Tax Planning for 30 June 2023

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Individuals | Small business | Trusts | Tax Evasion

Introduction


Listen to Dr Michael Robson's tax planning insights linked above.

Tax planning commences in July every year. If you are considering tax planning issues for 30 June 2023 and beyond, the following information will provide you with some insights.

Tax planning in Australia involves a number of considerations including:

  1. comparing the different tax rates for different entities;
  2. asset protection strategies;
  3. estate planning; and
  4. compliance.
Compare different tax rates

Different tax rates apply to different types of entities such as companies, trusts and individuals. You may also be in business and have established an entity to operate that business. Individual tax rates exceed the company tax rate at a fairly low level of profit, so tax planning issues for individuals does including considering the business structures you have in place. You can see more information about business structuring on our dedicated webpage.

It is beneficial to periodically review the effectiveness of your tax planning because tax laws are susceptible to change, including retrospectively.

Asset protect considerations

The ongoing Covid-19 pandemic raises issues about asset protection. Certain industries have been dramatically affected by State, Territory and Federal Government decisions designed to address the health and economic effects of the pandemic. This can continue to occur in the future. Your tax planning decisions will therefore necessarily involve considerations about asset protection because of the uncertainty and heightened risk presented by the pandemic. This webpage does not seek to consider the wider issue of asset protection strategies.

Estate planning considerations

Depending on your stage of life, you may wish to consider estate planning as a part of your overall tax planning. Estate planning generally commences with a person preparing a Will to distribute their wealth at the time of their passing. If you have small children, estate planning is important because there are higher rates of taxation for minors. Estate planning considerations are best addressed in a holistic way to suit your individual and family circumstances and are not considered further below.

If you need specific tax planning, estate planning or asset protection advice, its best to give us a call or send us an email.

Compliance & risk

If you are in business, there are a wide range of compliance obligations. Directors of companies must comply with the Corporations Act 2001. Tax rules can apply differently to individuals, companies and trusts. Generally speaking, the more complex the business structure, the greater the compliance burden is placed on the people in charge of the business. A complex business structure can also result in higher annual costs because of the need for financial statements and tax returns to be prepared. If you do not properly manage the affairs of the business, tax and other compliance risks may negatively affect the business.

Tax planning issues for individuals for 30 June 2023

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Depending on your personal circumstances, you can consider the following general points about reducing your personal income tax for the tax year ending on 30 June 2023:

  1. streaming of income from family (discretionary) trusts (Division 7A or section 100A can apply to certain arrangements);
  2. delaying salary bonuses to after 30 June;
  3. declaring (or delaying) franked dividends from private companies;
  4. use of salary packaging and salary sacrifice arrangements (eg. car, additional superannuation contributions);
  5. use of income protection policies;
  6. use of investment bonds for investments of at least 10 years;
  7. use of negative gearing strategies including; acquiring interests in registered managed investment schemes (MIS) which have product rulings from the ATO, use of margin lending products to buy shares and buying an investment property;
  8. offset any capital gains with capital losses to minimise capital gains tax (CGT) (NB: A 'wash sale' could result in a capital loss being denied by the ATO);
  9. deferment of all or part of the sale of CGT assets to after 30 June;
  10. pre-payment of rent, interest or insurance costs by 30 June up to 12 months in advance (NB: Specific rules apply to these types of deductions);
  11. self-education expenses;
  12. claiming deductions for a home office especially if you have been working from home;
  13. additional contributions to superannuation for you and your spouse (taking into account the contribution thresholds); and
  14. charitable donations to a registered charity, public ancillary fund or private ancillary fund.
The Stage 3 tax cuts will not commence until 1 July 2024. This will result in 3 tax brackets:
  1. $18,200 to $45,000 will be taxable at 19%
  2. 45,001 to $200,000 will be taxable at 30%
  3. 200,001 and over will be taxable at 45%
Taxpayers should consider whether they can defer income and/or bring forward allowable deductions to 30 June 2023 or 30 June 2023.



Superannuation contributions

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A 15% tax rate applies to superannuation contributions and earnings in a superannuation fund. This tax rate is much lower than the tax rates for individuals and companies.

To obtain the benefit of the 15% tax rate on earnings in superannuation funds and tax-free income in retirement, you should consider:

  1. concessional contributions up to $27,500/year by using salary sacrifice arrangements;
  2. catch-up contributions (for funds under $500,000); and
  3. non-concessional contributions up to $110,000/year if the fund is below $1.6m. Non-concessional contributions can be brought forward up to 3 years.
SMSF trustees should consider different investment options such as shares and property under the SMSF's investment plan. Property investments can include owning your own business premises and the use of borrowed funds however specific rules apply

Members of retail superannuation funds should consider whether the performance of their fund and the administrative fees charged are satisfactory when compared to the costs of operating your own SMSF.

See our superannuation tax page for further information.



Tax planning issues for small business operators for 30 June 2023

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If you are involved in a SME (including a sole trader, partnership or company), consider these general points:

  1. consider restructuring your sole tradership or partnership to a company structure. CGT rollover relief may be allowed, depending on the restructure. Different issues arise for land owning businesses;
  2. make decisions on employee bonuses by 30 June;
  3. pay superannuation contributions before 30 June;
  4. pre-payment of rent, interest or insurance costs by 30 June up to 12 months in advance (NB: Specific rules apply to these types of deductions);
  5. Until 30 June 2023, for businesses with up to $5 billion turnover, make tax deductible purchases by utilising the current unlimited instant asset write-off for eligible in-use assets;
  6. For businesses up to $5b in turnover, losses in 2020-2021, 2021-2022 and 2022-2023 can be offset from profits in 2018-2019 and later tax years;
  7. attend CPD and training courses and pay for other self-education expenses;
  8. ensure withholding amounts are paid to the Australian Taxation Office to claim a deduction;
  9. valuation of trading stock at cost, market value or replacement value;
  10. write-off bad debts, plant and machinery (accruals taxpayers); and
  11. disposal of plant.



Tax planning issues for trusts for 30 June 2023

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For Trustees:

  1. confirm that each beneficiary is eligible to receive a distribution from the trust;
  2. ensure that you document which beneficiaries obtain a share of the Trust’s income by 30 June and maintain a record of the trustee's distribution minutes; and
  3. make any family trust elections.
Trustees will also need to consider whether Division 7A of the Income Tax Assessment Act 1936 or section 100A of the Income Tax Assessment Act 1936 may apply to any unpaid present entitlements (UPEs).

A beneficiary will be unable to disclaim a distribution after 30 June.



When does tax planning result in problems?

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Tax evasion and fraud against the Commonwealth can occur when people engage in conduct which falsely reduces their tax liabilities. Often such arrangements are designed as complex schemes with fraudulent expense claims or income disguised as loan arrangements.

Serious criminal charges can arise for participants and promoters of tax evasion schemes or fraudulent schemes.

If you are not sure whether an arrangement may be legitimate tax planning, we can provide independent legal advice on the relevant issues.



Conclusion

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Tax planning commences every July. The process is often repeated each year because tax, bankruptcy and corporate insolvency laws change making it beneficial to restructure your affairs. The source and timing of the receipt of income is relevant to the overall process of tax planning, however, you should have flexibility in mind because sources of income change, including into retirement.

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