02 Jun

Tax Planning June 2022

As we approach the end of the current financial year, we would like to bring your attention to the following tax planning matters, some of which need to be in place by 30 June 2022.

1.      Superannuation Concessional Contributions (deductible)

Concessional contributions which include employer contributions, contributions made under a salary sacrifice arrangement and personal contributions claimed as a tax deduction is subject to an annual cap of $27,500.  

For the purpose of getting a tax deduction, ensure that the decided amount of superannuation is paid by the company one week before the end of the financial year to allow sufficient time for the superannuation funds (particularly industry funds) to receipt the monies by Thursday 30 June 2022.  If the monies are not received by the applicable superannuation funds by 30 June 2022, a tax deduction is denied until the following year.  Please note that if the funds are received on 1 July 2022 onwards, the amount receipted will be included in the following years contribution cap  (22/23) rather than the current year (21/22).

Please note that tax deductions are only available only for actual superannuation payments made, rather than payments that are due.  To be eligible to claim a deduction, payments must be made on time (ie 28 days after the end of the relevant quarter).  If a payment is made after the due date, the tax deduction is denied.

2.      Superannuation Non-Concessional Contributions (Non-deductible)

The non-concessional contributions cap for 21/22 year is $110,000.  The cap will be nil for anyone who has a total superannuation balance greater than or equal to $1.7 million.

Non-concessional contributions are made from after tax income and not taxed by a superannuation fund.  Non-concessional contributions include personal contributions for which you do not claim an income tax deduction (eg. undeducted contributions).

From 1 July 2020, taxpayers under 67 years old at any time in a financial year, can make non concessional contributions of up to 3 times their annual non-concessional contributions cap in that financial year.

From 1 July 2021, the amount of the non-concessional contributions cap you can bring forward is either:

  • 3 times the annual non-concessional contributions cap over 3 years (that is, $330,000) if your total super balance on 30 June of the previous financial year is less than $1.48 million
  • 2 times the annual cap over 2 years (that is, $220,000) if your total super balance on 30 June of the previous financial year is above $1.48 million and less than $1.59 million
  • nil ($0) if your total super balance is $1.59 million or above

These limits are based on the:

  • non-concessional contribution cap of $110,000 (previous financial year $100,000 p.a.)
  • total super balance in relation to the general transfer balance cap of $1.7m

3.      Small Business Entity Concessions

A)     Company tax rate reduction

A company must be a base rate entity to be eligible for the lower 25% company tax rate.  A company is a base rate entity if both of the following apply:

  1. The company has a turnover less than the turnover threshold of $50 million for the 2021-22 year
  2. 80% or less of their assessable income is base rate entity passive income (such as interest, dividends, rent, royalties and net capital gain)

If your business is a company, your aggregated turnover includes your annual turnover, plus the annual turnover of all the entities that are connected or affiliated with your company, which may be based in Australia or overseas. 

B)     Tax Depreciation incentives

The instant asset write-off does not apply to assets first used or installed ready for use after 30 June 2021.  Entities must immediately deduct the business portion of the asset’s cost under temporary full expensing.

Temporary full expensing

Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciation assets.  The eligible asset must be first held, and first used or installed ready for use for a taxable purpose, between 6 October 2020 and 30 June 2023.

The following are excluded from eligible assets:

  • Assets allocated to a low value pool or a software development pool
  • Certain primary production assets
  • Buildings and other capital works for which you can deducted under Div 43
  • Assets that are not located in Australia or are not used principally in Australia for the purpose of carrying on a business.

 From 7.30pm AEDT on 6 October 2020 until 30 June 2023, temporary full expensing allows a deduction for:

  • Business portion of cost of new eligible depreciating assets for businesses with an aggregated turnover under $5 billion
  • Business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover under $50 million
  • Eligible assets of small business entities using the simplified depreciation rules and the balance of their small business pool.

Businesses should consider bringing forward certain expenses to claim as a tax deduction in the year ending 30 June 2022.

Please note that the available deduction for a luxury car may be limited to the car limit of $60,733 for the 2021-22 income year.  

4.      Prepayments

Business prepayments, is expenditure incurred for things to be done (in whole or part) in a later income year.  Prepaid expenses are deductible over the eligible service period rather than being immediately deductible. 

Prepaid expenses may be immediately deductible if:

  • It is excluded expenditure
  • If the payment is incurred for an eligible service period not exceeding 12 months and the eligible service period ends in the next income year (ie by 30 June 2023)
  • It relates to a pre-review of business taxation (RBT) obligation

Excluded expenditure includes:

  • Amounts less than $1,000
  • Amounts required to be incurred by a court order or law of the Commonwealth, State or Territory
  • Payments of salary or wages
  • Amounts that are capital, private or domestic in nature

If applicable, please provide us with a list of all prepayments in excess of $1,000 and include information such as date and nature of payment, period of service and amount paid.   

Businesses with an aggregated turnover below $50 million should review their expenses and, subject to cash availability, consider bringing forward any payments which are currently being paid monthly such as subscriptions and insurances.

5.      Bad Debts

All non-recoverable trade debtors should be written off by 30 June 2022.  We recommend a review of trade debtors to be conducted to identify any amounts that are considered uncollectable and written off prior to 30 June 2022.

Where a bad debt is written off and been determined that it is unlikely to be recovered through any reasonable and commercial attempts before 30 June 2022, you may claim a tax deduction for it in the 2022 financial year.  Entries should be made in the debtor’s ledger, including a directors’ resolution drawn up or evidence of written approval of the directors.  

As the company is registered for GST on an accruals basis, there may be an adjustment required to the company’s Business Activity Statement (BAS), which can be made in the June 2022 quarter BAS or at a later point by amending a prior BAS. 

6.      Depreciation

Keep a record of asset acquisitions and disposals during the year showing the cost price or disposal value and relevant dates.   Acquisition date refers to the date an item of plant or equipment was first installed ready for use, and not necessarily when paid for.   Ensure that plant and equipment is reviewed to determine if any should be scrapped (and advise us of the details). 

Under the uniform capital allowance system (UCA), an immediate deduction is allowance for assets costing $300 or less.  However, for small businesses, please refer to section 4(B) for the instant asset write off thresholds as they have changed over the last few years. 

We recommend that you review your company’s asset register to write off any obsolete or destroyed items before 30 June 2022.

7.      Computer Software

For software purchased during the year, please identify if anticipated usage will be less than 2½ years and if so the estimated months of use.

8.      Superannuation Guarantee Charge (SGC)

We recommend that you review the payroll records, employee by employee, month by month, to ensure that the appropriate percentage of ordinary time earnings has been paid as superannuation contributions to a complying superannuation fund or industry fund.

We recommend that superannuation contributions are made the week prior to Thursday 30 June 2022 in order to ensure that the contributions are received by the funds by 30 June 2022.

Superannuation is deductible when paid. Therefore, to claim superannuation as a tax deduction for the June quarter, the business must ensure that this superannuation is paid before 30 June 2022.

For the purposes of SGC, the deadline for contributions for the 2021/22 year is 28 July 2022.  The rate for all employees is 10%.

From 1 July 2022, the SG rate is set to increase by 0.5% from 10% to 10.5% for all employees. The SG percentage will increase to 12% by 1 July 2025 with increases of 0.5% scheduled each financial year through to 1 July 2025.

Please also note that the $450 threshold for super guarantee will be removed from 1 July 2022. This means that SG will apply to all eligible employees over 18 years old regardless of their monthly pay.

9. Substantiation and Record-Keeping

Ensure that all logbooks, travel diaries and odometer records are completed where applicable in respect of the 2021/22 year.  Please note that log books are required to be kept for at least 12 weeks in the first year and then every five years. 

New log books are required where circumstances have changed and the previous determined rate (on prior log book) is no longer representative of the business/private usage.

10.    Entertainment

Please ensure your meal entertainment is dissected between:

–  non-deductible customer entertainment and

–  deductible but subject to FBT, such as employee entertainment and

–  deductible but free of FBT, eg employee sustenance while travelling on business or in an in-house dining facility.

11.    Capital Gains

If you have capital losses (current year or brought forward) or current year capital gains, consideration may be given to advancing future gains or losses to offset the position.

12.   Loans to shareholders/associates

Any loans or advances to shareholders or their associates, that are not fully repaid to the company by the lodgement time of the company’s income tax return for the relevant year will need to be documented, and will require repayments according to the repayment plan. 

13.    Stock on hand

Businesses that own stock should ensure that a stocktake is completed at 30 June 2022.  Stock can be valued at cost, market value or replacement value, whichever is the lower. 

For tax purposes, most businesses that trade stock are required to do an annual stocktake as at 30 June. It is important to plan and execute a stocktake in a way which gives a reliable and accurate stock figure. As part of stocktake, you should identify any old, obsolete or damaged stock which can be written off or written down.

14.    ATO cashflow boost & Government Grants

Many businesses that met the eligibility criteria has received the Government stimulus payments.   It is vital for businesses to ensure that these payments are itemised and recorded accurately in the accounts as some payments received could be tax free such as cashflow boost, 2021 COVID-19 business grant etc. 

Please note that Jobkeeper payments are taxable, however, this income is offset by corresponding payments to employees, hence no net tax payable. 

15.    Year End Single Touch Payroll (STP) finalisation

Employers should have procedures in place to ensure they are able to lodge the STP year-end finalisation report by 14 July 2022. This will allow their employees to complete their tax returns.

Please note that where fringe benefits are provided to employees and the taxable value of benefit provided exceeds $2,000, the grossed up value of the fringe benefit will be recorded as reportable fringe benefits in the employees payment summary.

16.    Loss carry back tax offset

The loss carry back (LCB) provisions allow corporate tax entities with an aggregated turnover of less than $5 billion to offset tax losses made in the 2020, 2021 and/or 2020 income years against their income tax liabilities for the 2019, 2020 and/or 2021 income year.  The Government has recently extended the LCB measures to the 2023 financial year.

The loss carry back tax offset may be available to an eligible company in its 2022 tax return where the company:

  • carried on a business and its aggregated turnover did not exceed $5 billion in the loss year
  • made a tax loss in the 2022 income year
  • had an income tax liability for the 2019, 2020 or 2021 income year
  • has a surplus of franking credits as at 30 June 2022
  • lodges its 2022 income tax return and lodged the previous five income tax returns, and
  • the company loss tests have been satisfied

The choice to claim the LCB tax offset is an alternative to carrying tax losses forward. The entity will have to make a choice to claim the LCB tax offset in the approved form by the day the entity lodges its income tax return for the 2022 year (or a later day the Commissioner allows).

An entity choosing to carry back losses (made in the 2020 through 2022 income years) to earlier years (in which there were income tax liabilities) may result in a cash refund, reduced tax liabilities or a reduction of debt owing to the ATO.  

17.    Single Touch Payroll (STP) Phase 2 reporting

Most Australian employers are familiar with Single Touch Payroll (STP).  STP Phase 2 is the next stop on this journey. STP Phase 2 expands the information collected to enable ‘real time’ sharing of STP data by the ATO and Services Australia.  Although employers will need to provide the ATO with more information, the way STP reports are submitted won’t change. 

From 1 January 2022, additional payroll and super information must be included in STP reports.  Instead of reporting a single gross amount, payments will be separately reported (eg Gross wages, paid leave, allowances, overtime, bonus and commission, directors fees, salary sacrifice).  Income types, employment and taxation conditions will also need to be reported.

Employers should transition to Phase 2 as soon as their STP product is ready.  Some payroll providers such as Xero and MYOB have been granted a deferral by the ATO to 31 December 2022 to rollout Phase 2.

18.    Trust distributions

Discretionary trusts are required to prepare and execute distribution minutes prior to 30 June for each financial year. The minutes specify how the income of the trust will be distributed to beneficiaries for the relevant financial year. Minutes must be prepared in accordance with the trust deed.   For the distribution minutes to be effective, they must be prepared and executed by 30 June 2022.

19.    Increase in SMSF membership limit

From 1 July 2021, the maximum number of allowable members for an SMSF increased from 4 members to 6 members.  However, please refer to your SMSF deed as some deeds only allow a maximum of 4 members.  If this is the case, the members will need to arrange for a variation of the deed to allow for 6 members. 

Where the SMSF has a corporate trustee, please ensure that company directors have Director Identification Numbers (DIN). From 5 April 2022, new directors of SMSF corporate trustees must apply for a DIN before being appointed as a director.  Existing directors appointed on or before 31 October 2021 have until 30 November 2022 to apply for their DIN numbers. 

20.    Working from home deduction

Some employees have continued to work from home during the 2021/22 year.  Ensure that you keep records of the number of hours you worked at home in the 21/22 year, as this will be relevant to claiming the tax deduction in your return. 

There are two methods to claiming working from home expenses – shortcut method and actual method.

  1. Shortcut method

The shortcut method is the simplest method, as its calculated by multiplying the number of hours worked at home to a fixed rate of $0.80 per hour.  This covers expenses including telephone, interest, electricity and depreciation on furniture and equipment. The ATO expects taxpayers to retain records of the hours worked from home, such as a timesheet, roster or diary.

However, depending on your records available, you may find that a higher deduction is available using either the actual cost or fixed rate method. 

For financial years following 2022, the shortcut method ceases (unless extended by the Government) and individuals must return to utilising either the actual cost or fixed rate methods to calculate a deductible working from home amount.

2. Actual Cost & Fixed Rate

To be eligible to use the fixed rate method, you must meet the following criteria:

  • incur additional running expenses as a result of working from home
  • have a dedicated work area, such as a home office that you use when you work from home
  • records that show the work-related portion of expenses not covered by the fixed rate per hour
  • records of the number of hours spent working at home for the whole income year

The fixed rate method is calculated by applied a fixed rate of 52 cents per working hour for heating, cooling, lighting, cleaning and the decline in value of office furniture.  You can also claim work related portion of the following expenses which are not covered by the fixed rate for phone, data, internet expenses, computer consumables, stationery and decline in value of depreciating assets (over $300).

To claim using this method, records to be kept for the hourly rate must show either:

  • actual hours spent working at home for the year; or
  • a diary for a representative four-week period to demonstrate the usual pattern of working at home, applied across the remainder of the year. A change in work pattern will require the creation of a new record.

21.    Low income earning spouse superannuation contribution

Under the current 2021/22 tax rules, you may be able to claim a $540 rebate in your return by making super contributions up to $3,000 that you make on behalf of your non-working or low-income-earning partner. 

You can claim the maximum tax offset of $540 where both of the following apply:

  • you contribute to the eligible super fund of your spouse, whether married or de facto
  • your spouse’s income is $37,000 or less

The tax offset amount reduces when your spouse’s income is greater than $37,000 and completely phases out when your spouse’s income reaches $40,000.

The tax offset is calculated as 18% of the lesser of:

  • $3,000 minus the amount by which your spouse’s income exceeds $37,000
  • the sum of your spouse contributions in the income year.

If you wish to discuss any of the above matters, please contact our office.

Should you have any questions, please feel free to contact our office on 0402 277282 (Carl) and 0412 404128 (Tina).

Yours faithfully

CARL DUMBRELL & TINA LOH

Partners – CDTL Accountants & Advisors