Although tax planning is a year-round exercise, it is particularly important at year-end. Clients may wish to consider some or all of the following strategies to optimise their 2022/23 tax position.
1. Temporary Full Expensing
The effectively unlimited write-off for assets purchased by small businesses (<$5 billion turnover) comes to an end on 30 June and switches to $20,000 on 1 July 2023. Therefore, time is running out to take advantage of the more lucrative higher threshold. The TFE allows businesses that qualify to deduct the full cost of eligible depreciable assets of any value in the year they are first used or installed ready for use. New and second-hand assets qualify for the deduction.
TIP – Get in quick!
From a timing point of view, the criteria means that TFE will not apply in 2022/23 unless the asset is used or is installed ready for use before 1 July 2023. It is not sufficient to have merely ordered and paid for the asset in question.
Note that TFE does not apply to buildings and other capital works, trading stock or CGT assets.
2. Bad Debts
Businesses should review its debtors with a view to writing-off bad debts before 1 July and in doing so, claiming a tax deduction this financial year. To claim a tax deduction for the income that cannot be recovered, you need to write-off the unpaid amount as a bad debt. This means you must have made the decision to write-off the debt and recorded that decision in writing before the end of the year in which you are claiming the deduction.
3. Prepay Business Expenditure
Small business entities with an annual turnover of less than $50 million can claim an immediate deduction for prepaid business expenses where the payment is for a period of service that is 12 months or less and ends in the following income year.
Examples of prepaid expenses:
Rent, Travel expenses, Contract payments, Insurance, Advertising & Service agreements for IT.
Ineligible expenses include amounts less than $1,000 or payments of salary or wages (under a contract of service.
4. Crystalise Capital Losses
If taxpayers have already crystalised capital gains during the year and are contemplating selling other capital assets that would result in a loss, they may wish to consider doing so prior to 1 July and thus offset the losses against other gains.
5. Early SG Contributions
Employers should consider bringing forward June quarter superannuation guarantee contributions to before 1 July (not otherwise due until 28 July). Note that the income tax deduction is only available in the year the contribution is made. Super contributions are deemed to be made when the payment is received by the fund or RSA. For those that use the Small Business Superannuation Clearing House (SBSCH), section 23B deems that the contributions are made on the day that they are accepted by the approved clearing house.
6. Prepay Interest on Loans
For taxpayers with borrowings, they should check with their lenders to see if they can prepay interest to gain an early tax-deduction by paying 12 months of interest in advance.
7. Small Business Boosts
a) Technology Investment
Small businesses with less than $50 million aggregated turnover may be able to deduct $1.20 for every dollar spent on depreciating assets that support their digital adoption strategies (such as portable payment devices, cyber security, and subscriptions to cloud-based platforms). This measure applies to expenditure from 29 march until 30 June 2023 and is claimable in the 2022/23 tax year. Expenditure is capped at $100,000 per annum.
b) Skills and Training
Small businesses with less than $50 million aggregated turnover may be able to deduct $1.20 for every dollar spent on external training courses for employees provided in Australia or online. This applies to expenditure from 29 March until 30 June 2024 and is claimable in the 2022/23 and 2023/24 financial years.
Note – Both measures have yet to be legislated.
8. Stock Management
Businesses should review stock and identify any unsalable or obsolete stock and write them off before 1 July 2023.
