Tax savings for your business
Discover effective tax-saving strategies for your business with expert advice from Bates Cosgrave. Maximize savings and boost your bottom line.
Bring the purchase of assets forward
Companies have until June 30, 2023, to utilise the interim full expensing rules if your company has to purchase (or upgrade) any sizable assets. These regulations allow enterprises with a combined annual revenue of up to $5 billion to immediately deduct the entire cost of an asset rather than spreading it out over the asset’s lifetime.
The temporary full expensing rules are advantageous if your company wants to pay less tax in 2022–2023 and the cost of purchasing the asset won’t affect cash flow. Although businesses have access to some loss carryback provisions for the 2022–2023 year, this will frequently result in a tax loss that can be carried forwards to future years if the business does not have any taxes owing.
Timing is crucial. By the deadline of 30 June 2023, the asset must be “first held and ready for use” in order to be eligible for an immediate deduction in the 2023 tax return. If you haven’t acquired ownership of the asset, just having a contract in place won’t be enough to qualify.
Remember that there are regulations that limit the deductions that may be claimed if the cost of the automobile is more than the car limit ($64,741 in 2022-23) if you are purchasing a work vehicle that is categorised as a car and is primarily used to carry passengers.
The instant asset write-off will allow small firms with an aggregated revenue under $10m to immediately deduct assets that cost less than $20,000 in the year of acquisition from 1 July 2023 through 30 June 2024. Other businesses will use the standard depreciation standards to gradually depreciate their assets.
To settle any outstanding shareholder loan balances, declare dividends.
A shareholder or other related party may be considered to have received a taxable dividend if your business lent funds to them, paid their costs, or permitted them to utilise company assets. The regulators anticipate that once shareholders gain access to these profits, they will pay any applicable top-up tax at their marginal tax rate. Unless a compliant loan agreement is in place, that is.
If you have any shareholder loan accounts from earlier years that were covered by complying loan agreements, you must pay back the required minimum by June 30, 2023, for the 2022–2023 revenue year. To meet these loan repayments, the corporation might have to declare dividends before June 30, 2023.
Ensure that director fees and employee bonuses are paid.
If you have “definitely committed” to paying a specific amount by 30 June 2023, even if the fee or bonus is paid to the employee or director after 30 June 2023 (within a reasonable time), you may be entitled to deduct it from your business expenses for the 2022–2023 fiscal year. In principle, if the directors approve a duly permitted resolution to make the payment by year’s end, you are bound to do so. Before the end of the year, the employer must also inform the employee of their right to the payment or bonus.
Abandon bad debts
If the income is reported as assessable income and you have given up trying to collect the amount, you may be able to deduct a bad debt. By June 30th, it must be removed from your debtors’ ledger. If you don’t keep a debtors’ ledger, it might be wise to have a director’s minute that attests to the write-off.
Examine your asset register and remove any unused equipment.
Check your depreciation schedule to check if any old plant or equipment is listed. If the plant has reached the end of its useful life, scrap it and write it off by June 30th rather than depreciating a small bit every year.
Small businesses have the option to combine their resources into one pool and file one deduction for all of them. This implies that instead of performing a calculation for each asset, you only need to complete one for the pool.
Bring in the needed repairs, supplies, trades, or donations.
Consider making any necessary repairs, replacing worn-out supplies, exchanging presents, or making donations before June 30 in order to qualify for a deduction for the 2022–23 fiscal year.
Pay employee super contributions for the June quarter now.
If you wish to claim a tax deduction for the current fiscal year, make super contributions in the June quarter. On July 28, 2023, the subsequent quarterly superannuation guarantee payment is due. Instead of waiting another year, some employers decide to make the payment sooner in order to accelerate the tax deduction.
Reduce gains and realise any capital losses
Realising any capital losses, that is, selling the asset and locking in the capital loss, will offset the tax impact of any capital gains you may have made during the year. To be valid for tax reasons, these transactions must be real.
By June 30th, increase management costs between the parties.
Make sure that management fees have been increased by June 30th in cases where they are charged between related organisations.Where management fees are charged, ensure that they are appropriate from a commercial standpoint and that there is adequate paperwork to back up the transactions.
The transfer pricing regulations must be taken into account and the ATO will have significantly higher expectations for documentation if any transactions are conducted with distantly related foreign parties. This subject is receiving more attention.
Is it a business expense or not?
It has been possible for businesses to claim the cost of assets utilised in the firm in the year of purchase rather than having to deduct them over time thanks to some fairly generous rules that have been in place for a few years. However, this has caused some severe issues, as certain products have been advertised as being tax deductible without taking into account how the tax laws actually work.
One instance is artwork.
Assuming it is utilised in conjunction with your business and is anticipated to lose value over time, your firm can normally claim depreciation deductions for tax reasons if it purchases art to display in client-facing parts of your office. The ability to make an immediate deduction may be possible, depending on the circumstances. However, there is a considerably greater chance that the ATO may question this if the artwork is on display at a home office.
The artwork is unlikely to be a depreciating asset and would often not be eligible for an immediate deduction if it is an investment item that you anticipate increasing in value.
A boat used for “marketing purposes” is an additional possibility. The ATO will expect to see the benefit to your business if your company purchases a boat, claims the cost of the boat and the costs, and will be checking to see if the boat has been used privately by workers or shareholders (yes, they do look at your social media).
If the boat is used for private purposes, a number of intricate tax difficulties may arise. For instance, according to the regulations in Division 7A, this can result in an FBT liability or a considered unfranked dividend.
In general, the ATO is likely to evaluate any expense where the cost exceeds the likelihood that acquiring it will benefit the firm, especially for possessions that people are likely to desire for their own enjoyment.
For more information on company tax, send an inquiry to the Bates Cosgrave team.