Tax planning is an ongoing process, but it gains particular importance at the end of the financial year. To optimize their tax position for the 2022/23 year, clients should consider the following strategies in consultation with their tax advisors.
Temporary Full Expensing (TFE):
Clients considering asset purchases should take advantage of the temporary full expensing provisions before they potentially end on 30 June. TFE allows businesses with a turnover of less than $5 billion to deduct the full cost of eligible depreciable assets in the year they are first used or installed. Eligible assets must be first held and used for a taxable purpose in Australia between 6 October 2020 and 30 June 2023.
Eligible Assets for TFE:
Assets, both new and second-hand, qualify for TFE if they meet the following criteria between 6 October 2020 and 30 June 2023: (a) the business commences holding the asset, (b) the asset is used or installed ready for use for a taxable purpose, (c) the asset is used and located in Australia, (d) the business has a turnover of less than $5 billion, and (e) no balancing adjustment event occurs to the asset in that year.
Ineligible Assets for TFE:
Certain assets are not eligible for TFE, including buildings and capital works, trading stock, CGT assets, assets not used or located in Australia, assets not used for business purposes, assets in low-value or software development pools, and specific primary production assets.
Bad Debts:
Businesses accounting for income on an accruals basis should review their debtors and write off bad debts before 1 July to claim a deduction in the current financial year. A bad debt deduction can be claimed when there is no or little likelihood of recovering the amount from the debtor. The decision to write off the debt must be made and recorded in writing before the end of the income year.
Prepayment of Business Expenditure:
Small Business Entities (SBEs) with an annual turnover under $50 million can claim an immediate deduction for prepaid business expenses that cover a service period of 12 months or less and end in the following income year. However, certain excluded expenses, such as amounts less than $1,000, court-ordered payments, salary or wages, capital or private expenses, and some insurance expenses, are not eligible for immediate deduction.
Crystalize Capital Losses:
Investors who have realized capital gains during the year and anticipate selling other assets at a loss can consider doing so before 1 July to offset the capital gains. Capital losses must be used at the earliest opportunity and should be applied to reduce any capital gains in the current year, starting with prior year losses.
Early Superannuation Guarantee (SG) Contributions:
Some employers may bring forward June quarter SG contributions before 1 July to improve their current year tax position. Contributions made to the ATO's Small Business Superannuation Clearing House (SBSCH) before the close of business on the last working day before 30 June are deemed to be received by the trustee of a complying super fund or retirement savings account in the same income year. Employers using commercial clearing houses should make contributions up to 21 days before the end of the financial year.
Prepayment of Loan Interest:
Taxpayers with investment loans can explore the option of prepaying interest to gain an early tax deduction. By paying 12 months of interest in advance, individuals can receive a one-off tax benefit. This strategy applies to investment loans on properties, margin loans on shares, and business loans.
Small Business Boosts:
If they pass through Parliament, small businesses may be eligible for two new boosts in 2022/23. The Technology Investment Boost allows a deduction of $120 for every dollar spent on depreciating assets related to digital adoption strategies, and the Skills and Training Boost provides a deduction of $1.20 for every dollar spent on external training courses for employees.
Stock Management:
Clients should review their stock and identify any unusable or obsolete items before 1 July 2023. Writing off such stock before the end of the financial year can provide tax benefits.
Please note that these strategies are provided as general information, and if you require a personalized solution, please do not hesitate to contact one of our tax professionals at SKL & Associates.
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