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  • Cameron Finlay

Maximizing Tax Benefits: Year-End Strategies for Businesses and Individuals in 2023

Updated: Jun 15, 2023



For BUSINESSES


1. Temporary full expensing of depreciating assets


Ends 30 June ’23. Where turnover is under $50m, for both new and second-hand assets and improvements to those assets, the full cost can be written off this year provided that the item is installed and ready for use by 30 June 2023.


It is possible to opt out of full expensing on an asset-by-asset basis and claim depreciation under the normal effective life rules, which could result in a better tax outcome if the business profits are down.


2. Instant asset write-off


From 1 July 2023, the depreciation rules return to normal for assets costing less than $1,000. The May Budget proposed that this threshold increases to $20,000 but only for the 12 months to 30 June 2024.


3. ATO focuses on family trusts


The ATO has a renewed focus on the anti-avoidance rules of Sec 100A, which is a distribution to a low-tax rate beneficiary but where someone else receives the benefit of the cash. Sec 100A does not apply in the course of ‘ordinary family or commercial dealing’, which the Ruling has not defined, so the ATO requires documents and records to explain why there is no reimbursement agreement, such as trust resolutions, notes of discussions, and decisions, notifications to beneficiaries, how the beneficiary’s present entitlement was satisfied or how the funds were used. The ATO has set out distribution strategies that may attract their attention. In practice, this means more tax is payable but the potential of an ATO Audit is reduced.


From a practical perspective and to avoid possible audits, beneficiaries need to understand the nature and effect of transactions involving their present entitlement, and for records to be maintained to show this as an ordinary family dealing.


4. Allocation of professional firm profits (also Personal Services Income)


First applying for 2022/23, the ATO has a program for considering the allocation of profits by professional firms (accounting, engineering, financial services, law, medicine, IT, etc.). It applies where taxpayers redirect their income from professional services from a business to an associated entity, and one result is a significant reduction of their tax liability.


The sharing arrangement must be first evaluated as “commercial”, that is for a purpose other than to gain a tax advantage, eg., asset protection is acceptable, and must not exhibit any high-risk or scheme features. If the professional can pass both gateways, then a self-assessment can be calculated against a possible ATO audit, with the average rate of tax a critical factor.


An audit is more likely if the profit arrangement seems high risk, or the arrangement has a moderate or high-risk rating (considering the total effective tax rate).


5. Concessions available for small business entities (turnover under $10m)

  • Small business restructure rollover

  • Immediate deduction for start-up costs

  • Immediate deduction for prepaid expenses up to 12 months in advance (interest, income protection, rent, insurance, service fees, accounting, repairs, and other fees)

  • Cash basis accounting for GST

  • Immediate deduction for depreciating assets.


6. Loss Carry Back


This is the last year for this concession, allowing a tax loss (but not a capital loss) to be carried back to a year after 2018/19 when the tax was paid. The offset, a refund of tax, is claimed in the 2023 tax return but is limited to the amount of tax paid and the company’s franking account balance on 30 June 2023.


7. Income Strategies

  • Defer a capital gain to next year (timing is taken from the date of the contract)

  • Defer income to next year

  • Payment received pre-30 June for services to be delivered in July or later is taxable in the next year.


8. Superannuation

  • Concessional contribution – maximum from all sources $27,500

  • Catch-up contributions – available if the balance on 01/07/22 is under $500,000 and maximum contributions not made since 2019

  • Non-Concessional - eg., to increase funds in super $110,000. Also, can bring forward up to 3 years or $330,000.

  • Downsizing contributions (from the sale of a family home, and contributors over 60) - maximum $300,000, and each member can make a contribution.


YEAR-END AND CHANGES FROM 1 JULY 2023


9. Before 30 June:

  • Family Trust Resolutions to be made (see 3) and documented before 30 June

  • Trading Stock count and valuation, (taxpayer can choose lower of cost, or market, or replacement value). The best tax outcome is usually the lowest value.

  • Professional Firm profit allocation to be tested against ATO guidelines (see 4)

  • Pay Superannuation Contributions into the Fund

  • Use for a “Bucket Company” to receive a distribution of profits from a family trust

  • SMSFs to pay Pensions at least at a minimum rate to retired beneficiaries


10. After 30 June:

  • From 1 July 2023, the Superannuation Guarantee Rate increases to 11% of Ordinary Earnings

  • Finalise your Single Touch Payroll (STP) data. Lodge a finalisation declaration by 14 July, which says you have fully reported for employees. The ATO prefills the employees' tax returns, so no Pay Summaries are issued by the employer

  • Businesses in Construction, Cleaning, Courier, Freight, IT, and Security must lodge a report on amounts paid to contractors (Taxable Payments Annual Return) by 28 August 2023

  • Review Tax Instalments paid for the year to date, company and individuals, and compare to the estimated tax for the year. The June Instalment can be varied in line with your estimate, if lodged by the due date for the June 2023 BAS

  • Private company loans, also called Div 7A Loans, can be taxed as an unfranked dividend unless a written Loan Repayment agreement is in place and meets ATO criteria of interest rate and maximum term. A loan is any advance, credit, or payment on behalf of a shareholder or an associate. This is a complicated area of tax law.

The Div 7A Loan rules also apply where a trust distributes profit to a company beneficiary without any cash payment to the company.


  • Consider the need for tax audit insurance, which funds the cost of an ATO review. The costs of an audit can increase as the ATO identifies more concerns.


For INDIVIDUALS

 

Work-Related Expenses


The ATO is checking on claims made against salaries or wages, especially, use of a vehicle, travel, internet, telephone, and self-education. The main rules to claim expenses are:

  • only claim for money spent and not reimbursed

  • work-related expenses must directly relate to the income earned

  • records must be kept to prove the claim.


Individuals can claim a deduction for a prepayment not exceeding 12 months.


Working from Home


If you are required to work from home, the ATO fixed rate of 67 cents per hour can be used, or the actual expenses method. There are strict record-keeping requirements for the hours from 1 March to 30 June 2023, and records must be retained to substantiate claims.


Superannuation (see 8)


Contributions must be received in the Fund by 30 June.



Capital Gains Tax


Consider delaying the date of sale (investment property, shares, business crypto, etc) until after 30 June 2023, so it is taxable in the next year. If there is a gain, do you have a capital loss brought forward from a prior year, or could a loss be crystallised on another asset like shares that have fallen in value? Capital gains on property are eligible for the 50% CGT discount if held for more than 12 months, and business sales may be entitled to the use of the Small Business Concessions.


PAYG Instalments


The 4th Quarter installment can be varied before the due date for lodgement, where forecast tax is expected to be lower than installments.


Rental Properties


A focus area for the ATO, including non-commercial rental expense apportionment (eg., holiday houses), building costs and depreciation, interest on loans, improvements made and CGT when sold, land tax, and arrears paid.


Crypto and Shares


The ATO obtains information and reports this on myGov. Keep records of the cost, date acquired, sales, and swaps. These are (mostly) taxed under CGT unless the taxpayer is carrying on a business of investment, so losses cannot be offset against business income or salary.



Cam Finlay (Arnold & Finlay Accountants & Planners Pty Ltd)



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