Tax Planning in 2022

With the end of the financial year fast approaching, engaging in one of our Tax Planning sessions is a great way to address future planning, cashflow management and preparing for tax liabilities.

To ensure you are in the best position possible, please find below some tax planning tips and tricks.

Immediate Tax Deduction for Asset Purchases

Take advantage of the immediate tax deduction available for depreciating assets acquired and first used by 30 June 2023, with no threshold limit on the cost of the asset. Small and medium businesses, with turnover less than $50 million, are also able to immediately write-off second-hand assets. 

Small Business Tax Concessions, Available to Businesses With Turnover $50 million Turnover

Tax concessions available to Small Businesses include:

• Immediate deduction for prepaid expenditure when payment covers a period of less than 12 months. 
• Immediate deduction for certain costs incurred in relation to establishing a business.
• Simplified rules for trading stock.
• A Small Business tax offset for individuals up to a maximum of $1,000, calculated as 16% of the tax payable on any Small Business net income (turnover under $5 million).

Prepay Interest on Loans

Taxpayers who have borrowed money for investments can check with their lenders to see if they can prepay interest to gain an early tax-deduction by paying 12 month’s of interest in advance as a one-off tax benefit. This is an option for investment loans on properties, margin loans on shares and business loans.

Interest Deductibility on Financing Business Expenses

Interest on the financing of business expenses is tax-deductible in most circumstances. If you are maintaining a line of credit or overdraft to finance your day to day business expenses, the interest will be tax-deductible except in the following cases:

• Payments from the account are for personal purposes,
• Payments made for the payment of personal income tax (including PAYG instalments),
• Payments made for personal superannuation contribution.

Consideration should be given to external finance if you are currently using your personal funds to finance your business activities and would prefer to use your personal funds elsewhere. 

Small Business Technology Investment Boost

Small businesses with less than $50 million annual turnover, will be able to deduct $1.20 for every $1 spent on business expenses and depreciating assets that support their digital adoption (such as portable payment devices, cyber security systems and subscriptions to cloud-based services).

For eligible expenditure 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.

An annual cap of $100,000 of expenditure applies, so those who expect to maximise their claim will benefit from spreading their expenditure between the 2022 & 2023 financial years. 

Small Business Skills & Training Boost

Small businesses with less than $50 million annual turnover, will be able to deduct $1.20 for every $1 spent on external training courses for employees provided in Australia or online by registered training organisations.

For eligible expenditure 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.

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

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

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

• you can deduct the entire 120% in your 2023–24 tax return

There is no cap on the amount of boost which can be claimed. 

The Small Business Boosts were announced in the 2022 Federal Budget, however are yet to be enacted. We will monitor for updates.

Superannuation Contributions

Maximise your superannuation deductions before 30 June 2022 by:

• Ensuring superannuation contributions for employees are paid and cleared by 30 June 2022;
• If your superannuation balance is less than $500,000 and you’ve made concessional contributions of less than the concessional contributions cap of $27,500, you may be able to make additional concessional contributions in subsequent financial years for any unused amounts. Unused cap amounts can be carried forward for up to five years. 
• If you earn less than $56,112 p.a., you could be eligible for the government co-contribution. The government will contribute 50 cents for every dollar of after-tax contributions you make to your superannuation fund up to a maximum of $500. The full benefit is available for income earners under $41,112 and phases out where adjusted taxable income is between $41,112—$56,112.

Bad Debts

Review your aged debtors and determine if any debts are bad debts (i.e. not recoverable). If they are, write them off before 30 June 2022 to receive a tax deduction this year. For a debt to be bad, there must be little or no likelihood of recovery, such as when the debtor is in receivership or cannot be traced. Records should be kept to show you have taken reasonable steps to recover the debt prior to writing off. If circumstances later change, you can recommence pursuing the debtor. 

Stock Management

Review your stock and identify any obsolete or unusable stock. Write off these stock items prior to 30 June 2022.

Farm Management Deposits (FMDs)

Investing in Farm Management Deposits (FMDs) can help primary producers to reduce fluctuations in taxable earnings caused by economic and seasonal changes to primary production income. Interest is paid on such FMDs, and they must be held for at least 12 months; otherwise, the tax benefit of investing in an FMD will not be retained. The maximum limit for deposits is $800,000 per person. Consider whether FMDs would be useful to reduce this year’s taxable income or whether you have any FMDs to withdraw if your income is lower than average. 

Capital Gains Tax (CGT)

If you have derived any capital gains from the sale of your investments or business assets this year, consider whether you can offset them by crystallising any capital losses on the sale of other assets (where possible), or be able to use the CGT Small Business concessions. Please contact us to discuss prior to 30 June 2022 to minimise or eliminate any potential CGT.

Private Health Insurance Rebate Changes

Entitlements to the private health insurance rebate are income-tested, which means that if you have a higher income, your rebate entitlement may be reduced, or you may not be entitled to receive any rebate at all. 

Division 293 Tax on Super Contributions

Division 293 tax is an additional tax of 15% on concessional super contributions, if you earn over $250,000.

Income for the purposes of Div 293 tax includes: 

• Your Taxable Income
• Reportable Superannuation Contributions
• Reportable Fringe Benefits
• Total Net Investment Loss (these are added back to your taxable income)

Concessional contributions include employer contributions, salary sacrifice, personal deductible contributions. 

Company Loss Carry-Back

A temporary tax relief allows eligible companies, with an aggregated turnover of less than $5 billion, to carry back tax losses incurred in the 2020 to 2023 financial years, to be used against profits taxed in a previous year, 2019 or later. 

These companies will receive a refundable tax offset in the year they made a loss, if they elect to use this mechanism when they lodge their 2022-23 tax return. The losses carried back must not be more than earlier taxes profits and must not result in a franking account deficit.

Any tax losses that are not fully offset against previous taxed profits, or not elected to be used, will be carried forward as normal.

Contact one of our offices to discuss your circumstances and options available to save on tax.