Prior to 30 June each financial year, it is timely to consider tax planning opportunities to reduce taxable income (and thus tax payable) for the year. Tax planning can include techniques to defer recognition of income or techniques to accelerate timing of deductions. Detailed below are 10 tax planning techniques for individuals and businesses that everyone should consider prior to 30 June 2022.
1. Maximise concessional contribution cap by making deductible personal superannuation contributions.
The concessional contribution cap for the 2022 financial year is $27,500. Individuals need to satisfy a work test for the 2022 financial year if they are between 67-74 years of age.
2. Make a superannuation contribution for a low income earning spouse
Where a taxpayer makes a superannuation contribution on behalf of their low income earning spouse, the taxpayer can claim an offset of up to $540. To be eligible, the spouse must have taxable income of less than $40,000.
3. Taxpayers with superannuation balances of less than $500,000 that have not maximised their eligible contributions caps from the 2019 financial year can make catch-up concessional superannuation contributions in the 2022 financial year which will be deductible for tax purposes.
Thus, if the individual has not made contributions of $25,000 for each of the 2019, 2020 and 2021 financial years, catch up contributions can be made in 2022.
4. Claim home office expenses
For the 2022 financial year, the ATO has a prescribed shortcut method whereby taxpayers can claim a deduction of 80 cents for every hour they worked from home during the 2022 financial year. This covers expenses including telephone, internet, electricity and depreciation on furniture and equipment. To substantiate this, individuals should have some record of the hours worked from home. If the taxpayer claims the shortcut method, they cannot claim any other deduction relating to home office expenses.
Alternatively to claiming the shortcut method, taxpayers can claim home office expenses (i) at the ordinary 52 cents per hour rate plus telephone, internet and depreciation on electronic devices); or (ii) based on actual expenses incurred for the year.
5. Ensure passive income such as dividends, royalties and interest are only recognised as income if the amounts were physically received by 30 June.
6. Consider deferring sale of assets that would crystallise a capital gain. If capital gains have already been crystallised in the 2022 financial year, consider selling assets that would create a capital loss that could offset capital gains
Capital gains are generally crystallised when a contract for the sale of the asset is entered into. A capital loss can offset a capital gain.
7. Ensure deductions are claimed for donations made to deductible gift recipient charities that have been made in the 2022 financial year.
8. Subject to cashflow, consider prepaying interest expenses on investments for a period of up to 12 months in advance prior to 30 June 2022
9. Claim work related car expenses using the cents per KM method or the travel logbook method.
Under the cents per KM method, taxpayers can claim up to 5,000 KM at 72 cents per KM. Under the travel logbook method, a taxpayer is required to have maintained a logbook for a period of at least 12 weeks to establish a business use percentage of car travel. The percentage of business use percentage can then be used to claim actual car expenses incurred throughout the year.
10. Determine any self-education expenses incurred throughout the year
Self-education expenses could include seminars attended or post-graduate studies that relate to improving the skillset of your current employment.
1. Claim immediate deductions for business assets purchased.
Temporary full expensing deductions are available for businesses with turnover of under $5 billion that purchase business related plant & equipment that are installed ready for use by year end. While there is generally no limit to the amount of the deduction that can be claimed, deductions for cars are capped at the depreciation threshold to luxury cars of $60,733.
2. Pay June 2022 superannuation guarantee obligations by 30 June 2022 to ensure payment is deductible in 2022 financial year.
The tax legislation only allows deductions for superannuation contributions when the amounts are paid. If payments are made by 30 June 2022, the amounts will be deductible in the 2022 financial year.
3. Subject to cashflow, prepay 2023 expenditure by 30 June 2022
Small Businesses with turnover of less than $50M are eligible to claim deductions for prepayments made which have a prepayment period of less than 12 months.
4. Write off debts that are bad
Businesses are able to claim a tax deduction for debts that cannot be recouped and have been written off as bad prior to 30 June 2022.
5. Consider revaluing trading stock
If the value of trading stock items on hand is below cost price, consider revaluing the trading stock to its net realisable value so as to claim a tax deduction at 30 June 2022
6. Determine whether any invoices have been issued for work that is still required to be performed after 30 June 2022
If invoices have been raised, there is the possibility that the invoices may not be assessable for tax purposes if the amounts invoiced are required to be refunded if the work is not subsequently performed.
7. Consider scrapping plant & equipment that is no longer installed ready for use
A deduction can be claimed for plant & equipment that is scrapped and is no longer installed ready for use at 30 June 2022.
8. If bonuses are payable for the 2022 financial year, make a binding resolution to pay the bonuses by 30 June 2022 to ensure tax deductibility at 30 June 2022.
Provided there is a definitive commitment to pay the bonus by 30 June 2022, the bonus can be deductible in the 2022 financial year notwithstanding that it is not paid until after 30 June 2022.
9. Apply loss carry back provisions for companies.
Companies that incur a tax loss in the 2022 financial year can use the loss to offset tax paid by the company in the 2019, 2020 or 2021 financial years. Applying loss carry back could result in a refund of tax previously paid in those years.
10. Bring forward pending expenses
Subject to cashflow, try and bring forward pending expenses to before 30 June 2022 to ensure the expenses are deductible in the 2022 financial year.