Tax planning 2023
What is this? Tax planning involves reviewing your business's financial information in the final months of the financial year to see if anything needs to be done before 30 June that cannot be done after that point (e.g. when the tax work is being done). It also provides an opportunity to estimate the tax bill for the year so you can plan accordingly for when it is going to fall due.
The final months of the tax year are, for many, much ado about nothing, but for the rest of us there are a handful of things to consider before the calendar hits 30 June. If none apply, then carry on about your business, but if they do you should ensure action is taken before it’s too late.
Superannuation
Superannuation is only deductible if it’s paid during the quarter it was accrued, or within 28 days of the end of the quarter, and you get the deduction in the financial year you make the payment. For this reason, we recommend that clients not only pay the super for the September, December and March quarters promptly at the end of each quarter, but that they also pay up all super obligations for the June quarter before 30 June. This means you’ll get a tax deduction for all 2023FY superannuation paid in your 2023 tax return.
If business has been good you might also want to look at increasing your superannuation contributions past the minimum amounts required under the Guarantee. Employers can currently contribute up to $27,500 each financial year per employee before the employee will get in tax strife for having made too much in the way of ‘concessional contributions’ (i.e. contributions for which someone claimed a tax deduction). Everyone’s situation is different so it might be worthwhile speaking with a financial planner about this if you’re unsure of how much to contribute and what the fund should do with the funds once the contribution has been made.
Expenses
I’m often asked if it’s worth buying something just before 30 June for the tax deduction. The simple answer is if you were going to buy it anyway (in July for example) then absolutely, do it (assuming you can get it at a good price that won’t later be reduced in some EOFY sale). That said, don’t go spending money just for the tax deduction – a dollar spent in the company saves you 25 cents in tax. A tax deduction is never better than a dollar in your pocket – even if the tax man has taken a bite out of it!
It’s also worth keeping in mind the following if you’re an SBE (small business entity = turnover less than $10 million):
prepaid expenses (think rent, interest, insurance, etc.) can be claimed when paid, so if profits are up this year maybe prepaying and getting the deduction in advance could be beneficial – just remember that you won’t be able to claim it next year so for some people it’s a little bit like robbing Peter to pay Paul …
assets <$unlimited – any business assets bought by the business can be deducted in full so if you had your eye on a large purchase for after 1 July maybe consider bringing that forward. The threshold for writing assets off in full has moved around a bit and it currently has no limit but that ends on 30 June 2023 and it unclear at this stage what the threshold will be for next financial year.
Loans
Have you borrowed money from the company this year? Or maybe it's an older loan you're paying down? Either way, there are rules in place that dictate how you can and cannot borrow money from your own company and it's important these rules are followed because failing to do so can result in the entire amount borrowed becoming taxable in your hands. Speak with your accountant if you have borrowed money to see how to best deal with it and keep things compliant. We find tax planning is a great opportunity to resolve these loans because you can look to repay it via cash, via dividends, or via wages -- not all of these options will be open to you once it goes past 30 June.
Trade debtors
Now is the time to review your debtors listing and write-off any debts that may have gone bad so you can claim the tax deduction this year. That said, be sure to exhaust all avenues of getting paid before giving up on your hard earned dollars -- check your engagement letters to ensure your payment terms are clear, invoice as you go and not all at the end, make sure you offer multiple methods for payment, send regular reminders, make calls, be noisy.
Invoicing
Have a think about what work you have coming up over the next month or so and see what needs to be billed now and what could be billed in July. If you pay company tax on an accruals basis anything billed after 30 June will be taxable next year so it’ll save on this years tax bill. That said, if the work has been done and you’re due to be paid then you can’t fudge the numbers and push invoices into a later tax year, this item is more about thinking before invoicing in advance.
Inventory
Hold stock? June is the ideal time to undertake a stock-take with a view to writing off any obsolete or damaged stock. It’s also a good general business practice to get into to ensure you don’t have dud stock hanging around or have too much money tied up in inventory.
Old assets
Take a look at the assets you hold and see if anything needs to be written off. You may have old IT equipment hanging around that could be written off if it’s no longer in use or of any value. This is probably less of an issue than in years prior with most assets held by small businesses having been written off in full, but if you have anything that is being depreciated from prior years, by all means have a look through and see if anything can be written off.
The above are general comments only. All business owners should have a chat, however brief, with their tax accountant at this time of year to ensure that their business is in the best shape it can be from a tax perspective heading into a new financial year.
As always, if you have any questions, please get in touch, we’d love to help.