Business Tax Planning – 2022
- Ensure any eligible bad debts are written off correctly through your accounting software or the decision to write them off is documented correctly in a director’s resolution.
- Consider purchase of new assets. Assets purchased and ready for use between 1 July and 30 June 2023 will be eligible for an immediate write off. Applies to businesses with aggregated turnover of less than $5b and regardless of asset cost, subject to the luxury car limit.
- Ensure a full stock take is carried out, including scrapping obsolete stock.
- Review your WIP to include only legally recoverable / billable amounts.
- Ensure any Government Grants are recorded correctly in your accounting software for preparing accurate year end taxable income estimates.
- Pay employee super by 23 June if not already done to get the deduction this year (to be cleared to superfund by 30 June)
- If intending to claim for eligible R&D expenditure, total expenditure/deductions must exceed $20,000 in general. Registration with Government Department must be within 10 months of end of income year and prior to lodgement of tax return.
- Is your business eligible for the small business assistance package grant? If so, make sure you apply before the 30 June 2022 deadline. Please contact Knight if you require assistance with your application. https://www.knightgroup.com.au/expansion-of-level-2-covid-19-business-assistance-package/
Other recent changes to legislation applicable to this financial year
- Small business entities being broadly small businesses with an aggregated turnover of less than $10m, are generally eligible for a range of tax and administrative concessions.
- However, from 1 July 2021, businesses that are not small businesses because their turnover is $10m or more but less than $50m are nonetheless able to access these small business concessions:
- The simplified trading stock rules
- The PAYG instalments concession
- A two-year amendment period
- The excise concession
Base Rate Entities
- Company tax rate for ‘base rate entities’ is reduced to 25% from 1 July 2021. A base rate entity is a company:
- That has an aggregated turnover less than the aggregated turnover threshold (which is $50m for 2022); and
- Where 80% or less of their assessable income is ‘base rate entity passive income’(such as interest, dividends, rent, royalties and net capital gain)
- In line with the drop in the base rate entity rate to 25%, the rate of the small business income tax offset has been increased to 16% for the 2022FY. The small business income tax offset may be available to small businesses with turnover less than $5m which are either:
- Small business sole traders
- Those with a share of net small business income from an eligible partnership or trust
The maximum offset is $1,000 and the ATO works out an individual’s offset based on amounts shown in their tax return.
- Businesses with a turnover of up to $5 billion still continue to be able to immediately deduct the full cost of eligible depreciable assets as long as they are first used or installed by 30 June 2023. However, legislation also allows businesses to opt out of temporary full expensing on an asset-by-asset basis, this is only applicable for businesses using Division 40 to calculate tax depreciation on assets, and does not apply to businesses using the “simplified” capital allowance provisions, including the small business pools.
- Legislation has now been passed to allow eligible companies a 12-month extension to claim a loss carry-back tax offset in the 2023 income year. This was initially only planned until 2022 financial year. Companies with a turnover of up to $5 billion are now able to offset tax losses against previous profits on which tax has been paid – this is known as the loss carry back rule. The company’s ability to pay a franked dividend may be impacted by any loss claims made, so this should be considered before submitting a claim.
- Covid-19 and FBT savings for home-garaged cars – Normally if an employer provides a car to an employee a car fringe benefit will arise and FBT may be payable. Due to ‘lock down’ restrictions imposed in response to Covid-19 crisis, the ATO has introduced a concession which can allow employers to reduce their FBT exposure. Please contact us for further information on this exemption.
- The Government has removed the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer. This measure commences from 1 July 2022.
- Your business will continue to qualify as a small business for the 2022 year (aggregated annual turnover below $50m). This will allow you to access small business income tax and GST concessions, such as accelerated depreciation and simplified GST and income tax instalments (small business CGT concessions are unaffected).
- The ATO has recently published draft guidelines outlining their increased focus on trust distributions among family groups where there are indications that there may be an arrangement for the trust distribution to be used to reimburse someone other than the beneficiary. If you would like to discuss your Trust position and how you may be impacted by these recent publications by the ATO, please get in touch with Knight.
- Obtaining a director IDs is now mandatory. Note that all directors need to apply for a director ID, including directors of corporate trustees of self-managed super funds and of discretionary trusts. Individuals will need to apply for their director ID themselves to verify their identity (i.e. no-one, not even Knight, can apply for it on your behalf).
- From 1 November 2021, if a new employee starts work and does not choose a specific superfund, the employer needs to request the employee’s “stapled super fund” details from the ATO. A stapled super fund is an existing account which is linked (or ‘stapled’) to an individual employee, so it follows them as they change jobs. Businesses can request stapled super fund details for new employees using Online services for business or you can contact Knight and we can request to obtain these details for you. It is important to note that this is available for new employees only, the service cannot be used for employees engaged prior to 1 November 2021.
Small Business Capital Gains Tax Concessions
These valuable CGT concessions can apply to a range of business assets, including business goodwill, property and shares. If applicable, these concessions could result in a tax-free capital gain on a business asset disposal and also the ability to contribute more to super than would otherwise be available to you.
These concessions can be applied where there is a sale of a business asset or a restructure to achieve a more suitable business ownership structure. Where assets are owned by trusts, the distributions by the trust each year may be relevant to the eligibility to claim these concessions.
If you would like to find out if these concessions are currently available to you, or in the future, please get in touch with Knight.