Several tax changes apply in the 2021/22 income year. A brief summary is provided in this newsletter. There may be some advantages in acting on some of these items before 30 June 2022. If you think any of these changes may affect you, please contact us for more details.
Subject to cash flow requirements, consider deferring income until after 30 June, especially if you expect lower income for 2022/23 compared to 2021/22.
Most businesses are taxed on income when it is invoiced. Some small businesses may only be taxed when income is received. Income from construction contracts is generally taxed when progress payments are invoiced or received.
Ensure that you have complied with requirements to claim deductions in 2021/22:
The Temporary Full Expenses of Assets and Temporary Loss Carry-Back measures have been extended by 12 months until 30 June 2023
Small businesses planning major purchases or replacement of capital equipment should contact us for advice. Careful timing of those transactions can result in substantial tax savings.
Scrap any obsolete item in the asset register before 30 June. Consider delaying the sale of assets that will realise a profit on sale and bring forward any sales that will result in loss.
Review valuation of trading stock in the lead up to 30 June. The best practice is generally to value stock at the lower of cost or market selling value.
These best practices should be revised if you expect a tax loss for 2021/22 or substantially higher income in 2022/23 compared to 2021/22.
Subject to cash flow requirements, set term deposits to mature after 1 July, rather than before 30 June.
Consider realising capital losses if you have already realised capital gains on other assets during 2021/22. Conversely, consider realising capital gains if you have unrecouped capital losses, or you expect substantially higher income in 2022/23 compared to 2021/22.
If you expect lower income in 2022/23 due to retirement or any other reason, consider deferring income until after 1 July, when you will be in a lower tax bracket. If you are a primary producer and you expect a permanent reduction in income, consider withdrawing from the income averaging system.
Arrange for deductible donations to be grouped in the higher income year if you expect a substantially higher or lower income in 2022/23 compared to 2021/22. Make all donations in the name of the higher income earner.
Contact us for advice if you have moved to or from Australia for an extended period. You may need to review your residency status for tax purposes. There are important tax tax consequences if you change tax residency.
Trustees of trusts should ensure that all necessary documentation is completed before 30 June, especially where you intend to stream capital gains or franked distributions to specific beneficiaries or have beneficiaries who aren’t the default beneficiaries.
Family discretionary trusts may need to make a family trust election if the trust has unrecouped losses or has beneficiaries whose total franking credits for the year may exceed $5,000.
Be sceptical of year-end tax shelter schemes. You should not enter a scheme without advice regarding both its tax consequences and commercial viability.
From 1 July 2021, Single Touch Payroll reporting is required for closely held payees. A closely held payee is one who is directly related to the entity from which they receive payments, for example:
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.
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.
More businesses may now be eligible for most small business tax concessions.
From 1 July 2021, businesses that are not small businesses because their turnover is $10 million or more but less than $50 million can also access these small business concessions:
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;
The temporary loss carry-back measure has been extended by 12 months until 30 June 2023
The low income tax offset (LITO) will continue to apply for the 2021-22 income year. Australian resident individuals whose income does not exceed $66,667 are entitled to the low income tax offset. The maximum low income tax offset is $700 for the 2021-22 income year.
The Government announced in the 2021-22 Federal Budget that the Low and Middle Income Tax Offset (LMITO) will continue to be available for the 2021-22 income year. Australian resident individuals whose income does not exceed $126,000 are entitled to the low and middle income tax offset. The low and middle income tax offset amount is between $255 and $1,080.
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 80 cents 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.
There have been a range of Covid-19 assistance and support payments made available to individuals during the 2021-22 income year such as the Covid-19 Disaster Payment and the Pandemic Leave Disaster Payment. There are specific tax implications for these, please contact us for advice regarding these payments.
General speaking, emergency assistance in the form of gifts from family and friends is not taxable.
There are a number of superannuation measures that were proposed in the 2020 Federal Budget that come into effect on 1 July 2021:
The 50% reduction in the minimum pension drawdown requirements remain for the 2021-22 income year, to support retirees with account-based pensions and similar products from having to sell investment assets in their self-managed super funds (SMSF) to fund minimum drawdown requirements.
From 1 July 2021, a targeted capital gains tax (CGT) exemption will be provided for granny flat arrangements where there is a formal written agreement.
The exemption will apply to arrangement with older Australians or those with a disability.
Be aware of the additional basic condition for the small business CGT concessions if the CGT asset is a share in a company or interest in a trust.
The ATO has released an update to broaden the definition of what constitutes a commercial parking station which could potentially increase the FBT liability of some businesses. Car parks such as shopping centres, hospitals, hotels and the like that were previously not considered commercial for the threshold and valuation tests may now fall within the new definition.
If you are not sure whether your business is eligible for car parking FBT exemption or is potentially affected by new definition of a commercial car park, please contact us for advice.
The information contained on this website and in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to on this website and in this article are of a general nature only and are based on our interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.