2022-23 EOFY Tax Planning tips for businesses

Paying superannuation on time and before year end

Most businesses have payroll software that enables posting payroll expenses into the general ledger by the click of a button. Employees are paid their net wage, but the superannuation contributions may be left in an unpaid superannuation account until the end of the month or quarter.

 
While most expenses are eligible for deduction when incurred, superannuation is only deductible when it is paid and received, on time, by a complying superannuation fund.         
Superannuation contributions need to be received by the fund by the 28th day of each quarter (with significant penalties for late payment). The June quarter superannuation liability is only due by 28 July and is often not paid before year-end.          
 

However, by paying the June quarter liability before 30 June the amount is deductible in the year it is paid provided the fund receives the amount by 30 June. 

SGC rate to increase as at 1 July 2023

The SGC rate will increase a further 0.5% from 10.5% to 11% effective as at 1 July 2023. 

Most payroll systems should update automatically with this adjustment, please check your system to ensure you remain compliant.

ATO’s compliance approach - allocation of professional firm profits

ATO’s release of Practical Compliance Guideline PCG 2021/4 outlines the new tax compliance approach to the allocation of professional firm profits.  

The guidance applies to every ‘individual professional practitioner’, being an individual ‘professional’ that provides services to clients of a professional firm, or to the firm itself, and either alone or together with associates has a legal or beneficial interest in the firm.      

This guidance is broad and states that a ‘professional’ is a member of any recognised profession, capturing many roles, including:

• Doctors
• Dentists
• Accountants
• Engineers
• Lawyers
• Real Estate Agents
• Architects
• Financial Advisors

Read more on ATO’s new traffic light system, and why it matters, in this article.

Temporary full expensing of depreciating assets

As a result of the continued impact of the COVID-19 pandemic on the Australian economy, the Federal Government announced as part of the 2020-21 Budget a major overhaul to depreciation tax concessions. 

Previously, eligible businesses were able to deduct the cost of certain assets acquired, provided the asset cost less than $150,000. Not only has the Government provided almost all businesses with access to such concession, but eligible businesses are now able to deduct the cost of eligible depreciating assets with no cost limit, provided the asset is acquired from 7:30pm AEDT on 6 October 2020 and first used or installed by 30 June 2023.   

From 1 July, this is limited to assets less than $20k for businesses with turnover less than $10 million. 

Read more information on the Temporary Full Expensing of Depreciating Assets.

Writing-off bad debts before year-end

If you have a non-paying customer and there is a genuine concern regarding recovery of the debt, then some or all of the debt can be deducted in the current tax year provided it is written off before year-end and was included as income at an earlier time. 

 

Keep in mind that you may be entitled to a reduction in GST for the bad debt written-off. If you are registered for GST and have included the forgiven amount in a prior period Business Activity Statement, you are entitled to adjust down the GST payable in the period that you write-off the bad debt.  

Scrapping/disposing of plant and equipment before year-end

Businesses should review their fixed asset registers to ensure that they are not holding plant or equipment that they no longer require due to obsolescence. Even checking for assets that your business no longer holds could save you at tax time.

Depending on the written down value of the assets, a deduction can be claimed should the asset be ‘scrapped’ or disposed of prior to year-end.

Valuing closing stock at lowest value

It may be time to review how your business values stock on hand. 
Perhaps the value of closing stock used for tax purposes is based on your management accounts that uses the higher of net realisable value or cost.

The ATO allows a business to value its closing stock at any of the following values:  
. Replacement value  
. Cost  
. Market selling value  

Depending on the stock valuation under these three methods a business can obtain a significant reduction in its tax liability by adopting a method that results in the lowest value.  
In certain circumstances, a taxpayer may also be entitled to a deduction for a write-down of obsolete stock where appropriate valuations and measures are taken.  

NOTE: Application of method can defer for different inventory items. Liaise with your RSM Advisor to determine most suitable options for your business.

Committing to staff bonuses before year-end

It is common practice for a business to create a provision for payment of staff bonuses. However, a tax deduction is only available for staff bonuses to the extent that the business is ‘definitively committed’ to paying the bonus. 

Therefore, a business looking to claim a deduction for current year bonuses should keep appropriate documentation to support approval of those bonuses prior to year-end.

Prepaying expenditure eligible for immediate deduction

Review any of your expenditure that is eligible for a discount if paid for the next year. Not only can you take advantage of this saving but depending on the expenditure it can also result in an immediate tax deduction

From 1 July 2020, businesses with a turnover of less than $50 million are eligible to deduct any prepayment that has a service period of less than 12 months and all businesses can deduct prepayments that are either required under a Government law or cost less than $1,000.

Accruing expenses paid after year-end

Just because you haven’t paid for goods or services until the following tax year, doesn’t mean you can’t take advantage of the deduction this year. 

To the extent that services are provided to you before year end even though they are invoiced after year end, and the cost can be reasonably estimated, the expenditure is deductible in the year in which the service was provided.

Deducting ‘consumables’ contained within closing stock

If your business holds consumable stores or spare parts that are to be used within three months after year end, the ATO’s view is that businesses can deduct the costs of consumables in the year acquired, as opposed to having to include the amount in closing stock.  
 

It can be beneficial for businesses to review their consumables and claim upfront where possible.

Immediate deductibility of start-up costs

If you started your small business during the current year (or will do before year end), the costs associated with starting the business will be deductible (e.g. accounting fees, legal costs, company incorporation costs and trust deed costs).