We again approach the end of another financial year. Some have once again faced challenges brought upon us by the Coronavirus pandemic and look forward to better times ahead.
Whether you are a business owner or an individual taxpayer, you should now take some time to consider tax and accounting strategies that can be put into place before year-end to minimise or defer some tax burden.
Here are some top tips and key strategies that may put you in a better tax position.
Taking the time to do some tax planning may result in a better outcome in your 2022 tax return and start the new tax year on the front foot.
• Ensure your accounting records and bookkeeping are all up to date as at 30 June 2022.
• Ensure you have documentation (eg. receipts) to support each transaction.
• We recommend that forecasts of your future tax bills are prepared so that you do not get any “surprises” when you lodge your 2022 tax return. Particularly if your business is growing or if you have started a new business.
• Accelerate legitimate deductions and defer the receipt of income (hold off invoicing where possible until after 30 June 2022).
• Small businesses can claim an upfront deduction for prepaid expenses (in certain circumstances) instead of spreading it over multiple tax years. Consider prepaying business expenses that relate to a 12-month period or less on or by 30 June 2022.
• If you have received any income in advance (where the good or service has not been provided yet), you may be able to defer the taxing of the income to the 2023 tax year (instead of 2022 tax year).
• From 7:30pm AEDT on 6 October 2020 until 30 June 2023, temporary full expensing allows a deduction for new and second-hand eligible depreciating assets and the balance of a small business pool. Aggregated turnover and eligibility criteria apply.
• Write off any bad debts. To claim a deduction for bad debts, the debtor must have been “written off” in your accounting ledger on or before 30 June 2022. A good business practice is to review this regularly and not just at year end. This may be a more relevant issue for the 2022 financial year due to the Coronavirus pandemic.
• To claim a deduction for employee superannuation, this must be paid before 30 June 2022.
• To claim a deduction for employee bonuses, the bonuses must be committed to or communicated to the employees on or before 30 June 2022.
• Conduct a year end stocktake and review stock on hand to determine if any stock needs to be scrapped or written off by 30 June 2022.
• Review your payroll records and perform year end reconciliations. Be prepared for year-end Single Touch Payroll reporting for employees by the ATO due dates.
• The Single Touch Payroll Phase 2 mandatory start date is 1 January 2022. We encourage you to enquire about Single Touch Payroll with your digital service provider (DSP). Some DSP’s have applied to the ATO for a deferred start date. More information can be found in our recent blog post Single Touch Payroll – Phase 2 is Here!
• Donations to Deductible Gift Recipients should be made on or before 30 June 2022 to claim a tax deduction in your 2022 tax return.
• Ensure the minimum Division 7A loan repayments are made by 30 June 2022 and place any applicable Division 7A loans under loan agreements.
• Reconcile petty cash / float balances to the accounting records.
• Ensure your motor vehicle logbook is current and up to date. If you do not have a current logbook, you will need to start a new logbook for 12 weeks. This will last you for 5 years.
• Declare and pay any company dividends to shareholders by 30 June 2022. Minutes and dividend statements should be prepared and issued.
• Trustees are required to determine the distribution of income to beneficiaries on or by 30 June 2022 in writing (the relevant date is dependent on the trust deed).
• Unpaid present entitlements (UPE) in trusts should be reviewed and any action required taken by 30 June 2022.
• Consider if you require any private health (hospital) insurance particularly if you are close to or over the Medicare Levy Surcharge income thresholds (Singles: $90,000 threshold, Family: $180,000 threshold). Hospital insurance needs to be taken out from 1 July to avoid the Medicare Levy Surcharge for the full year.
• If you wish to claim work related deductions such as telephone or internet expenses, make sure you have records to substantiate your work-related usage. For example, you can maintain a 4-week diary of your private and work related usage.
• Work from home deductions – Coronavirus. If you have been working from home due to the Coronavirus, you may be able to use the “shortcut” method for making home office expenses claim. This method is available from 1 July 2021 – 30 June 2022 at a rate of 80 cents per eligible working from home hour. Don’t forget to include the claim in the “other work-related expenses” section in your tax return with the description “COVID-hourly rate”.
• An income tax deduction is now allowed for taxpayers who incur relevant COVID-19 testing expenses in gaining or producing their assessable income. The deduction applies to relevant expenses incurred on or after 1 July 2021. A fringe benefits tax concession may apply to employer taxpayers where tests were provided to employees for work purposes.
• You may be able to make general concessional superannuation contributions that can be claimed as a deduction in your tax return. These are subject to requirements and annual limits. You should seek financial advice.
• If you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to contribute more than the general concessional contributions cap and make additional concessional contributions for any unused amounts. You should seek financial advice.
• The corporate tax rate for “base rate entities” for the 2022 financial year sits at 25%. For companies that are not “base rate entities”, the corporate tax rate is 30%.
• Include all assessable income received in your tax return. These include taxable government payments (e.g. Pandemic Leave Disaster Payments – these payments will not be prefilled by the ATO and will need to be included by the taxpayer), super released under other compassionate grounds and income from all employers.
• Loss carry back tax offset: the loss carry back tax offset provides eligible corporate entities to receive a refundable tax offset after the end of their 2020-21, 2021-22 and 2022-23 income years and in their 2020-21 and 2022-23 company tax returns. The offset may result in a cash refund, a reduced tax liability or a reduction of debt owed to the ATO.
ATO Focus for 2022 Tax Time
The ATO have released 4 key areas of focus for Tax Time 2022 and have announced that they are targeting problem areas where they see taxpayers making mistakes in their income tax returns.
# 1 Record-keeping. Keep your income and deductions records up to date.
# 2 Work related deductions generally. Ensure you have records to substantiate deductions claimed. The ATO now require itemised details of the deductions you are claiming in your 2022 tax returns.
This will make it easier for the ATO to see what you are claiming and to select taxpayers to audit. Ensure correct claims are made for:
• Clothing, dry cleaning and laundry deductions.
• Home office deductions (particularly rent, rates and mortgage interest).
• Overtime meal claims.
• Union fees and subscriptions.
• Mobile phone and internet deductions.
• Motor vehicle deductions. The ATO is expecting motor vehicle deductions to decrease if taxpayers are also claiming working from home deductions.
# 3 Rental Properties
Income and deductions: If you are a rental property owner, ensure you include rental income received in your tax return. Keep records of rental property deductions for holiday homes, upfront repairs and renovations (i.e capital works) and mortgage interest claims.
Selling rental properties: Any property capital gain, loss or exemption needs to be included in your tax return in the income year of the contract date and not the settlement date.
#4. Capital gains from crypto assets, property and shares. The ATO is using data collection processes to check that income, gains and losses are declared in your tax return.
Please contact us to find out how this will impact you and your business.
The team at EMspire Advisory are trusted, qualified Chartered Accountants and work closely with our clients to achieve the best possible outcomes. So to find out more and assist with your tax planning, please contact us!
Please note that this information is not specific and is general in nature and cannot be relied on as advice. Please contact us for advice specific to you and your circumstances.