With the end of the 2022 Financial Year fast approaching, now is an important time to ensure your tax affairs are in order and to implement strategies to help reduce your tax liability or increase your refund. If you haven’t already done so, it is time to consider your potential tax position and take action. Depending on your circumstances, the following items could each provide you with a tax saving opportunity. To be effective though, they need to be completed before June 30.
NOTE – It is important to consider all your circumstances both current and future, before implementing any tax strategy. If your income is growing, and your marginal tax rate is going to increase in the following Financial Year, it may not be beneficial to implement these strategies now.
Our team can help you to determine the most appropriate timing and strategies to manage your Tax. If you’d like assistance with your tax planning, call us on 1300 526 336 or email us at email@example.com.
A prepaid expense is expenditure you incur under an agreement for something to be done (in whole or in part) in a later income year. This applies to small businesses with an aggregated turnover of less than $50 million or individuals who derive passive income such as rental income and dividends.
Any pre-paid expenses that relate to your income or income producing assets, made before 30 June 2022 will be deductable from this year’s tax return (if the expenses are not subject to the prepayment rules.)
Note – these prepaid expenses must be made no longer than 12 months in advance.
This includes items like:
- Deductible insurances – E.g. Professional Indemnity Insurance
- Work subscriptions – professional memberships, business magazines…
- Interest on investment properties
- Expenses related to investments properties
- Upcoming training courses or conferences
- Business inventory
- Employee superannuation payments including 10% Superannuation Guarantee contributions for the quarter ended 30 June 2022. It must be received by the superannuation Fund by 30 June 2022.
- Advanced rent payments
Pre-Book any Planned Business Trips
Flights will be deductable when they relate to at least two consecutive days of work-related activity (i.e. conferences, meetings etc.).
Timing of Income Derivation
If you are not using Accrual Based Accounting, consider whether income can be deferred until after 30 June 2022.
Make Tax Deductible Donations
Donations made to your favoured charities will be deductible so long as the recipient organisation has the status of Deductible Gift Recipient (DGR).
Make a Superannuation Contribution
Concessional Superannuation Contributions
You can contribute up to $27,500 per annum to your super, less the value of the super contributions paid by your employer. NOTE – contributions made to super are held in your super until retirement or a condition of release is met.
E.g. An employee earning $100,000 per annum, will receive $10,000 of super contributions from their employer (10% Super Guarantee). In this situation they can contribute up to $17,500 extra to their super ($27,500 – $10,000).
These contributions are generally taxed at 15% in the Super, effectively saving you the difference between your marginal tax rate and your super tax rate. The employee in the above example could reduce their tax by $3,062.50 (17,500 X (32.5% -15%)).
Some low- or middle-income earners who make personal (after-tax contributions) to a superannuation fund by 30 June 2022 may be entitled to the government co-contribution. The amount of government co-contribution will depend on your income and how much you contribute. For example, to get the maximum co-contribution from the government – $500, you will need to contribute $1,000 into your super fund and earn under $41,112.
Immediate Write Off for Individual Small Business Assets
Most businesses can get an immediate tax deduction for each depreciating asset they buy under the Temporary Full Expensing rules. Eligible businesses with an aggregated turnover under $5 billion can claim an immediate deduction for the business portion of the cost of an eligible new asset in the year it is first used or installed ready for use for a taxable purpose.
For second hand goods, the temporary full expensing rules is only applicable for businesses with an aggregated turnover under $50 million.
The Temporary Full Expensing rules are currently due to stop at the end of the 2022-23 financial year.
Bad Debts write-offs
If the business is operated under an accrual basis of accounting (non- cash method), you should write off bad debts from your debtors listing before 30 June 2022. A bad debt is an amount that is owed to you, and you considered that it is uncollectable or not economically feasible to pursue collection. Note – you need to document that you have taken action to recover the debt.
Obsolete Plant & Equipment
Any obsolete asset should be scrapped prior to 30 June 2022 to enable the residual book value to be claimed as a tax deduction. Note – it is important to consider if the asset has a market value, as this may impact the potential deduction.
Working from home deduction
Home office expenses may be deductible where you carry on business or employment activities at home. The portion of interest, rent and insurance is only deductible if you are carrying on business from home and the area is separate and distinguished from your private living areas. Converting the spare room is not sufficient to be classified as a home office.
The ATO short cut method allows eligible individuals to claim 80 cents per hour when working from home. This ends on 30 June 2022. The shortcut method covers all of you working from home expenses such as:
- Phone expenses
- Internet expenses
- The decline in value of equipment and furniture
- Electricity and gas for heating, cooling, and lighting
Note – if you choose to use this method, there is no requirement to separately calculate the decline in value of equipment or depreciating assets.
You must have a record of the hours you worked from home e.g. timesheet or diary.
Car Expenses for Individuals
Where a vehicle is used for work purposes, other than just travel from home to work, you may be able to claim expenses or use a cents per kilometre approach. If you are claiming actual expenses, please check the logbook is current and that the logbook details are correct. Please ensure year-end odometer readings are taken and all relevant receipts have been kept.
Organise a Depreciation Schedule for your Rental Property and Fixed Assets
If you haven’t already done so, you may want to consider organising a depreciation schedule for your rental properties (and other business-related fixed assets).
Depreciation relates to the loss in residual value of your fixed assets. I.e. The building itself (bricks and mortar) and the assets within the property.
The fee of the Quantity surveyor (who undertakes the depreciation schedule) and the depreciation for this financial year will both be deductible.
As mentioned, not every item will be relevant for every person. Our team can help you to determine the most appropriate timing and strategies to manage your Tax. If you’d like assistance with your tax planning, call us on 1300 526 336 or email us at firstname.lastname@example.org.