June 6, 2022

Last Call for Year End Tax Planning

Tax Planning

In my experience, mining and resources business owners and executives who begin tax planning at the start of the financial year rather than leaving it to the very end, not only minimise their tax obligation but enjoy a raft of business benefits. Among them a more profitable and financially organised business.

Heading into the end of the 2022 financial year, this article is a last call for business owners and executives. Here I’ve listed 10 end of financial year opportunities, but you’ll need to act NOW to consider if they’re right for you and implement them BEFORE June 30.

As an accountant, when it comes to tax compliance, we generally work on the basis that there are two key parts: Tax Planning and Tax Return Preparation.

The latter simply reports the amount of tax you are obligated to pay, whereas tax planning presents an opportunity to know your tax position upfront and do something about it.

Projecting your tax payable provides an opportunity to implement a range of strategies that can reduce your tax obligation and allow you to plan how you will pay your tax bill without disruption to your cashflow. It can also improve your overall business financial and operational position AND enhance your own personal prosperity.

#1 Income strategies
Reducing taxable income may be as easy as deferring invoices (where appropriate) until the new financial year. This strategy will only be available on a case by case basis, and will depend on the nature of your business and the income it derives.

In addition, any income received in advance (such as deposits or pre-payments paid by clients to secure your services) should be identified, and only amounts relating to the portion of services rendered in current financial year brought to account as income.

#2 Expenditure strategies
If you are looking at a considerable tax bill, bringing forward purchases to the current financial year may help. This is where tax planning and business planning merge. If your business is anticipating an extraordinary profit this year but your projections for the following year are for more normal profit levels, it may be appropriate to bring forward tax deductible expenses, purchases of equipment or other deductible business payments.

In addition, for businesses with turnover of less than $50 million, consider pre-paying expenses such as rent, equipment leases, insurance premiums, service agreements or subscriptions up to 12 months in advance to claim the deduction in advance.

#3 Bad debts strategies
Review your debtors and write off any that are unrecoverable. The key here is to create a written record before year-end to qualify for the deduction.

#4 Depreciation and temporary full expensing
Similarly, review your asset register to identify any sold, scrapped or obsolete items and write them off completely. Consider bringing forward purchases of plant and equipment to take advantage of the Temporary Full Expensing rules that allow the immediate write-off of all business equipment.

#5 Loss carry back
This is a little more complicated, but essentially, it’s a tax provision that allows an operating company that is expecting a loss, to claim back tax paid in prior tax years where there are still available franking credits.

#6 Staff entitlements and superannuation
Many mining and resources business offer staff bonuses. Regardless of whether those bonuses are paid this financial year or the next, if the bonus has already been earned and is guaranteed, it should be documented in this financial year to secure the deduction in the year it is earned.

Staff superannuation payments are also tax deductible but only in the year they are received into the super fund. Even though the April-June staff super due date is 28 July, to secure the deduction in the current tax year, you should pay it well before June 30. Note: Fund processing times can be as much as 10 days.

For business owners, you should consider topping up your personal voluntary superannuation contributions. This year the annual cap is $27,500 for deductible super contributions. So, for example, if you’ve paid yourself a salary of $200,000 and contributed 10% super to your fund, you may have the opportunity to top up your concessional super contributions by a further $7,500 to enjoy the full deduction.

Further, if your superannuation fund balance is less than $500,000 and you haven’t contributed the full concessional contribution cap in some, or all years, since 1 July, 2018 you may be able to catch up the shortfall this year to enjoy the extra tax effective retirement savings boost.

#7 Declare dividends and reconcile shareholder/director loans
Ensure any shareholder or director loans are repaid or the minimum repayments and interest is applied according to the loan agreements. This is to avoid unnecessary unfranked dividends being declared. These are conditions under what we accountants refer to as Div 7A rules and it regularly comes under ATO scrutiny.

End of financial year is also an ideal time to ensure all loan accounts with business partners and family members are equalised in the interests of fairness and clarity. Each partner should be fully aware of their loan obligations such that, should business circumstances change, loan obligations can be properly addressed with minimal conflict or confusion.

#8 Trust resolutions
Trustee income distribution resolutions need to be declared by the end of an income year (i.e. 30 June) or earlier if required by the trust deed. Accurate income estimates and carefully considered resolutions will ensure that the beneficiaries are taxed at the most tax efficient rates.

In a recent development, the ATO has advised that it has documented its view of trust distributions in context of a family’s group combined wealth where distributions have been made to low-earning adult children. This practice should be reviewed to ensure it is still a legitimate strategy for your circumstances, otherwise significant penalties may be imposed.

#9 Year-end tax administration
It should go without saying, but all your business tax compliance and reporting should be up to date at this time of year: Compliance and reporting, motor vehicle log books completed and Single Touch Payroll (STP) reconciled. If you employ contractors, your Taxable Payments Annual Report (TPAR) needs to be completed.

#10 Extracting wealth from your trading entities
Reviewing your business for tax purposes delivers the dual benefit of determining whether your business is carrying excess cash that may be at risk should there be a claim made against the company. It may be appropriate to implement asset protection strategies that include reviewing your business structure and paying dividends – cash reserves and retained profits – from the trading entity to a separate investment vehicle.

Next Steps
With just a few short weeks until the end of financial year, you’ll need to act immediately to make the most of available tax minimisation opportunities outlined here.

It may already be too late for some of those listed about, but at a minimum you should plan to pay employer super and personal super contributions no later than June 23. This will ensure contributions are received by funds in time. Regardless, I strongly recommend confirming with your staff’s super funds as mentioned earlier, some super fund processing can take as long as 10 days.

If you were unable to take advantage of the Temporary Full Expensing provision due to supply issues that prevented the equipment being purchased and installed ready for use before June 30 (a condition of the provision) you should plan well in advance next year as its likely supply issues will continue.

As I said at the outset, to make the most of your tax, business and personal prosperity opportunities, commence your tax planning on 1 July.

For further information and specialised advice relating to tax and business matters often unique to the mining and resources sector, please contact Craig Barry on +61 (0) 7 3007 2000 or
email contact@resourcesunearthed.com.au

Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting and business advisory services for executives, professionals and business owners in the mining and resources sectors.

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