If you’re a business owner, now is the time to start considering effective tax strategies. Tax planning is more than just putting your tax return together. It’s about making sure that your business is structured in a way that will allow you to grow and expand, while minimising the amount of income tax payable. Take a read of our 2023 tax planning guide for the most effective tax minimisation strategies you should consider.
Imagine what you could do with tax saved? You could:
- Reduce your home loan
- Top up your super
- Save for a holiday (when we can travel again!)
- Deposit for an Investment Property
- Pay for your children’s education
- Upgrade your Car
Here’s a guide to the tax minimisation strategies you can use to reduce your business tax.
Is your business a small business entity?
Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected / affiliated with you) of less than $10 million and be operating a business for all or part of the 2023 year.
LOWER COMPANY TAX RATES
The 2023 company tax rate for businesses with less than $50 million turnover is 25%, if 80% or less of a company’s assessable income is “passive income” (such as interest dividends, rent, royalties, and net capital gains).
If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 25% for the 2023 year. Note that this company must qualify as a “base rate” entity to be eligible for the lower 25% company tax rate. Please discuss with us whether your company will qualify.
TEMPORARY FULL EXPENSING FOR ASSET PURCHASES
Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciating assets.
For businesses with an aggregated turnover of less than $50 million, temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.
Temporary full expensing is ending on 30 June 2023. You should buy these assets and use them or have them ready for use before 30 June 2023 to qualify for a 2023 tax deduction.
MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS
The concessional superannuation cap for 2023 is $27,500 for all individuals. Do not go over this limit or you will pay more tax. Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge. For the contribution to be counted towards the employee’s 2023 contribution cap, it must be received by the fund by 30 June 2023.
TOOLS OF TRADE / FBT EXEMPT ITEMS
The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.
If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased. You should buy these items before 30 June 2023.
REPAIRS & MAINTENANCE
Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2023.
PAY EMPLOYEE SUPERANNUATION NOW
To claim a tax deduction in the 2023 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2023.
You should avoid making last minute superannuation payments as processing delays may cause them to be received after year-end. If for any reasons you end up having to make last minute payments and you would like to claim them as deductions for the current year, contact us before you make any payments for possible resolutions.
DEFER INCOME
If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2023. This strategy pushes tax payable to future years.
BRING FORWARD EXPENSES
Other effective tax minimisation strategies include bringing forward expenses. Purchase consumable items BEFORE 30 June 2023. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now and get the deduction this year.
DEFER INVESTMENT INCOME & CAPITAL GAINS
If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2023.
The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date!
MOTOR VEHICLE LOGBOOK
Ensure that you have kept an accurate and complete Motor Vehicle Logbook for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2023. You should make a record of your odometer reading as at 30 June 2023 and keep all receipts/invoices for motor vehicle expenses.
An alternative (with no logbook needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.
INVESTMENT PROPERTY DEPRECIATION
If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.
PRIVATE COMPANY(“DIV 7A”) LOANS
Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2023. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.
YEAR-END STOCKTAKE / WORK IN PROGRESS
If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2023. Review your listing and write-off any obsolete or worthless stock items.
Talk to us about your different options for valuing Stock, and how they affect your tax payable.
WRITE-OFF BAD DEBTS
Review your Trade Debtors listing and write-off all bad debts BEFORE 30 June 2023. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2023.
SMALL BUSINESS CONCESSIONS – PREPAYMENTS
“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2023 and obtain a full tax deduction in the 2023 financial year.
TRUSTEE RESOLUTIONS
Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2023 for all Discretionary (“Family”) Trusts. The ATO have recently released a number of Tax Rulings that may affect trust distributions to adult children, so Tax Planning for 2023 will be vital for anyone using a Family Trust.
PLEASE NOTE: This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from MGI.
Talk to us TODAY before the 30 June 2023 deadline for assistance in developing the most effective tax minimisation strategies for your business! You may also like our guide on how to reduce taxable income and minimising your personal tax.
