 30 June 2023.
An immediate deduction is also available for businesses with a total turnover of less than $50 million. For second-hand asset purchases, and businesses with a pool. Of low-value assets with a total turnover of less than $10 million for closing balances. Get instant deduction. group.
It is important to note that to get an immediate tax deduction in a particular. Year, the asset must be used or installed ready. For use by the end of that year, and in all cases, ready or installed for use should go. 30 December. June 2023. This could also be an issue for imported equipment and in a domestic context where. Australian suppliers are affected by COVID-19 or transport companies are struggling to meet delivery demand.
Disposal of obsolete equipment
If obsolete plant and equipment are on your depreciation program.It must be terminated and written off by June 30, 2022, to trigger an additional tax deduction.
Loss Carry Back Concession for Businesses
Another concession introduced in the October 2020 federal budget and extended for an additional. 12 months in the May 2021 budget, this concession allows a business .(i.e., not available to partnerships, trusts or individuals) Made in any Allows to “recover” tax losses. For the previous year from the years 2020, 2021, 2022, and 2023 2019. A refund can be claimed in the presentation of tax returns from the year 2021, which represents a tax saving if the loss would have been available for tax. Claims in the previous year.
Claiming Concessional Retirement Contribution
The maximum discounted retirement contribution limit for all individuals is $27,500. Note that employer guarantee contributions and salary sacrifices are included in the contribution cap.
When concessional contributions over these amounts are made, the excess is taxed at its marginal rate, a 15% tax offset for the tax already paid by Superfund on the additional contribution.
If you’re making individual retirement contributions, be sure to get the relevant documentation from your retirement fund to claim the deduction before filing your 2022 tax return.
To get the deduction in FY 2022, the contribution must be made by your retirement fund at 30. Must be received before June 2022 – see items (ii) and (iii) below.
Other Major Retirement Issues by June 30, 2022
(i) Extraordinary Transferable Concessional Contribution
Beginning July 1, 2019, you can make exceptionally discounted ‘rollover’ contributions if you have a total retirement balance of less than $500,000 at the end of the previous year. Unused concessional contribution caps can be used for five consecutive years, after which they expire.
For example, if an individual had $20,000 in qualifying contributions made on their behalf during the year 2020-21, the balance of $5,000 is borne by the year 2021-22.
That means if your excess balance was less than $500,000 as of June 30, 2021, you can make a discounted contribution of up to $32,500 in this tax year, without breaking the contribution limit.
(ii) super contributions made by check or electronic fund transfer (EFT)
To ensure that the deduction can be claimed in the current tax year, last-minute contributions can be made by check or electronic fund transfer. Care should be taken while sleeping.
When the super contribution is made by check and the fund receives it before June 30, 2022, the deduction is allowed in the current financial year, as long as the trustee deposits the check within 3 business days and the check is subsequently issued and is not rejected.
When contributions are made by EFT, it is deemed to be when the amount is “credited” to the fund’s bank account, not when the transfer is made.
Unless the contribution is made between the linked accounts of the contributor and the fund (held in the same bank), the deduction can be deferred to the next financial year in which the Superfund account is deposited before June 30, 2022 Money is not deposited.
(iii) Super contribution made to Government Small Business Retirement Clearing House (SBSCH)
To ensure that the deduction for employee premium guarantee contribution can be claimed in 2022, the ATO says that due to a delay in processing time, payment should be accepted by SBSCH by June 23, 2022.
Avoid income tax and capital gains
Businesses that return cash income are assessed as income when they are received. A simple tax planning strategy at the end of the year is to delay “receiving” income until after June 30, 2022.
Businesses that return non-cash revenue are typically valued based on revenue as it is derived or billed. Revenue can be deferred in certain circumstances by delaying the “issuance of invoices” until after June 30, 2022.
Gaining capital gains after June 30, 2022, will defer capital gains tax for 12 months and can also be an effective strategy to reach a 50% blanket exemption, which requires holding the asset for at least 12 months. is required. The contract date is the date of recovery for capital gains tax purposes. In some cases, capital gains under the small business capital gains tax allowance can be further reduced to zero.
Reduction in the tax rate for some companies with effect from July 1, 2021
In comparison to the temporary benefits of deferring income and bringing forward the deduction, it is worth noting that a company that is a ‘Base Rate Entity’ (BRE) has reduced its tax rate from 26% to 25% with effect from 1st July 2021. has given. A BRE is a company with a total turnover for the year of less than $50 million and ‘Base Rate Unit Passive Income’ (BREPI) that represents less than 80% of its total taxable income for the year.
BPI is passive income such as dividends, interest, rent, royalties, and net capital gains (though note that this does not include business income that flows from a trading company to a holding company via dividends).
Family trust distribution
For the year 2022, minors (that is, children under the age of 18 as of June 30) can receive up to $416 of investment income (including distributions from the trust) tax-free. Any income earned above this amount is taxed at penalty rates.
Income received by the family trust must be distributed among the various beneficiaries before June 30 of each year and documented by resolution. It is preferable to have a resolution before June 30, 2022, to avoid any subsequent dispute with the ATO as to whether the revenue was allocated correctly by this date.
The exact requirements for disregarding trust income are set out in the trust deed, and since each trust deed is different, the trustees must know the terms that apply to that particular trust.
Failure to comply with the terms of the allocation of the trust deed and related income before June 30, 2022, may result in the trustee being taxed on the trust’s income at a maximum marginal tax rate of 47% (including Medicare’s 2%). Rate).
Accounting & Bookkeeping | Small Business Taxes
Also note that special rules apply to the “passing” of capital gains and frank dividends received by family trusts to particular beneficiaries, and if you want to pass, it is important that the family trust deed contains adequate “passing” provisions. Huh. They let the trustee do that.
Also note that in February 2022, the ATO published a series of guidance documents outlining its views on the treatment of trust distributions made in certain situations (such as adult children or retired parents who may not receive benefits). Of. for them) and the potential application of an anti-avoidance rule in section 100A of the tax laws that may have the effect of assessing the trustee at a maximum marginal tax rate of 47% instead of assessing the trustee. The distribution to the beneficiaries was allegedly assigned.
The most important step for trustees and advisors is to consider its impact on the allocation of trust income for the tax year 2022, but it should also be noted that the new ATO opinion may apply to earlier years, however. Usually not before. 2014, therefore it is also recommended to review the approach taken in previous years in the light of this new development.
A variety of arguments have been made to the ATO and what happens next needs close attention, but it is unlikely to be resolved before June 30, 2022.
Write off slow-moving or obsolete stock | Small Business Taxes
The value of the shares trading in all companies as on June 30, 2022, at actual cost, replacement cost, or market selling price, whichever is lower there is an option to count. A different valuation method may be applied for each item of transferable stock.
For example, when the market selling price of the items in stock at the end of the year is less than the actual cost price, your company can generate a tax deduction by valuing the stock at the market selling price for tax purposes.
Also, in situations where inventory becomes obsolete at the end of the year (for example, fashion apparel), your business may choose to adopt a lower-than-actual cost, replacement cost, or retail price. market, provided that the value adopted is reasonable.
Claim deduction for unpaid expenses at the end of the financial year
All businesses are entitled to an immediate deduction for certain expenses “incurred” but not paid as of June 30, 2022, including:
Salary and Salary. A tax deduction can be claimed for the number of days employees worked till June 30, 2022, but not paid until the new tax year.
Directors’ Fees. A company can claim a tax deduction for directors’ fees by June 30, 2022, for which it is “definitely committed” and has passed an appropriate resolution approving the payment. The director is not required to include the fee on his tax return until 2023 when the amount is received.
Staff bonus and commission. A business can claim a tax deduction for employee bonuses and payable and unpaid commissions until June 30, 2022, when it has “certainly committed” to the expense.
Repair and Maintenance. The deduction can be claimed for repairs and bills done before June 30, 2022, but cannot be paid until the next income year.
Pay off bad debts
If your business posts non-cash income and previously included the amount in taxable income, a bad debt deduction can be claimed in 2022, as long as the debt is declared non-collectible before June 30, 2022. Is.
Your company will need to show that you have made a genuine effort to recover the debt by June 30 to show that the debt is bad. It would be better if this decision is taken in writing (for example, a minute from the director of the company).
Your company can also claim the GST paid on the debt. Ignoring trust income is set out in the trust deed, and since each trust deed is different, the trustee must meet the conditions that apply to that particular trust. know.
Failure to comply with the terms of the allocation of the trust deed and related income before June 30, 2022, may result in the trustee being taxed on the trust’s income at a maximum marginal tax rate of 47% (including Medicare’s 2%). Rate).
Also note that special rules apply to the “passing” of capital gains and frank dividends received by family trusts to particular beneficiaries, and if you want to pass, it is important that the family trust deed contains adequate “passing” provisions. Huh. They let the trustee do that.
Tax laws that may have the effect of assessing
Also note that in February 2022, the ATO published a series of guidance documents. Outlining its views on the treatment of trust distributions made in certain situations (such as adult children or retired parents who may not receive benefits). Of. for them) and the potential application of an anti-avoidance rule in section 100A of the tax laws that may have the effect of assessing the trustee at a maximum marginal tax rate of 47% instead of assessing the trustee. The distribution to the beneficiaries was allegedly assigned.
The most important step for trustees and advisors is to consider its impact on the allocation of trust income for the tax year 2022, but it should also be noted that the new ATO opinion may apply to earlier years, however. Usually not before. 2014, therefore it is also recommended to review the approach taken in previous years in the light of this new development.
A variety of arguments have been made to the ATO and what happens next needs close attention, but it is unlikely to be resolved before June 30, 2022.
