Taxation keeping business owners awake
All business owners look forward to this – you have guessed it.. coffee with their taxation guy, of course.
This is also part of the reason why many of you walk around looking like pandas. Dark circles around your eyes. From staring at the ceiling wondering how much tax you will pay. Instead of sleeping!
Maybe this can help a little? Here are some potential tax deductions to keep in mind when preparing to submit your tax return:
Temporary Full Expensing
Until June 30, 2023, a regulation is in place that could enable you to assess eligible business assets such as vehicles, machinery, and equipment within the same fiscal year as their acquisition. I am sure your accountant told you something about it.
Should your business satisfy the criteria for eligibility, you may potentially include asset acquisitions in your 2023 tax return. As long as they have been put to use or installed and made ready for operational use within the specified timeframes mandated by the ATO.
Many of the deductions we discuss here come and go, change, fly off into the horizon, on the back of Drogon. Ne’er to be seen again. So, please – please talk to your taxation accountant before trying to claim all sorts of things.
But there might be an opportunity to acquire items for your business and offset the eligible amount against your income for the corresponding fiscal year. It’s important to note that not all purchases or expenses may meet the criteria, and the regulations can be intricate. Therefore, it is advisable to seek independent tax advice before making any asset purchases.
The 2023-24 Federal Budget includes a government announcement that permits:
Small businesses, with an aggregated turnover of less than $10 million, to instantly deduct the entire expense of eligible assets valued at less than $20,000. This instant asset write-off is applicable to multiple assets, provided each individual asset’s cost is below the $20,000 threshold. This provision will be effective for eligible assets initially put into use or installed and ready for use between July 1, 2023, and June 30, 2024.
Small businesses, characterized by an annual turnover of less than $50 million, can now claim an additional 20% deduction for expenditures aimed at advancing electrification and enhancing energy efficiency. This includes activities such as electrifying heating and cooling systems, upgrading to more energy-efficient refrigerators and induction cooktops, and the installation of batteries and heat pumps. Businesses can benefit from this incentive for up to $100,000 of total spending, with the maximum additional tax deduction capped at $20,000 per business. This incentive applies to eligible assets or upgrades that are first employed or installed and made ready for use between July 1, 2023, and June 30, 2024.
It’s crucial to bear in mind that these announcements have not yet become law, and it is essential to verify that they are implemented as anticipated before making any decisions based on these announcements.
Depreciation Deductions for Business Assets
When businesses acquire fixed assets, immediate tax deductions are typically not available. Except in specific cases such as the instant asset write-off (as mentioned earlier). Instead, the expense of the asset is gradually claimed over time. Whilst taking into account its decreasing value. This process is commonly known as tax depreciation. Tax depreciation can be intricate, with different regulations applicable depending on the asset type and its intended usage. Furthermore, some small business entities have the option to utilize simplified depreciation rules for calculating their tax depreciation claims.
Prepaid Expenditures
Managing your own business can entail significant costs. But certain ongoing expenses may be eligible for tax deductions, even if they are paid in advance. Ask any accountant online.. maybe even us? Just click on the chat thingie on the bottom right corner of your screen & see.
By prepaying specific expenses before June 30, you can potentially boost your deductible expenses for the current fiscal year. Qualifying expenses typically encompass those with a service duration of 12 months or less, such as annual insurance policies, utility bills, or professional memberships. It’s important to note that if you claim these expenses this year, you won’t be able to deduct them in the following year, which might result in higher tax obligations next year.
Business Account and Loan-Related potential “tax deductions”?
Additionally, it’s worth considering whether you can claim the expenses and interest incurred on your business accounts and loans when tax season approaches.
Tax Deductions for Personal Superannuation Contributions
Starting from July 1, 2022, if you fall within the age range of 67 to 75, you may have the opportunity to make personal superannuation contributions without needing to meet the work test, while still adhering to the existing contribution limits. However, if you intend to claim a tax deduction for such personal contributions, you may need to satisfy either the work test or the work test exemption criteria. The work test requires you to be employed for a minimum of 40 hours over a consecutive 30-day period within the financial year. On the other hand, the work test exemption generally requires your total superannuation balance (just prior to the financial year of contribution) to be less than $300,000, and you must have met the work test in the financial year preceding the year in which you made the contribution. It’s important to note that once you have utilized the work test exemption for a specific financial year, it cannot be applied again in subsequent years.
When seeking a tax deduction for personal superannuation contributions in a given financial year, it’s essential to keep in mind that the total sum of your superannuation guarantee payments, salary sacrificed amounts, and your personal tax-deductible contributions must not exceed $27,500 in that fiscal year, as exceeding this limit will result in additional taxation.
To make a personal tax-deductible contribution, you are required to submit a valid ‘Notice of intent to claim or vary a deduction for personal super contributions’ form to your superannuation fund within the specified timeframes. Furthermore, it is crucial to receive written acknowledgment from the fund confirming the validity of your notice. If you plan to claim a tax deduction for personal contributions, please refer to the ATO website for additional information and guidelines.
If you’ve recently been working from home, you might be eligible to claim tax deductions for expenses related to your income generation. Before making a claim on your tax return, it’s important to consider several criteria. For example, you should assess whether you qualify for the revised fixed rate method of 67 cents per hour starting from July 1, 2022. You can find detailed information about the rules and eligibility criteria for making such a claim on the ATO website, including the records required to substantiate your home office hours. Learn more about this method there.
Additionally, there are alternative calculation methods that may better suit your specific circumstances. It’s advisable to carefully evaluate which method is most suitable for you and ensure you meet the necessary criteria to claim a deduction. The ATO website provides further information on these methods.
Furthermore, there are various other expenses you incur to support your business operations or generate income, and some of these expenses may be tax-deductible. You can access more details about eligible deductions on the ATO website or by seeking guidance from an accountant or tax adviser.
It’s crucial to keep in mind that tax regulations are intricate, and you should always verify the eligibility of an expense before including it in your tax return. Reliable sources for such information include the Australian Taxation Office (ATO), as well as consulting with your accountant or financial planner.
The Australian income year concludes on June 30th, and you have the period from July 1st to October 31st to submit your tax return for the preceding income year. If you engage a registered tax agent to prepare and submit your tax return, you might have the option to file it after the October 31st deadline.
More tax changes
Please note that tax laws are subject to change. This article is based on tax laws as of May 2023. For the most up-to-date information, consult the ATO website or seek guidance from your accountant or financial advisor.
The information provided here is of a general nature and does not take into account your specific financial situation. It is recommended that you seek independent advice from tax and financial professionals.
The contribution must be completed no later than 28 days after the end of the month in which you reach the age of 75.
This page is intended to provide general information only and does not take into consideration your specific objectives, financial situation, or needs. Taxation considerations are general and are based on current tax laws, which may be subject to change. It is advisable to seek independent, professional tax advice before making any decisions based on this information.
Additionally, please be aware that you should not rely on this information to meet tax liabilities, obligations, or claim entitlements under taxation law. It is recommended that you seek tax advice from a registered tax (financial) adviser instead.
If you need tax help for your business, please don’t be a shy Panda.