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It’s the start of the end of yet another financial year. For farming businesses and small businesses across Western Australia, this year has presented a number of both triumphs and challenges. That’s why it’s vital to begin thinking about strategies which can be implemented to reduce taxable income for year ending 30 June 2022.
Some of the tax planning strategies you may wish to consider prior to 30 June 2022 include:
This is probably the most simple of all tax planning strategies. If you predict you’ll have a significantly higher taxable income this financial year, you may wish to look at ways you can defer your income to the following financial year.
Do you have outstanding debtors, with payments that are unlikely to be collected? Review these prior to 30 June 2021 to determine whether these debtors should be written off, in order to claim a bad debt tax deduction.
Small to medium businesses may be able to claim a deduction for prepayments of goods and services. You can claim this deduction for an advance period of up to twelve months from 30 June 2022.
For the 2022 financial year, businesses who have an aggregated turnover of less than five million can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose in a measure dubbed ‘temporary full expensing’.
In the 2022 financial year, the corporate tax rate for Base Rate Entities has reduced to 25%. If you’re not currently utilising a company in your business structure, chat to me about whether this may be beneficial for you.
In terms of your individual tax return, if you have a superannuation balance of under $500,000 you are now able to carry forward unused concessional contributions from a previous financial year. The amount of unused cap amounts you will be able to carry-forward will depend on the amount you have contributed in previous years, starting from 2018–19. You can use caps from up to five previous financial years.
A bucket company is a corporation and a beneficiary of a trust whose job it is hold on to distributions. In other words, it’s a corporate beneficiary.
Utilising a corporate beneficiary enables you to minimise the tax payable on trust distributions. However, if a corporate beneficiary receives distributions of active business income, it will be classed as a base rate entity, which will impact the rate at which it can frank dividends. Theretofore, if your corporate beneficiary has retained earnings from previous financial years, it may be worthwhile considering establishing a new corporate beneficiary to receive distributions of active business income going forward, so that the pre-existing company does not get characterised as a base rate entity and therefore will be able to continue to frank dividends declared from retained earnings at 30%.
In addition to temporary full expensing, and a lower company tax rate for eligible businesses, the federal government has introduced a range of tax concessions for small business to assist with cashflow. Latest concessions include an increase in the small business income tax offset and deductions for professional expenses for start-ups.
Loss carry back provides a refundable tax offset that eligible corporate entities can claim after the end of the 2022 financial year. You are able to choose to carry back losses to earlier financial years where there were income tax liabilities. The result is the offset represents the tax the eligible entity would save if able to deduct the loss in an earlier year using the loss year tax rate.
As the tax offset is refundable, it may result in a cash refund, reduced tax liability or reduction of a debt owed to the ATO.
One or more of your original business structures may no longer be serving you effectively, due to changes in your business or personal circumstances. Utilise one of the tax rollovers and concession to restructure inefficient business structures without triggering Capital Gains Tax implications.
If you haven't started thinking about tax planning yet, or if you haven't undertaken tax planning previously, contact me on the form below to discuss how we can work together to maximise your hard-earned profits for 2022, and (legally) minimise your tax obligations.