Depreciation for Non–SBE Taxpayers
Non-SBE taxpayers’ depreciation schedules should be examined before the end of the year to increase balancing adjustment deductions. The taxpayer must be a part of the process in order to provide input on whether assets have been scrapped or may be scrapped during the year. Before June 30, the decision to discard assets that are no longer in use in the firm should be made.
The low-value asset pool can be used for assets with an opening is written down value of $1,000 or fewer in the financial year. The deduction in the low-value pool is frequently more than continuing to apply the asset’s usual depreciation rate.
Main producers continue to gain profit from the revisions to Subdivision 40-F, which now provides for an instant deduction for fencing assets and water facilities in the year they were purchased, as long as they are erected and ready to use in the taxpayer’s primary production firm. Previously, the regulations were changed to permit an immediate deduction for eligible fodder storage assets.
Declaring Dividends Earlier in the Year
Fixing any Division 7A issues for customers is one of the areas that several practitioners will be focusing time on before the end of the current tax year. To avoid triggering a presumed dividend, any required minimum repayments under existing compliant Division 7A credit arrangements must be made by June 30, 2022.
Minimum repayments are frequently made by announcing dividends to cover the minimum repayment obligation and then deducting the dividend from the loan repayment obligation. Dividends are frequently declared at the conclusion of the year.
The directors should guarantee that the business respects the requirements of section 254T of the Corporations Act 2001 and the business constitution in connection to the payment of any dividend before making any dividend payment.
If the company is qualified to pay a dividend, paying the payout early in the year will help reduce the overall interest payable and hence the tax payable on a Division 7A loan. Paying the minimum payment as soon as feasible reduce the total interest paid on the loan, allowing the client to pay it off sooner. The interest on a Division 7A loan compounding daily, and any early payments will minimise the amount of interest compounded.
Taxpayers can value their trading stock using one of three procedures, with a different basis for each class of stock or for individual items within a class of stock. This allows the taxpayer to reduce the amount of trading stock adjustment at year’s end. Remember that the same method does not have to be used every year, and the customer can choose the most tax-efficient approach for every year. Taxpayers should also recognise outmoded stock so that it can be written off or scrapped, allowing them to deduct the cost of the loss.
Make sure that any bad debts are physically written off before the end of the year to guarantee a deduction. This only applies to accruals taxpayers. “No deduction will be permitted in a year if the debt is wiped off at the year’s end at the time when the books of account are being produced,” the Commissioner states in TR 92/18. Creating a provision for questionable debts will not be eligible for an income tax deduction.
Depending on the type of taxpayer involved, the rules for prepayments vary. Non-business persons, SBEs, and non-SBE taxpayers are subject to distinct rules.
The ’12 month prepayment rule’ is available to individuals who are not in business and SBE taxpayers. If the qualifying service period of the prepayment is shorter than 12 months and will finish in the next financial year, the taxpayer can claim an instant deduction for prepaid expenditure with no limit on the deduction.
Payments to taxpayers are sometimes made in advance of the delivery of goods or services. If the taxpayer accounts on an accruals basis, deferring the inclusion of this revenue in the taxpayer’s tax return to a subsequent income year may be an option. When it boils down to it, the question is when the income was earned by the taxpayer.
When an invoice is produced and a recoverable debt develops, a business that accounts for income on an accrual basis would ordinarily derive income just then. There are exceptions to this rule, particularly in cases when some of the money has yet to be generated.
Capital Gains and Realising Capital Losses
Consider whether any capital gains have occurred or will occur before June 30, 2022, and whether it is a smart idea to sell certain assets before the end of the year to crystallise a capital loss.
Directors’ Fees and Employee Bonuses
Even if the fee or bonus is paid to the employee or director after 30 June 2022, any predicted directors’ fees and employee incentives may be deducted for the 2022 tax year if the taxpayer/employer is ‘clearly committed’ to paying a quantifiable amount by 30 June 2022.
If the directors pass a duly authorised resolution to make the payment by year-end, the employer is generally obliged to make the payment by year-end. Before the end of the year, the employer should advise the employee of their right to payment or bonus.
After each year, the collected directors’ fees and bonuses shall be paid within a reasonable time frame. The ATO has issued a warning (TA 2011/4) about bonus and director fee schemes that may be structured solely or primarily for the purpose of getting a tax benefit (i.e. permit the corporation to claim a deduction but defer the taxing point for the employee or director until payment is truly made).
It is also worth remembering that if the entity fails to meet its PAYGW responsibilities when the incentives or fees are actually paid, deductions may be lost. It would be difficult to allege that the corporation withheld an amount from the payment if the gross amount of the directors’ fee is adjusted against a loan outstanding.