It’s that time of the year again! If you haven’t started tidying up your financial affairs before the end of the financial year, you’d better get cracking. Here are some tips to help you get started.
Pay all superannuation before 30 June 2023 in order to claim a tax deduction this year. We suggest to pay by 22 June in order to allow the clearing house to process before 30 June. If processed late then the contributions count towards next year’s contribution cap.
If employers don’t pay before 30 June you must pay by 28 July as normal quarterly contributions, but you don’t get a tax deduction until paid.
Concessional contribution cap is $27,500 for everyone up to 75 years of age, with the cap including employer contributions and salary sacrifice contributions.
There is no work test for salary sacrifice and non-concessional contributions for employees under 67 years of age.
The work test must be satisfied in order to claim personal concessional and non-concessional contributions over age 67 up to age 75.
If you exceed your contribution cap you may need to pay penalty tax.
If you are over 75 years of age your fund can only accept employer mandated contributions.
Downsizer contributions of $300,000 per person may be made by anyone aged 55 and over (no upper age limit) who sell their residence that they have owned for 10 years or more.
Taxpayers with a super balance under $500,000 have been allowed to claim any concessional contributions not claimed up to the cap, starting from the 2019 income year. You can claim unused cap amounts for up to 5 previous income years. This could be useful in reducing your taxable income in the event of a large capital gain.
The limit for non-concessional contributions (NCC) for FY23 is $110,000 per annum with the ability to bring forward two years contributions if you are under the age of 75 years at the time of making the contribution, subject to total super balance caps.
The above is general information only and have not taken into account your personal circumstances. Super rules tend to change regularly so you should seek advice before making super contributions.
Review your stock on hand before 30 June 2023 and identify any obsolete or unusable stock. Write off these stock items prior to 30 June 2023.
Write off any bad debts before 30 June 2023. This means going through your debtors list and either collecting payment, taking action or writing it off. Debts should be written off when there is no chance it will be recovered. The debtor must be removed from your accounts receivable list to be eligible for a deduction.
If you account for GST on an accruals basis, you can make a GST adjustment when the debt is written off and claim back the amount of GST previously paid on the invoice.
Temporary Full Expensing Immediate Deduction
The Full Expensing measure will expire on 30 June 2023. Temporary full expensing allows eligible businesses to immediately deduct the full cost of eligible depreciating assets that are first used or installed by 30 June 2023.
This incentive is available for businesses with an aggregated turnover of less than $5 billion. It applies to new or second-hand assets acquired between 7:30 pm AEDT on 6 October 2020 and 30 June 2023. The assets must be used or installed by the business during this period to be eligible for the immediate deduction.
Expenses & Prepayments
Consider bringing forward any spending you were considering in the next few months to before 30 June 2023 such as buying stationery, servicing vehicles, repairing equipment, printing, advertising and company uniforms and claim a tax deduction this year.
Property investors are eligible for a tax deduction if they prepay expenses such as interest, strata levies and insurance.
Payments for any of the above can only be for the period to 30 June 2024.
Document monies you have received for deposits on work yet to be completed as deposits received in advance are not taxable until the work is completed and/or invoiced. Record these deposits as income in advance (ie. a liability).
Identify any invoices you have issued for sales that will take place next financial year, so the income and tax is deferred until then. Record as income in advance.
Directors’ Fees & Employee Bonuses
Any expected directors’ fees and employee bonuses may be accrued and deductible for the 2023 tax year if the taxpayer/employer is ‘definitely committed’ to the payment of a quantified amount, even if the fee or bonus is paid to the employee or director after 30 June 2023. Note these accrued directors’ fees and bonuses should be paid within a reasonable time period after the year.
It is also important to remember that deductions could be lost if the entity fails to meet its PAYGW obligations when the fees or bonuses are actually paid.
Company Shareholder Division 7A Loans
Ensure that any shareholder debit loans are either repaid to the company before 30 June 2023 or you have discussed a repayment plan with your Sullivan Dewing client manager.
The ATO have integrity measures that look at some instances where shareholders repay loans prior to year-end or relevant due date but then redraw monies again.
Specifically, the rules state that a repayment must be disregarded for the purposes of Div 7A if a “reasonable person” would conclude, having regard to all of the circumstances that:
the shareholder or associate intended to obtain a loan from the company of a total amount similar to or more than the repayment required; or
if a new loan was made to the shareholder or associate before the shareholder makes the repayment to the company and the loan was obtained in order to make the repayment
The Commissioner does not have discretion here. If the “reasonable person” test concludes that the payment is disregarded, a Div 7A deemed dividend will arise.
Capital gains and realising capital losses
Another worthwhile exercise is to consider whether any capital gains have or will occur before 30 June 2023 and consider whether it is a good idea to sell certain assets before year end to crystallise a capital loss.
Warning: The ATO may treat a Wash Sale under the Tax Avoidance provisions. A wash sale is basically where an asset is sold in order to realise a capital loss and shortly after, the same asset is repurchased so there is no change in the economic exposure of the owner to the asset.
It’s a good time to review the structure you’re working under, to make sure it’s the best option for asset protection and flexibility for the distribution of profits in the most tax-effective manner.
If you have any questions please do not hesitate to contact your Client Manager.