Year-End Tax Planning & 2023-2024 Budget Updates

Year-End Tax Planning & 2023-2024 Budget Updates

 

With 30 June 2023 approaching, it’s time to consider whether any tax planning action is required prior to year end. 

Included below is a summary of 2023-2024 Federal Budget announcements and a selection of tax planning tips that are particularly relevant to taxation, business and superannuation.



Business
 
$20,000 Instant Asset Write-Off

The temporary full expensing of assets will end and be replaced by a $20,000 instant asset write off from 1 July 2023. 

Under this change small businesses with an aggregated turnover of under $10M will only be able to immediately deduct the full cost of eligible assets costing less then $20,000 (currently assets of any value can be immediately deducted). Under the change assets purchased for $20,000 or more, can be placed into the small business simplified depreciation pool. These assets are depreciated at 15% in the first year and 30% each income year thereafter.
For businesses with an aggregated turnover exceeding $10M all assets will need to be depreciated based on their effective life.

If you are intending to purchase an eligible asset before 30 June 2023 to access the existing temporary full expensing deduction, the asset must be installed and ready for use in the business prior to 30 June 2023 for the deduction to be available in the 2022/2023 tax year. Paying for an asset that is not received prior to 30 June 2023 is not sufficient.

Small Business Company Tax Rate
For the 2023/2024 tax year, the company tax rate for businesses with an annual turnover of less than $50M is 25%. The rate for companies not operating a business or with a turnover exceeding $50M is 30%. These rates are unchanged from the current financial year.

Super Guarantee Changes
The superannuation guarantee percentage will increase from 10.5 percent to 11 percent from 1 July 2023. Further increases are scheduled to take place each year until 2025 at which point the superannuation guarantee will reach 12 percent.

Please ensure that your payroll software is set up to reflect the change to 11 percent on 1 July 2023.

Small Business Energy Incentive Boost
Small businesses with less than $50 million annual turnover will be able to deduct $1.20 for every $1 spent that supports electrification and more energy-efficient use of energy (such as solar panels, upgrading improved energy-efficient appliances, installing batteries and heat pumps). The boost applies from 1 July 2023 until 30 June 2024. An annual cap of $100,000 of expenditure applies. Note that this will not result in tax savings until the 2024 tax return is prepared.

Please note that certain exclusions will apply such as electric vehicles. This measure is not yet law and legislation supporting the measure is still to be released.

Small Business Skills & Training Boost
Small businesses with less than $50 million annual turnover will be able to deduct $1.20 for every $1 spent on external training courses for employees provided in Australia or online by registered training organisations. The boost applies to expenditure from 7.30 pm 29 March 2022 until 30 June 2024. There is no cap on the amount of boost which can be claimed.

Please note that this measure is not yet law and are subject to decisions from the Government. We note that this was announced in the 2022/2023 Budget but remains relevant for the new financial year.

Small Business Lodgment Penalty Amnesty
The ATO will remit failure-to-lodge penalties for outstanding tax statements lodged from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.  If you have late lodgments this represents a chance for small businesses with less than $10M turnover to re-engage with the tax system.

Crackdown on Unpaid Tax & Superannuation
From 1 July 2023 the ATO will be taking further compliance measures towards taxpayers who have high-value debts over $100,000 and debts older than two years. Businesses in these categories are urged to consider their ATO debts and arrange payment plan options if eligible.

Small Business Energy Bill Relief
Beginning 1 July 2023 small businesses that operate on a separate metered premise and are the under the energy consumption threshold will be eligible to receive a $650 energy bill rebate in 2023-24. You don’t need to do anything. If you are eligible, you will receive the rebate from 1 July 2023.

Super Guarantee Payment Dates
From 1 July 2026 all employers will need to pay their employees’ super guarantee at the same time as their salaries and wages are paid (e.g. weekly or fortnightly instead of every three months). Nothing needs to be done at this stage but assuming this proposal becomes law it will have quite an impact when implemented.

Director IDs
A reminder that all individuals who are company directors must obtain a Director Identification Number (director ID). A director ID is a unique identifier that a director will apply for once and keep forever – which will help prevent the use of false or fraudulent director identities.

The deadline to obtain a director ID has been extended to 30 November 2023. Failure to obtain an ID by this date may result in penalties. Commence your application here: https://www.abrs.gov.au/director-identification-number

 


Superannuation 

Minimum Pension Draw Down Change
The government has announced an end to the temporary reduction in superannuation minimum drawdown rates. This means that pension drawdown rates will return to normal for the 2023/2024 tax year.

The current minimum pension rates are:

Return to normal in superannuation minimum drawdown rates
Age 2022-23 reduced rates (%) 2023-24 normal rates (%)
Under 65 2 4
65–74 2.5 5
75–79 3 6
80–84 3.5 7
85–89 4.5 9
90–94 5.5 11
95 or more 7 14

We will be contacting Self-Managed Superannuation Fund pension phase clients over the coming weeks to ensure that minimum pension draw downs have been met for the 2022/2023 year. 

Transfer Balance Cap Reporting
Self-managed super funds (SMSFs) must report certain events in the event-based reporting framework. The following events are required to be reported to the ATO within specific time frames:
– Commencing a pension.
– Commutation of pensions – these can occur when you either cease a pension or withdraw an amount that is significantly higher than your minimum pension withdrawals.
– Commencing a borrowing arrangement within super.

From 1 July 2023 these events must be reported to the ATO within 28 days after the end of each quarter. Previously many of these events were only reported annually when we completed the annual tax return for the fund. The takeaway of this change is that if you are in pension phase we need to know when any large contributions or withdrawals are occurring so that we can complete the required ATO reporting within the specified time frames. If you are unsure if we need to know about specific events, please get in touch.

Superannuation Contributions Caps for the year ending 30 June 2023
The concessional contribution cap is $27,500 p.a.

The non-concessional cap in 2022–23 is $110,000 p.a. Correspondingly the maximum amount a member can contribute under the non-concessional contribution cap bring-forward rule is $330,000.

There are very specific rules regarding superannuation contributions that govern who can contribute and how much an individual can contribute.  Prior to making any additional superannuation contributions, please check these eligibility requirements with us.

Carry Forward Concessional Contributions
The carry-forward arrangements involve accessing unused concessional (tax-deductible) cap amounts from previous years. An unused cap amount occurs when the concessional contributions you made in a previous financial year were less than your general concessional contributions cap.

To use your unused cap amounts in the current year, your total super balance as of 30 June of the previous financial year must have been less than $500,000.

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. The ATO portal contains information on unused contribution caps from prior years. Your Client Manager can access the figures if you are interested in making catch-up concessional contributions.

Superannuation Balances Above $3 million
Beginning on July 1, 2025, the Government proposes to charge an additional 15% tax on superannuation “earnings” for individuals with account balances more than $3M. Individuals with a total superannuation balance less than $3M million will not be impacted at this stage.
The manner in which this change will be implemented is still unclear. As further information is released we will provide updates.




Individual Tax

The tax rates for 2023/2024 are unchanged from 2022/2023. They are:

Taxable Income Tax Payable (Medicare levy not included)
0 – $18,200  Nil
$18,201 – $45,000  19 cents for each $1 over $18,200
$45,001 – $120,000  $5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000 $29,467 plus 37 cents for each $1 over $120,000
$180,001 and over $51,667 plus 45 cents for each $1 over $180,000
 

The above rates do not include the 2% Medicare levy. The Medicare levy applies to all taxpayers except for low-income earners.

End of Low & Middle Income Offset
From 1 July 2022 the Low and Middle Income Offset ended. As a result individuals may find they have an increased tax liability of up to $1,500 for the 2022/2023 tax year.

Government Co-Contribution
If you earn less than $57,016 p.a. and at least 10% of your income comes from employment or running a business, you could be eligible for the government co-contribution. The government will contribute 50 cents for every dollar of after-tax contributions you make to your superannuation fund up to a maximum of $500. The full benefit is available for income earners under $42,016 and phases out where adjusted taxable income is between $42,016—$57,016. Other superannuation balance thresholds and aged based restrictions apply so please contact your Client Manager if considering making a contribution.

Stage 3 Tax Cuts
The Government has not announced any changes to the legislated stage 3 tax cuts to commence on 1 July 2024. The change will cut the marginal tax rate from 32.5% to 30% and increase the tax bracket from $45,001 to $200,000.



 

Tax Planning – 7 Quick Tips

You have almost certainly seen this list before. All we can say is that they are oldies but goodies. Please contact your Client Manager if you have any questions about how best to implement these strategies.

1. Pay June Quarter Employee Super Before 30 June – Superannuation is only tax deductible when received by the super fund. This means that super accrued in the June Quarter will not be tax deductible until next year if it is paid when it is due on 28 July. Get the tax deduction in 2022/23 by paying your employee super at least two weeks before the end of June, to allow for clearing house processing timeframes.

2. Super contributions – Individuals can claim a tax deduction for contributions they make towards their superannuation. This is one of the only tax deductions where you can claim a deduction but not actually erode your overall asset position. As above, superannuation is only tax deductible when received by the super fund so please plan to make any contributions as early as possible before 30 June.
There may be additional conditions that you must meet before making a contribution, so please consult with your Client Manager before proceeding.

3. Pre-pay Expenses – Consider pre-paying business expenditure. Small business entities with a turnover of less than $50M can pay up to twelve months of expenses in advance.  This strategy is particularly effective if your income is unusually high in the current tax year.

4. Review Debtors and Trading stock – Prior to 30 June, review your trade debtors list to see if any bad debts can be written off.

Perform a stock take on 30 June to ensure that worthless/obsolete stock isn’t included in your closing stock figures. Inflated closing stock effectively increases your taxable income.

5. Bring Forward Capital Expenditure – Businesses can consider bringing forward the purchase of capital assets (refer section above).

6. Ensure low tax thresholds are utilised – One of the most tax effective strategies involves ensuring that taxable income is shared amongst immediate family members to ensure that no individual is being pushed into the higher tax brackets unnecessarily. This can be achieved by targeted wages payments, trust distributions and/or dividend payments. Your Client Manager will review these options in the coming weeks, but if you would like to discuss how you could use this strategy, please give them a call.

7. Capital Gains – If you have derived any capital gains from the sale of your investments or business assets this year, consider whether you can offset them by crystallising any capital losses on the sale of other assets (where possible), or be able to use the CGT Small Business concessions. Please contact us to discuss well prior to 30 June 2023 if you are considering applying this strategy.

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