Whilst this Financial Year is almost over, there are still effective strategies you may be able to employ to make sure you pay the right amount of tax for the 2021-22 year and maximise any refund entitlements. While the best strategies are adopted as early as possible in a Financial Year and not at the end, it’s worth remembering proper tax planning is more than just sourcing bigger and better deductions. The best tips involve assessing your current circumstances and planning your associated income and deductions.
Not all of the following tips will suit your specific circumstances. Rather they are a list of possibilities that may get you thinking along the right track. Of course, check with us if you need further information.
The contribution rate is scheduled to increase by 0.5% per year until it reaches 12% from 1 July 2025. This may be subject to change.
The rate for superannuation contributions by employers on behalf of their employees under the SGC for the Year Ended 30 June 2022 is 10%.
The rates are scheduled to increase over the next few years. For the Year Ended 30 June 2023, the rate increases to 10.5%, meaning that contributions made in relation to salary and wages paid on or after 1 July 2022 will be subject to the higher 10.5% rate.
Employers must make SGC for their employees on a quarterly basis within 28 days after the end of each quarter (September, December, March and June).
Tax Planning Tip
Although the June 2022 quarter SGC does not have to be paid until 28 July 2022, tax deductions for the superannuation contributions will only be available in the 30 June 2022 tax year if the contribution is received by the Superannuation Fund by 30 June 2022. Please note if you use a clearing house they will have a cut-off date that will be earlier than 30 June to ensure the contributions hits your employees’ Superannuation Fund prior to 30 June.
For the 2021-22 Financial Year, the tax-deductible superannuation contribution cap is $27,500 for all individuals regardless of their age.
To use your unused cap amounts your total super balance at the end of 30 June of the previous Financial Year should be less than $500,000. You also need to exceed your general concessional contributions cap with your concessional contributions in the Financial Year.
The amount of unused cap amounts you can carry forward will depend on the amount you have contributed in previous years, starting from 2018–19. You can use caps based on your 5 previous Financial Years, including when you were not a member of a Superannuation Fund. Unused cap amounts are available for a maximum of 5 years and will expire after this.
From 1 July 2021, the non-concessional contributions cap has been increased to $110,000.
As part of the bring-forward arrangement, if you make contributions above the annual non-concessional contributions cap you may be eligible to automatically gain access to future year caps. This allows you to make extra non-concessional contributions without having to pay tax.
There have been no changes to the individual income tax rates for 30 June 2022.
|Individual Tax Rates|
|$0 – $18,200||0%|
|$18,201 – $45,000||19.0%|
|$45,001 – $120,000||32.5%|
|$120,001 – $180,000||37.0%|
In addition, the Medicare levy is 2% of taxable income. Therefore, the top marginal tax rate for resident individuals will be 47% (including Medicare levy).
Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset and the Low Income Tax Offset will continue to be available for the 2021-22 income year. Australian resident individuals with an income of up to $126,000 are entitled to the low and middle income offset. The low and middle income tax offset amount is between $675 and $1,500.
Work from Home Temporary Shortcut Method
The temporary shortcut method to calculate your deduction for working from home expenses has been extended for the 2021-22 income year. Using this method you can claim 80c per hour you work from home to cover expenses such as phone expenses, internet expenses, decline in value of equipment and furniture, electricity and gas for heating, cooling and lighting. You cannot claim any other expenses for working from home, even if you bought new equipment.
SMALL AND MEDIUM BUSINESSES
For the 2021/22 year, the reduced Corporate Tax rate has been reduced to 25%, down from 26%. Eligibility for the reduced Corporate Tax rate remains unchanged and applies to base rate entity companies with an aggregated turnover of less than $50m.
Tax Planning Tip
Companies need to monitor their income tax rates as these may change from year to year. In particular, where rates are changing across years, companies may seek to time the derivation of income and/or the incurring of deductible expenses to take advantage of the changing rates (subject to prepayment rules and general anti avoidance rules).
Companies need to pay particular attention to the impacts of the business shutdown due to the pandemic. The changes in turnover may cause the company to move between thresholds in 2021 and 2022.This may result in a change of company tax rate, and more importantly, a change in the franking rate. It is the change in franking rate that companies should monitor carefully.
Trapped Franking credits
The Company tax rate for base rate entities has reduced for the 30 June 2022 year to 25%. Similarly, the franking rate has also reduced in 2022.
If the Company pays a franked dividend based on profits of a previous year where the Company’s tax rate was higher than the franking rate for the current year, there may be trapped franking credits e.g. previous year rate 26% and current year franking rate 25% then 1% franking credits trapped in the Company.
Tax Planning Tip
Companies need to consider which franking rate they are subject to in the 30 June 2022 year, and which rate they will be subject to next year. Where the company may move from a higher franking rate to a lower franking rate in the following year, there may be advantages in paying franked dividends prior to 30 June 2022 (subject to the position of the shareholders).
Small Business Income Tax Offset
The small business income tax offset for the 2021/22 year has been increased to 16%, up from 13%. The tax offset is a 16% discount of the income tax payable on the business income received from a small business entity (other than a company) with an aggregated turnover of less than $5m, up to a maximum of $1,000 a year.
Expanded Access to Small Business Concessions
More businesses may now be eligible for most small business tax concessions.
From 1 July 2021, businesses that are not small businesses where their turnover is $10m or more but less than $50m can also access these small business concessions:
Temporary Full Expensing of Assets – Extension to 30 June 2023
The temporary full expensing of depreciating assets measure has been extended by 12 months until 30 June 2023. From 6 October 2020 until 30 June 2023 the temporary full expensing allows:
Temporary Loss Carry-Back – Extension to 30 June 2023
The temporary loss carry-back measure has been extended by 12 months until 30 June 2023
Higher Top-up Tax
Shareholders in companies that pay 25.0% franked dividends will have to pay higher top-up tax because the franking offset they receive will be lower than if the dividend was franked at 30%. Generally, this means the company tax cut is clawed back by the government when dividends are paid to resident shareholders.
Small business restructure rollover relief
From 1 July 2016 small businesses (<$10m turnover threshold) can use the small business restructure relief, which allows eligible taxpayers to transfer assets between related entities, including companies, Trusts and individuals, without any income tax or CGT consequences. While this rollover can be very beneficial to a small business, care needs to be taken as the eligibility rules can be complex in some cases.
Company directors should review their companies’ reporting mechanisms to ensure they are adequately informed of their companies’ financial position. The director penalty provisions may leave directors personally liable where their company fails to make PAYG Withholding and SGC payments by the respective due dates.
Moreover, the director penalties provisions have been extended to cover outstanding payments for GST, wine equalisation tax and luxury car tax.
Defences against director liabilities include situations where the director has been ill, has taken all reasonable steps to ensure the outstanding liabilities have been paid, or in limited circumstances the director has been appointed to the company in the last 30 days. However, good evidence will be required for these defences.
Loans from Private Companies – Division 7A
Private company directors are reminded to ensure they comply with Division 7A where they provide loans or other financial assistance to shareholders and associates or allow them to use company property.
Loans made by private companies to their shareholders or associates will be treated as deemed dividends under Division 7A unless the loan is repaid by the earlier of the date of lodgement or due date for lodgement for company’s tax return for the year, or the loan is converted to a formal loan with the following features:
Other Important Division 7A issues:
Tax Planning Tip
To ensure all future Division 7A loans are covered by a qualifying loan agreement, consider entering into a Division 7A complying facility loan agreement that will be able to cover all future loans to shareholders or their associates. If such a facility loan agreement is already in place, review it regularly to ensure it complies with current law and covers all relevant shareholders and associates.
Unpaid Trust Distributions
Distributions made by Trusts to associated private companies that remain unpaid at the end of the following year may be deemed to be a loan to the Trust and become subject to Division 7A.
For the 2022 tax year, unpaid distributions to a private company that arose in the 2021 tax year may be a deemed dividend to the Trust for the 2022 tax year unless the Trustee:
For unpaid distributions that have been placed into a sub-Trust, the annual return on the sub-Trust investment must be paid to the private company by 30 June 2022.
Loans from Trusts
Where there are unpaid distributions to a private company (including those under sub-Trust) that have not been converted into a Division 7A loan, and the Trustee has made loans or payments to shareholders of the private company (or their associates), these loans or payments may also be subject to Division 7A.
Trust Distributions and Resolutions
Most Trust deeds for discretionary Trusts require Trustees to make their distribution determination for the Year Ended 30 June on or before 30 June, or sometimes earlier. It is essential that Trustees make these determinations prior to 30 June or earlier date if required in the Trust deed (notwithstanding the requirements of the Trust streaming rules discussed below).
The Tax Office stated they expect there to be evidence of the Trustees making determinations in accordance with their Trust deeds by the date as stated in the Trust deed.
We suggest that written evidence of the 2021/22 Trustee determination of income of the Trust (preferably in the form of a Trustee resolution) be prepared by 30 June 2022 (or whatever earlier date is required by the Trust deed).
Under the Trust streaming provisions, Trustees are able to stream franked dividends and capital gains to specific beneficiaries, rather than distributing these amounts as part of the general distribution to beneficiaries.
To stream franked dividends and capital gains, the Trust deed must not prevent the Trustee from streaming these amounts to specific beneficiaries. The Trust accounts must also separately account for the streaming of the capital gains and franked dividends to the specific beneficiaries.
In addition, the beneficiaries who are to receive these amounts must be specifically entitled to them, and the Trustee must record the streamed distributions in the accounts or records of the Trust.
The Trustees’ distribution resolution in favour of the specifically entitled beneficiary would generally be sufficient for this purpose.
Tax Planning Tip
You and/or your accountant, should regularly review your Trust’s deed to ensure you understand how it interacts with the various tax requirements, some of which are mentioned above.
ONGOING YEAR-END ISSUES
Timing of Income Derivation
Income Received in Advance
Timing of Expenses
Incur repairs on or before 30 June 2022 to obtain the deduction in the 2022 income year, but they must not be:
Home Office Expenses
Car Expenses for Individuals
Individuals who are seeking to claim deductions for employment related expenditure should be aware of an increase in audit activity by the Tax Office in relation to personal employment related deductions.
When you are claiming these deductions, you should ensure:
Taxable Payments Reporting System
Businesses in building and construction are required to record payments to contractors and report these payments to the Tax Office. From 1 July 2018, businesses engaged in the courier or cleaning industries were also required to make these reports. From 1 July 2019, the rules will extend to businesses engaged in IT, road (freight) transport, and security industries.
The annual report due to be lodged by 21 July 2022.
Some of the following super fund issues require advice from a qualified financial adviser:
Super Guarantee and Contractors
Employers need to ensure they make super contributions for all eligible employees, including certain independent contractors for Superannuation Guarantee Charge (‘SGC’) purposes.
Under SGC, ‘employee’ includes individuals who are employees in the ordinary sense (PAYG) and independent contractors engaged under a contract primarily for the provision of labour.
Where you engage contractors, you should review the contracts to determine whether the individuals are treated as employees for SGC purposes.
Director and Employee Entitlements
Payment Summaries – Salary Sacrifice
Sale of Investments – CGT Issues
CGT Small Business Concessions
No-one knows your affairs better than yourself, so you will recognise if any of these tax tips apply to your circumstances. But no-one is better informed as to what is appropriate, or indeed allowable, than your accountant (and don’t forget, any fee is an allowable deduction in the year it is paid).
Every individual taxpayer is required to lodge their return before October 31, but tax professionals are generally given more time to lodge, which can be a handy extension to a payment deadline if any arises.
Of course, if you’re sure you are going to get a refund there is no use delaying, so in these cases it is worth getting all of your information to this office as soon as you can after July 1 – especially if you’re keen to get your hands on the refund.
Should you have any questions or need any help ensuring you receive all available assistance, please reach out to our team and we will endeavour to do our best to assist.
The Team at Rose Partners