The end of the financial year is only two weeks away. But there is still time to put in place those last minute tax planning strategies. For individuals, this can include superannuation contributions, donations and making sure you have the right record keeping for motor vehicle and home office claims. For businesses, temporary full expensing is about to end so consider what depreciable assets to buy before year end. Businesses operating through trusts should be aware of the ATO’s latest focus on trust distributions.
Working from Home
Taxpayers wanting to claim the costs of working from home can either use the actual method or the fixed rate method for the 2023 financial year. Note the shortcut method provided by the ATO during COVID is no longer available.
Due to the record keeping and calculation difficulties of the actual method, most taxpayers will opt to use the fixed rate method. For the 2023 financial year, the fixed rate is 67 cents per hour and covers gas, electricity, internet, phone, stationery and computer consumables.
To substantiate the number of hours claimed for the period 1 July 2022 to 28 February 2023, the taxpayer must have a diary record showing representative hours worked in the period.
From 1 March 2023, the ATO requires taxpayers making a home office claim to maintain records of all hours claimed.
Additional deductions can be claimed for depreciation of work related assets, such as office furniture and equipment. Assets costing less than $300 can be claimed outright. The taxpayer must keep the invoice for the asset purchase.
Individuals can claim deductions for work-related use of a motor vehicle using the cents per kilometre method or the logbook method. The cents per kilometre rate for the 2023 financial year is 78 cents per kilometre. The maximum number of kilometres that can be claimed under this method is 5,000 per car. You should keep records showing how you worked out your business kilometres, such as diary records.
If using the logbook method, the logbook can be electronic or paper and must be for a continuous period of at least 12 weeks. The 12 week period must be representative of your travel throughout the year. You must complete a new logbook every five years or earlier if your use changes.
If your logbook is more than five years old, you must commence the new logbook before 30 June. It is not necessary that the 12 week period be completed before year end.
You should keep receipts and invoices for all car expenses claims, such as repairs, registration, insurance and finance costs. Petrol costs can be claimed using actual receipts or be based on odometer records at the start and end of the financial year.
The concessional contributions cap for the year ended 30 June 2023 is $27,500. This includes employer contributions as well as personal contributions.
Individuals can consider making additional contributions up to the cap. Contributions must be received by the superannuation fund by 30 June 2023. You should check whether your superannuation fund has a cut-off date by which contributions must be paid to ensure the deduction is available in the 2023 year.
You must also provide a “notice of intent to claim a deduction for personal superannuation contributions” to your superannuation fund and receive written acknowledgement prior to lodging your income tax return.
Donations to deductible gift recipients (DGRs) can provide valuable assistance to charities while at the same reducing your income tax. Only some charities are DGRs and able to provide a tax deductible receipt. You can check whether an entity is a DGR on the Australian Business Register ABN Lookup (business.gov.au).
Writing off depreciable assets
The temporary full expensing measures will end on 30 June 2023. These measures were introduced as part of the Federal Government’s COVID concessions and allowed businesses with an aggregated turnover of less than $5 billion to write off the full cost of new depreciable assets.
To be able to claim the deduction in the 2023 financial year, the asset must be installed and ready for use by 30 June 2023. Note the deduction for cars is limited to the car depreciation limit of $64,741.
From 1 July 2023, small businesses (aggregated turnover less than $10 million) will only be able to write off assets if their cost is less than $20,000. Larger businesses can only write off assets with a cost less than $100 including GST. All other assets will need to be depreciated over time.
Businesses are required to pay superannuation guarantee for its employees by the 28th day after the end of each quarter. Accordingly, superannuation for the June 2023 quarter must be paid by 28 July 2023. However, the contributions are only deductible in the 2023 financial year if received by the fund by 30 June 2023. If the contribution is not received by the fund until July, the contributions will only be deductible in the 2024 financial year. If you are making super contributions via the clearing house, please ensure you leave enough time for the payments to reach the super fund and allow for their processing timeframes.
The current superannuation guarantee rate is 10.5% but will rise to 11% from 1 July 2023.
To claim a deduction for bad debts, a business must write off the bad debt prior to 30 June 2023. There must be a decision to write off the debt and that decision should be recorded in writing prior to 30 June.
Bonuses which have not been paid by year end are still deductible in that year provided they are incurred. To be incurred, there must be a definite liability to pay the bonus and that legal liability must arise before the end of the financial year.
Digital and Training Deductions
The previous government proposed that small businesses with an aggregated turnover of less than $50 million can deduct an additional 20% of expenditure incurred on certain type of expenditure in relation to external training and/or digital adoption. The measure was proposed to apply from 29 March 2022 to 30 June 2023. However, the bill introducing the additional deduction has not yet been passed by Parliament.
Company Loan Repayments
Loans made by a company to shareholders or their associates in the 2023 financial year should be repaid or placed under a Division 7A complying loan agreement before the due date for lodgement of the company’s 2023 tax return. If this does not occur, the loan will be treated as a deemed unfranked dividend. Similar rules can apply where there are loans from trusts and unpaid trust distributions to companies.
A complying loan requires repayment of principal and interest over either seven years for an unsecured loan or 25 years for a secured loan. For existing loans, the shareholder or associate should ensure the minimum repayment is made by 30 June 2023.
If the repayment is to be made by way of a dividend, the dividend needs to have been declared and paid by 30 June 2023.
The ATO has made distributions of trust income a major focus. In particular, it is looking at distributions to adult children, companies and non-residents.
If a valid trust distribution is not made by 30 June 2023, trust income might be assessed to the trustee and taxed at the highest marginal tax rate.
Particular care should be taken to ensure that the distribution does not involve a reimbursement agreement. One situation highlighted by the ATO as being of concern is where the trustee resolves to distribute income to adult children, but the cash is paid to the parents rather than to the child. If the anti-avoidance provisions are applied, the income will be assessed to the trustee at the top marginal rate rather than to the adult child.
A recent court decision also held that trustees should give real and genuine consideration to beneficiaries, particularly to beneficiaries specified in the trust deed, when resolving how to distribute the income each year. The court found the trustee had breached its fiduciary duty by lack of active consideration given to two family members specified in the deed.