Knight 2023 Tax Planning Guide – Businesses

Business Tax Planning – 2023

Businesses

• 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 14 June (if using Xero); 23 June if using MYOB or ATO Small business clearing house 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.

Other recent changes to legislation applicable to this financial year

Instant Asset Write-Offs – $20,000 limit from 1 July 2023

• The tax depreciation rules return to normal from 1 July 2023, which includes the instant asset write-off for small businesses (group-wide turnover below $10 million) for depreciating assets costing less than $1,000.  However, the government announced in the 9 May Budget their intention to legislate increasing the threshold to $20,000 for the period 1 July 2023 to 30 June 2024.

Temporary full expensing of eligible depreciating assets – ends 30 June 2023

• Businesses with turnover below $5 billion can deduct the full cost of eligible depreciating assets, but they must be installed, ready for use, by 30 June 2023. Full expensing is also available for the cost of improvements to existing eligible assets.  
• Where a business’s turnover is less than $50 million, temporary full expensing applies to acquisitions of both new and second-hand assets. Where group-wide turnover is $50 million or more, it applies only to acquisitions of new depreciating assets.  (But note, it applies to improvements to existing assets per above).

Concessions available for small business entities

• Businesses that are small business entities (group-wide turnover below $10 million) may qualify for the following tax concessions in the 2023 income tax year:
  1. Immediate deduction for depreciation assets ;
  2. Small business restructure rollover;
  3. Immediate deduction for start-up costs;
  4. Immediate deduction for certain prepaid expenses;
  5. Simplified trading stock rules;
  6. Simplified PAYG tax instalment rules’
  7. Cash basis accounting for GST, ATO-calculated GST instalments; and
  8. FBT exemption for car parking, providing multiple portable electronic devices (e.g. laptops, mobile phones).

Loss carry-back-cash refund

• Eligible companies can claim a cash-refund offset in their 2022/23 tax return for tax losses (revenue only, not capital losses) incurred in the 2019/20 to 2022/23 financials years. The company must have group-wide turnover below $5 billion, and paid tax in any of the 2018/19 or later years. The losses can be “carried back” against those prior taxable years, but is claimed as a refundable offset in the 2023 tax return. 

• This is the last year this concession is available.

• The amount of the offset generated by carrying back losses is limited to the amount of tax paid in the applicable prior years and the company’s franking account balance at 30 June 2023.

• This is intended to operate in conjunction with Full Expensing of Depreciation Assets, which itself might be the cause for the company incurring a tax loss.

Superannuation Guarantee increase

• From 1 July 2023, the Superannuation Guarantee (SG) rate for compulsory superannuation contributions by employers will increase from the current 10.5% to 11%. The rate is applied to an employee’s Ordinary Times Earnings.
• Depending on applicable awards or employment contractual arrangements, the salary component of an employee’s remuneration might need to change from 1 July due to the increase in the rate.

Skills, training and digital adoption boosts

• The Government has focused on incentivising businesses to upskill employees by providing an additional 20% deduction for certain training expenditure incurred by businesses with aggregated turnover less than $50 million. The deduction will apply to expenditure incurred between 7.30 pm (AEDT) on 29 March 2022 and 30 June 2024. For example a company with a 25% income tax rate will obtain a higher deduction of 30% for eligible expenditure .
• The Government will also continue its focus on adoption of digital technologies by providing an additional 20% deduction for business expenses and depreciating assets supporting digital adoption by businesses with aggregated turnover less than $50 million. The additional deduction will apply to expenditure incurred between 7.30 pm (AEDT) on 29 March 2022 and 30 June 2023. The boost is subject to an annual cap of $100,000 expenditure for the 2022 and 2023 income years, equating to a tax saving of $5,000 per year. This similarly achieves an effective tax saving of 30% on eligible expenditure.
• The additional deduction for expenditure incurred in the 30 June 2022 income year will be claimable in the 2023 income tax return.

Single Touch Payroll

• All employers are now required to run their payroll and pay their employees through accounting and payroll software that is Single Touch Payroll (STP) ready.

• If you are still having STP issues, please get in touch with us so that we can get you to be STP compliant. 

Certain industries must report payments to contractors

• Businesses in the building and construction, cleaning, courier, road freight, IT, and security, investigation or surveillance industries must lodge a taxable payments annual report (TPAR) by 28 August 2023. The report includes the total payments they make to contractors.

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.