Tax Planning for EOFY 2022

If you are considering tax planning issues for 30 June 2022 and beyond, the following information will provide you with some insights.

Tax planning in Australia involves several considerations including:

• comparing the different tax rates for different entities.
• asset protection strategies; and
• estate planning.

Different tax rates apply to different types of entities such as companies, trusts, and individuals. You may also be in business and have established an entity to operate that business. Individual tax rates exceed the company tax rate at a fairly low level of profit, so tax planning issues for individuals do include considering the business structures you have in place.

On 21 May 2022, there will be a Federal Election. It is therefore beneficial to periodically review the effectiveness of your tax planning because tax laws are susceptible to change, including retrospectively.

The ongoing Covid-19 pandemic raises issues about asset protection. Certain industries have been dramatically affected by State, Territory and Federal Government decisions designed to address the health and economic effects of the pandemic. This can continue to occur in the future. Your tax planning decisions will therefore necessarily involve considerations about asset protection because of the uncertainty and heightened risk presented by the pandemic. This webpage does not seek to consider the wider issue of asset protection strategies.

Depending on your stage of life, you may wish to consider estate planning as a part of your overall tax planning. Estate planning considerations are best addressed in a holistic way to suit your individual circumstances.

Tax planning issues for individuals for 30 June 2022

Depending on your personal circumstances, you can consider the following general points about reducing your personal income tax for the tax year ending on 30 June 2022:

• streaming of income from family (discretionary) trusts (Division 7A or section 100A can apply to certain arrangements)
• delaying salary bonuses to after 30 June
• declaring (or delaying) franked dividends from private companies
• use of salary packaging and salary sacrifice arrangements (eg. car, additional superannuation contributions)
• use of income protection policies
• use of investment bonds for investments of at least 10 years
• use of negative gearing strategies including acquiring interests in registered managed investment schemes (MIS) which have product rulings from the ATO, use of margin lending products to buy shares and buying an investment property
• offset any capital gains with capital losses to minimise capital gains tax (CGT) (NB: A ‘wash sale’ could result in a capital loss being denied by the ATO)
• deferment of all or part of the sale of CGT assets after 30 June
• pre-payment of rent, interest or insurance costs by 30 June up to 12 months in advance (NB: Specific rules apply to these types of deductions)
• self-education expenses
• claiming deductions for a home office especially if you have been working from home
• additional contributions to superannuation for you and your spouse (considering the contribution thresholds) and
• charitable donations to a registered charity, public ancillary fund or private ancillary fund.

Superannuation contributions

To obtain the benefit of the 15% tax rate on earnings in superannuation funds and tax-free income in retirement, you should consider:

• concessional contributions up to $27,500/year by using salary sacrifice arrangements
• catch-up contributions (for funds under $500,000); and
• non-concessional contributions up to $110,000/year if the fund is below $1.6m, non-concessional contributions can be brought forward up to 3 years.

SMSF trustees should consider different investment options such as shares and property under the SMSF’s investment plan. Property investments can include owning your own business premises and the use of borrowed funds however specific rules apply. Members of retail superannuation funds should consider whether the performance of their fund and the administrative fees charged are satisfactory when compared to the costs of operating your own SMSF.

Tax planning issues for small business operators for 30 June 2022

If you are involved in a SME (including a sole trader, partnership or company), consider these general points:

• consider restructuring your sole tradership or partnership to a Company or a Trust structure. CGT rollover relief may be allowed, depending on the restructure. Different issues arise for land-owning businesses
• make decisions on employee bonuses by 30 June
• pay superannuation contributions before 30 June
• pre-payment of rent, interest or insurance costs by 30 June up to 12 months in advance (NB: Specific rules apply to these types of deductions)

Until 30 June 2023, for businesses with up to $5 billion turnover, make tax-deductible purchases by utilising the current unlimited instant asset write-off for eligible in-use assets.

For businesses up to $5b in turnover, losses in 2020-2021, 2021-2022 and 2022-2023 can be offset from profits in 2018-2019 and later tax years. You should also consider the following:

• attend CPD and training courses and pay for other self-education expenses
• ensure withholding amounts are paid to the Australian Taxation Office to claim a deduction
• valuation of trading stock at cost, market value or the replacement value
• write-off bad debts, plant and machinery (accruals taxpayers); and
• disposal of plant

 Tax planning issues for trusts for 30 June 2022

For Trustees

• confirm that each beneficiary is eligible to receive a distribution from the trust;
• ensure that you document which beneficiaries obtain a share of the Trust’s income by 30 June and maintain a record of the trustee’s distribution minutes; and
• make any family trust elections.
• Trustees will also need to consider whether Division 7A of the Income Tax Assessment Act 1936 or section 100A of the Income Tax Assessment Act 1936 may apply to any unpaid present entitlements (UPEs).

A beneficiary will be unable to disclaim a distribution after 30 June.

When does tax planning result in problems?

Tax evasion and fraud against the Commonwealth can occur when people engage in conduct that falsely reduces their tax liabilities. Often such arrangements are designed as complex schemes with fraudulent expense claims or income disguised as loan arrangements. Serious criminal charges can arise for participants and promoters of tax evasion schemes.

We recommend that you consult your accountant well before the end of the financial year to prepare your tax strategy.

Key Tax Planning features of the 2022-23 Budget

These are pre-election budget measures meaning the bonus deductions are not legislated as of 30 June 2022. We have covered these in our tax planning guide to ensure business owners and taxpayers are aware of them.

A. Small Business Technology Investment Boost

Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the cost incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.

Businesses may continue to deduct expenditure that is ineligible for the bonus deduction under the existing tax law. We will provide further details on eligible expenses once the law has passed. An annual $100,000 cap will apply to each qualifying income year. Businesses can continue to deduct expenditures over $100,000 under existing law. This measure will apply to expenditures incurred in the period commencing from 7:30 pm AEDT 29 March 2022 until 30 June 2023.

For eligible expenditures incurred between 7:30 pm AEDT 29 March 2022 until 30 June 2022:

• claim the expenditure as usual in your 2021–22 tax return, and
• claim the additional 20% bonus deduction for this period in your 2022–23 tax return.

For eligible expenditures incurred from 1 July 2022 until 30 June 2023:

• you can deduct the entire 120% in your 2022–23 tax return (Source -ATO)

B. Small Business Skills and Training Boost

Small businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of the expenditure incurred on eligible training courses provided to employees. Businesses may continue to deduct expenditure that is ineligible for the bonus deduction in accordance with the existing tax law. This measure will apply to expenditures incurred in the period commencing from 7:30 pm AEDT 29 March 2022 until 30 June 2024.

The bonus deduction (the additional 20%) for expenditure incurred from 30 March 2022 until 30 June 2022 will be included in the following income year, 2022–23.

The bonus deduction for expenditure incurred from 1 July 2022 until 30 June 2024 will be included in the income year in which the expenditure was incurred.

For eligible expenditures incurred between 7:30 pm AEDT 29 March 2022 until 30 June 2022:

• claim the expenditure as usual in your 2021–22 tax return, and
• claim the additional 20% bonus deduction for this period in your 2022–23 tax return.

For eligible expenditures incurred from 1 July 2022 until 30 June 2023:

• you can deduct the entire 120% in your 2022–23 tax return.

For eligible expenditures incurred from 1 July 2023 until 30 June 2024:

• you can deduct the entire 120% in your 2023–24 tax return (Source -ATO)

Since these measures are not law yet, spending made before 30 June 2022 will only accrue the 20% bonus deduction in the 2022-2023 financial year. Please contact our office for further assistance.

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The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

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