The best way to save tax in business is to consider and apply strategies prior to 30 June each year. After year end, the options available to improve your tax position are severely restricted. Activ8 are business tax specialists. In this article we share some of our best tax tips.
Tip 1. Maximise Your Super Contributions
Superannuation is a fantastic vehicle for tax effective investments. We recommend that every year you maximise the amounts you put into super. The maximum you can claim each year changes and you need to take into account contributions made by your employer, including your own business, and personal contributions. Remember to speak to your financial planner about how super fits into your personal financial plan. Our advice is purely focused on the tax benefits alone.
Tip 2. Take Advantage of the Instant Asset Write Off
The temporary full expensing of assets purchased for business use has been extended to 30 June 2023. This means that businesses can get an immediate tax deduction for the full amount of the asset’s cost in the year it is purchased.
Therefore if you are planning some equipment purchases, get them completed before 30 June to maximise the deduction in this financial year.
Note – cars are capped to a maximum claim of $60,733 for the 2022 year.
Tip 3. Do a Stocktake at 30 June
Does your business have trading stock? Do a stocktake at 30 June. This not only helps to get accurate profit figures, but you are eligible for a tax deduction for obsolete or worthless items still on the shelf.
Tip 4. Write Off Your Bad Debts
Subject to how you report income on your BAS, you have likely paid tax and GST on income you have invoiced but not yet collected. If you have deemed the debt to be uncollectible, you are entitled to a tax deduction as well as recouping the GST paid to the ATO.
Tip 5. Pay Your Employees’ Super on Time
If you pay super late, you will miss out on the tax deduction. In addition the ATO will impose interest and penalties for late super. We recommend that super is paid each pay cycle so you’ll never be late and you don’t get a big lump sum at the end of the quarter.
Another tip for super at year-end is to pay any June quarter before 30 June to get the tax deduction in the current year. Note – allow 7-10 days processing time to ensure the superfund processes the payment before 30 June.
Tip 6. Keep a Log Book For Your Business Cars
A compliant log book is essential to maximise your motor vehicle claim. Whilst they can be cumbersome to keep a log book, they are only required for 12 weeks and it remains valid for 5 years.
Tip 7. Defer Income to Next Year
If it makes sense to do so, deferring income until after 30 June means you pay tax on it next year, not this year. You can do this by holding off invoicing until 1 July, where appropriate.
Tip 8. Prepay Expenses
Cashflow permitting, you can prepay expenses like interest and rent up to 12 months in advance to boost the tax benefit in this financial year. This does not apply to stock purchases, but basically any other business expense can be paid before 30 June to allow the tax deduction in this year. This is particularly good where you have had a good year and have a bigger than usual impending tax bill.
We hope you find these tips insightful. There are plenty of other tax strategies you can put in place to minimise the tax you pay. It’s never too late to start taking advantage of tax benefits.
If you need any guidance or advice in relation to these tips, contact Activ8 Accountants & Advisors and we can guide you through them. Call us on 07 3367 3366.
Several key superannuation contribution changes are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members, young and old, to grow their retirement savings.
WHAT ARE THE CHANGES?
Originally announced in the 2021 Federal Budget, the following changes apply from 1 July 2022:
Individuals of age 67- 74, will no longer need to meet a work test to make voluntary, non-deductible, contributions
Individuals up to the age of 75, with a total super balance under $1.7 million, will have the opportunity to make large non-concessional contributions (possibly up to three years’ worth) in a single year
The minimum age to make downsizer contributions will reduce to 60, allowing more individuals to use the proceeds from the sale of their home, to fund their retirement
The Superannuation Guarantee (SG) rate will increase to 10.5% p.a. for all and the $450 minimum income threshold for SG contributions, will be removed.
Superannuation rules can be very complex. Should you require further assistance, please feel free to contact our office for further information on (07) 3367 3366.
The federal budgets for the past two years have had overwhelming stimulus measures designed to get businesses to spend their way out of the covid recession. This year’s budget has relatively little for businesses with the main focus being on cost of living payments.
Coming out of the Omicron wave that hit us at the start of the year, we have been confronted with a prevalence of bad news. From the war in Ukraine to natural disasters closer to home. On top of this, we have inflation on the increase, concerns about the cost of living, and potentially higher interest rates. It is no wonder that household confidence levels are at their lowest levels since September 2020 (Westpac Consumer Confidence Index).
The Budget seeks to ease some of these concerns and boost consumer confidence with several temporary measures. There is also little doubt the forthcoming election played a big part in this Budget.
This brief summarises the key tax and superannuation announcements that we expect will most affect Activ8 individual and business clients.
INDIVIDUALS
The key announcements for individuals include:
Low and middle-income tax offset to be increased by $420
One-off $250 welfare payment to ease cost of living pressure
Work-related Covid-19 tests tax deductible from 1 July 2021
50% temporary reduction on fuel excise
Paid parental leave scheme streamlined to 20 weeks
Medicare low-income threshold has increased
Increased support for affordable housing and home ownership with Home Guarantee Scheme places increased to 50,000
Income tax rates remain unchanged.
BUSINESSES
The key announcements for businesses include:
New tax incentives to help small businesses with turnover of less than $50 million/year, adopt digital technology and train and upskill employees.
Until June 2024 for every $100 a small business invests in external training courses for their employees they will get a $120 tax deduction (Skills and Training Boost).
Until June 2023 for every $100 a small business spends on new digitalising their business (for items such as cloud accounting, online security and eInvoicing software) they will get a $120 tax deduction up to $100,000/year (Technology Investment Boost).
Apprenticeship wage subsidy extended
Primary producers – Concessional tax treatment for carbon abatement and biodiversity stewardship income
Expanded access to unlisted company employee share schemes
PAYG income tax instalment system set for structural overhaul
Business registry fees to be streamlined
Indirect taxes – excise and customs duty reduction and concession
Various tax administration changes.
One long-standing policy that has been repeatedly extended is the instant asset depreciation program. This was not extended in the Budget and could end on 30 June 2023.
SUPERANNUATION
The only measure announced relating to superannuation was the extension of the temporary reduction in minimum drawdown rates.
Overall, this Budget is designed to provide relief from cost of living pressures and minimise ‘losers’ from any policy decisions. Attention will now turn to next week’s Reserve Bank Board meeting to understand how this Budget may impact the Bank’s thinking around interest rates. Then the focus will be firmly on the timing of the federal election.
Please note these are just announcements and cannot be regarded as law until legislated. Whilst Labor has come out in support of many of the “proposed” announcements earlier in the week, some of the budget measures may not pass parliament if they win the election; the election must be announced within two weeks.
If you require further information on any of these announced measures, please do not hesitate to contact our office on (07) 3367 3366.
From November 2021, company directors will need to verify their identity as part of a new director identification number (director ID) requirement.
A director ID is a 15 digit unique identifier that a director will apply for once and keep forever. This will apply to all company directors including if you’re a director of a corporate trustee of a self-managed super fund.
The aim is to help prevent the use of false or fraudulent director identities, and to make it easier to trace director relationships across companies. In particular, they are seeking to identify and eliminate involvement in actions such as illegal phoenix activity.
There are transitional arrangements for when you must apply by. Individuals who are currently a director or will be acting as a director in the future must apply for a Director ID based on the transitional arrangements specified in the table below:
Directors must apply for their director ID themselves because they will need to verify their identity. No one can apply on their behalf.
The new Australian Business Registry Services (ABRS) is responsible for the implementation and administration of director ID. ASIC will be responsible for the enforcement of associated offences.
When fully established, the ABRS will bring together the Australian Business Register and over 30 ASIC registers. This work is being delivered under the government’s Modernising Business Registers program. Visit the ABRS website for more information.
Please note – if you are a company director and Activ8 is your ASIC Agent, we will be in touch with instructions on how to obtain your Director ID in due course.
Employers get ready – there’ll soon be an extra step involved when it comes to hiring new employees – if they don’t choose a super fund.
You may now need to request their ‘stapled super fund’ details from the ATO. A stapled super fund is an existing super account of an employee that follows them as they change jobs. This change aims to stop your new employees paying extra account fees for unintended super accounts set up when they start a new job.
You may need to request stapled super fund details when:
• your new employee starts on or after 1 November 2021
• you need to make super guarantee payments for that employee, and
• your employee is eligible to choose a super fund but doesn’t.
What you need to do from 1 November 2021
Step 1: Offer your eligible employees a choice of super fund
You need to give your eligible new employees a Super standard choice form and pay their super into the account they tell you on the form. Most employees are eligible to choose what fund their super goes into.
There is no change to this step of your super obligations.
Step 2: Request stapled super fund details
If your employee doesn’t choose a super fund, you may need to log into the ATO Online services and go to ‘Employee Super Accounts’ to request their stapled super fund details. If you don’t have online access then Activ8 can do this for you.
The ATO will provide your employee’s stapled super fund details after they have confirmed that you are their employer.
If the ATO provides a stapled super fund result for your employee, you must pay your employee’s super using the stapled super fund details they provide you.
In most cases, a request can be made after you’ve submitted a TFN declaration, or a Single Touch Payroll (STP) pay event linking the new employee to your business. Responses will usually be received through the online portal in minutes.
Step 3: Pay super into a default fund
You can pay into a default fund, or another fund that meets the choice of fund obligations if:
your employee doesn’t choose a super fund, and
we have advised you that they don’t have a stapled super fund.
Remember, an employer cannot provide recommendations or advice about super to its employees, unless the business is licensed by the Australian Securities and Investments Commission (ASIC) to provide financial advice. Penalties may apply if your business fails to meet the “choice of super fund” obligations.
As the new financial year commences, we’d like to provide some timely reminders, key dates and information ahead of finalising your tax affairs for 2020/21, and some things you need to be aware of over the next 12 months.
Key Dates for July
14 July – Single Touch Payroll finalised
21 July – Monthly BAS return for June due.
28 July – Make quarter 4 super guarantee contributions to funds by this date (if not paid earlier)
2. All Employers (including those with closely held employees) need to be using Single Touch Payroll (STP) Compliant software from 1 July 2021
For example if you operate your business through a company or trust structure which employs you, you will need to adopt STP compliant software into your business. Most accounting software providers have a solution available, speak to your bookkeeper or accountant if you aren’t sure.
3. Reminder that the Superannuation Guarantee (SG) Rate increases from 9.5% to 10% from 1 July. Look out for any communications from your payroll software provider
Xero: so long as your pay templates reference the default statutory rate, there is nothing for you to do. Xero will automatically update the rate (like it does tax tables). Updates to superannuation guarantee contributions
SGC Rate: As mentioned above, the SGC rate increases to 10% for all wages paid from 1 July.
The concessional contributions cap has now increased to $27,500, up from $25,000.
The non-concessional contributions cap is now $110,000, up from $100,000.
Claiming Work-Related Deductions
When you do your tax do you just claim “what you claimed last year”?
Technically that is not allowed. You need to be able to substantiate your deductions and circumstances may change so you need to be considering that.
For example, if you are working from home more, then your travel and laundry expenses will be substantially different.
The ATO is data matching everything this year and checking if people are claiming the same as last year.
As the pandemic forced swathes of the workforce to work from home, work-related expenses are expected to spike for the 2021 income year. However, the ATO also expects some expenses, like travel, will decrease compared to prior years. In general, the ATO expects to see a downward trend in expense claims related to clothing & laundry, self-education, car and travel.
The 2021 Federal Budget has been delivered, with the budget designed to keep the country out of recession through prolonged spending, with the goal to drive down unemployment.
From a pure tax perspective, it was a fairly uneventful budget.
There are a few key changes, however, and these are summarised below.
Extension of the Instant Asset Write-Off: An extension of this program out to June 2023 to allow businesses to immediately depreciate eligible assets, with no cap on the value of these assets. This not only directly benefits small businesses that invest but some of these assets will be purchased from or serviced by other small businesses.
Low & Middle Income Earner Tax Offsets Extended Another 12 Months: The low and middle-income tax offset, which was due to end on June 30, will be extended for another 12 months. The offset is worth up to $1080 as a refund for about 10 million workers earning between $48,000 and $90,000 when they file their tax returns.
Loss Carry Back: Extended to 30 June 2023. Losses incurred during the 2020 to 2023 years can be carried back to offset profits as far back as the 2019 year as a refundable tax offset.
Changes To Minimum Super Payments: From 1 July 2022, the minimum threshold of $450 ordinary earnings before superannuation is payable will be removed. This ensures casual and part time workers are not penalised with less superannuation savings.
Super Contributions Limit for over 60’s: The access age to the “super downsizing scheme” will be reduced from 65 to 60 from 1 July 2022, allowing more people to boost their superannuation with the proceeds of the sale of their home. Contributions of up to $300,000 are allowed, but the home must have been owned for at least 10 years and the money must be paid into super within 90 days of receiving cash from the sale.
Superannuation – Removal of The Work Test: Work test rules for older Australians – which restrict contributions to super unless you are working a certain number of hours – will be scrapped. This change means people who are between 67 and 74 who may have already retired, are doing volunteer work or who have more flexible work arrangements can continue to make voluntary contributions or salary sacrifice.
Self-Education Deductions – Removal Of $250 Adjustment: From 1 July 2022 the exclusion for the first $250 of deductions for self-education expenses will be removed from the first income year after Royal Assent.
Changes to Residency Rules: From 1 July 2022 they will replace the individual tax residency rules with new primary and secondary tests to determine residency.
– a primary ‘bright line’ test — under which a person who is physically present in Australia for 183 days or more in an income year will be an Australian resident for tax purposes;
– secondary tests depending on a combination of physical presence and measurable, objective criteria — for individuals who do not meet the primary test.
Tax Breaks for Aussie Patents: From 1 July 2022, companies that develop patents in Australia will receive tax reductions under an initiative to promote the manufacturing sector and innovations in the medical and biotech sectors.
Dubbed the “patent box”, the initiative will see corporate profits taxed at a concessional rate of 17 percent if the patents are developed in Australia. The scheme is expected to take effect on July 1.
One of the key pillars of this year’s federal budget was the future and backdated tax cuts. The “stage two” tax cuts originally set down for the 2022-23 year have been brought forward and backdated to July 2020.
The measures are expected to see lower and middle-income earners receive tax relief of up to $2745 for singles, and up to $5490 for dual-income families – compared to 2017/18. The new tax scales have been released by the ATO now so all employees should be seeing an increase in their take-home pay. You will get the kicker for the backdated portion when you lodge your 2021 tax returns.
The government wants us to spend these tax cuts to drive economic activity. This argument that increased consumer spending will stimulate the economy is debatable as all spending isn’t equal. Spending money on electronics made in China doesn’t benefit our economy as much as eating out at local restaurants.
On top of this Covid-19 has changed the rules of the game. We have seen a fall in private consumption and people are still anxious about outbreaks and shutdowns. In this environment, people will be more likely to save, not spend.
Here are my thoughts on what you should do with your tax cut.
Pay off your debt
If you’ve got debt, pay it off. We have very high household debt-to-income ratios in Australia. Each person will have different priorities at times like these, but if financial security is at the front of your mind then you should be reducing non-discretionary spending and non-deductible debt.
Paying off high interest finance like credit cards and car loans as quickly as you can is about the most effective investment you can make.
Invest
If you don’t have non-deductible debt, then think about your goals and look to invest the tax cuts. Think about your goals and choose investments that are appropriate for the length of time to invest.
Younger people are particularly well served by investing early and often with compound interest on your side.
Now might be the time to sit down with a financial planner to start mapping out the years ahead. We work with a few planners in this space so let us know if you’d like some contact details.
Don’t spend it before you get it
Don’t second guess how much your tax refund is going to be and don’t spend it before you’ve got it. A lot gets taken into account in calculating the tax at year end and you might get caught out.
Also, avoid the Buy Now Pay Later offers such as AfterPay. These lenders are essentially unregulated and borrowers are getting caught out. The ASIC report this week about the schemes highlights that as many as 20% of borrowers are getting into trouble with these credit products. Past financial results have shown that the lenders make between 10% & 20% of their income from late fees. So beware, don’t overcommit and don’t spend more than you earn.
Over the past 9 months, there have been numerous Covid-19 government support payments for business and individuals. A question we are often asked is how these are treated for tax purposes.
JobKeeper payments
JobKeeper payments received by individuals are considered taxable income. Your employer will report them to the ATO along with the tax they withheld. These payments will be part of your Payment Summary which will be available through MyGov. They may appear separately or as part of your salary and wage income. If you are a sole trader you declare the JobKeeper payments as income.
Businesses that received JobKeeper payments to help make up for a fall in turnover, will need to disclose these payments as part of the assessable income of the business for the financial year. It will be offset by the JobKeeper payments made to staff.
JobSeeker payments and the $550 Coronavirus supplement
Your JobSeeker payment and the $550 Coronavirus supplement are both taxable income and are included in your tax return. The ATO should automatically populate this information for you under the ‘government payments and allowances’ section in your tax return.
The $750 Economic Support Payment
This payment was made to Australians on lower incomes who were receiving some kind of assistance from Centrelink. It is exempt from tax and does not count as income.
Business Cash Flow Boost payments
The federal government cash flow boosts were delivered as credits in the activity statement system to small and medium businesses who employed staff. They are tax-free payments. You do not need to report or include them in your tax return.
State Government Grants
A government payment to assist a business to continue operating is included in assessable income. This will include assistance provided as a one-off lump sum or a series of payments. These include:
Queensland COVID-19 adaption grant
New South Wales Government Small Business COVID-19 Support Grant
South Australian Government $10,000 Emergency Cash Grants for Small Businesses
South Australian Government Job Accelerator Grant Scheme
Victorian Government Business Support Fund
Payments under the Northern Territory Government Small Business Survival Fund
Northern Territory Government Business Improvement Grant
Western Australian Government Small Business grant scheme
Electricity rebates
Some states and territories are offering households and some businesses automatic electricity rebates. These rebates are not included in assessable income. For a business, the rebate will reduce the deduction the business can claim for electricity.
Early release of superannuation
If you accessed part of your super under the COVID-19 early release of super payment, you won’t be required to pay any tax on the payment so you don’t need to disclose it in your tax return.
Still have questions? Feel free to reach out to the team at Activ8 Accountants & Advisors who will be happy to talk further.
“There is a monumental task ahead,” the Treasurer admitted in his budget speech on Tuesday night. For once this does not seem like an overstatement. The coronavirus pandemic has fundamentally changed the way we do business in this country.
The challenge for the Government in this Budget was to outline a plan to kickstart the economy by encouraging jobs, investment, and household spending. To this end they have delivered one of the most stimulatory budgets we have ever seen, featuring tax breaks for individuals and businesses.
The Government’s road to recovery hinges on middle- and high-income earners and businesses spending big. The Government’s task now is to encourage businesses and households to take advantage of the new programs to deliver stronger economic growth and more jobs.
The three pillars of the Budget, that will underpin jobs, investment and household spending are:
Significant personal income tax cuts
JobMaker Hiring Credit for businesses employing new staff under 35
Immediate write off for any business assets purchased from 7:30pm last night
Lower taxes for households
Tax relief for over 11 million individuals.
Low- and middle-income earners to receive tax relief of up to $2,745 for singles or up to $5,490 for dual income families in 2020–21 compared with 2017–18 settings
Empowering businesses to grow, invest and innovate
12 month wage subsidies to hire new apprentices and people under 35 who are on JobSeeker.
Temporary full expensing available to around 3.5 million businesses on purchases of eligible depreciable assets. No asset limits.
Temporary loss carry‑back available to around 1 million companies. Companies can offset tax losses against previously taxed profits to generate a refund.
Investing an additional $2 billion through the R&D Tax Incentive.
Cutting red tape for businesses
Reducing record keeping requirements for fringe benefits tax.
Exempting employer‑provided retraining activities from fringe benefits tax to encourage reskilling.
Lower personal income taxes
The centerpiece of the Budget were the personal income tax cuts, including the continuation of the Low and Medium Income Tax Offset, which will flow to more than 11 million taxpayers. They have also backdated these tax cuts to start on 1 July 2020. This should mean the extra money will be in bank accounts as soon as the legislation is passed and payroll software is updated.
Workers earning between $50,000 and $90,000 will receive an extra $1,080 in 2020-21 as an extension of the low and middle income tax offset that was introduced last year.
People earning more than $120,000, on the other hand, will receive the biggest benefit with a permanent tax cut of $2,565 in 2020-21 and beyond.
The government is also looking at removing the 37% tax rate, so anyone earning between $45,000 and $200,000 only pays 30% tax.
In addition, sole traders will also benefit from the unincorporated tax discount of $1000.
For those people who receive a range of government payments, including aged pension, carer payment and family tax benefit, they will receive two $250 cash payments paid in December and March 2021.
Business-related policies
Business measures in this year’s Federal Budget focused on jobs recovery, tax breaks and the expansion of the instant asset write-off.
Job creation announcements:
JobMaker Hiring Credit – a 12-month wage subsidy for businesses that hire 16 to 35-year-olds for at least 20 hours per week, who were on JobSeeker. It will be a $200/week subsidy for those under 30 and $100/week for those aged 30-35. It’s expected that employers will report JobMaker Hiring Credits using Single Touch Payroll.
Apprentice wage subsidy scheme – businesses that hire new apprentices will be eligible for a 50% wage subsidy. The $1.2 billion scheme will support 100,000 apprentices and be available to businesses of all sizes.
Business investment announcements:
Extension of the Instant Asset Write-Off – An extension of this program out to June 2022 to allow businesses to immediately depreciate eligible assets, with no cap on the value of these assets. This not only directly benefits small businesses that invest but some of these assets will be purchased from or serviced by other small businesses.
R&D tax incentive changes – For small companies (annual turnover of less than $20 million) the refundable R&D tax offset will be set at 18.5 percentage points above the claimant’s company tax rate and there will be no cap on annual cash refunds.
Loss carry-back provisions – Companies will be able to offset losses incurred to June 2022 against prior profits made in or after the 2018/19 financial year.
Digital adoption announcements:
JobMaker Digital Business Plan – $800m for a series of measures to help Australia become a leading digital economy by 2030 and to improve productivity, income growth and jobs by supporting the adoption of digital technologies by Australian businesses.
Cyber security program – $1.7B to improve cyber security within government agencies and increase the confidence of small businesses to engage in the digital economy.
As with the tax cuts, the key to the success of these business-based programs is that they are used. Businesses will need to have the confidence to take on new staff and buy new equipment if the economy is to feel the full benefit of these programs.
Infrastructure projects
The Budget is not leaving all the responsibility of economic recovery to businesses and households, there was also an additional $7.5 billion spending for new national-level infrastructure projects. This funding is in addition to the $100 billion infrastructure fund (over ten years) announced in previous Budgets. In addition, $3.5 billion has been allocated for upgrades to the NBN roll-out to deliver more Fibre to the Premises connections.
Small businesses are also likely to benefit from the additional $1 billion for the Local Roads and Community Infrastructure program. This is for smaller, local projects to help councils to deliver immediate upgrades of local roads, footpaths and street lighting.
Budget success depends on confidence to spend and invest
The success of this Budget in rebooting the economy largely depends on the public response. Households will need to be confident enough to spend the tax cuts and businesses will need to be willing to invest in their future and hire new staff. If the tax cuts sit in bank accounts, business hiring and investment programs go unused and infrastructure projects are delayed then the economic recovery is less likely to eventuate.
A surprise coming out of this Budget was not bringing forward the timing of “Stage 3” tax cuts (which the Opposition opposes) or permanently increasing the JobSeeker payment. The government has stayed silent on where it expects the level of unemployment benefits will eventually land permanently when the JobSeeker supplement ends. However, we note that there is an allowance for spending decisions not yet announced worth more than $6 billion over four years.
The politics of this Budget lies in the hope for the Government that the strategy works, and that all the huge uncertainties in the domestic and global outlook fall its way, so that by the middle of next year it can contemplate going to an election with voters feeling it has protected them from the worst a pandemic has thrown at them.
