Our June 2022 monthly edition of Tax News contains information on a number of recent developments, including:
- 2021/22 Individual Tax Return Checklist
- Tax saving strategies prior to 1 July 2022
- Common claims made by individuals
- 2021/22 Year-end Checklist for Business
- Maximising deductions for non-SBE business taxpayers
- Prepayment strategies
- Accelerating expenditure (including depreciation deductions)
- Accrued expenditure
- Maximising deductions for SBE taxpayers
- Accelerating depreciation expenditure
- Prepayment strategies (SBEs and MSBs)
2021/22 Individual Tax Return Checklist
Tax saving strategies prior to 1 July 2022
A strategy often used to reduce taxable income (and, in turn, tax payable) in an income year is to bring forward any expected or planned deductible expenditure from a later income year. However, in light of the continued impact of the COVID-19 pandemic, any tax planning for individuals with potentially reduced income for the 2022 tax season may require consideration of deferring any deductible expenditure (if possible).
Resident taxable income thresholds for the 2020/21 income year Tax payable1
0 – $18,200 Nil
$18,201 – $45,000 19% of excess over $18,200
$45,001 – $120,000 $5,092 + 32.5% of excess over $45,000
$120,001 – $180,000 $29,467 + 37% of excess over $120,000
$180,001 and over $51,667 + 45%of excess over $180,000
1. The Medicare levy of 2% generally applies in addition to these rates.
Common claims made by individuals
The following outlines common types of deductible expenses claimed by individual taxpayers, such as employees and rental property owners, and some strategies for increasing their deductions for the 2022 income year.
1. Depreciating assets costing $300 or less
Salary and wage earners and rental property owners will generally be entitled to an immediate deduction for certain income-producing assets costing $300 or less that are purchased before 1 July 2022.
Some purchases you may consider include:
- tools of trade;
- electronic tablets;
- calculators or electronic organisers;
- books and trade journals;
- stationary; and
- briefcases/luggage or suitcases.
2. Clothing expenses
Individuals may pay for work-related clothing expenses before 1 July 2022, such as:
- compulsory (or non-compulsory and registered) uniforms, and occupation specific and protective clothing; and
- other associated expenses such as dry-cleaning, laundry and repair expenses.
3. Self-education expenses
Employees may prepay self-education items before 1 July 2022, such as:
- course fees (but not HELP repayments or student contribution amounts), student union fees, and tutorial fees; and
- interest on borrowings used to pay for any deductible self-education expenses.
They may also bring forward purchases of stationery and text books (i.e., those that are not required to be depreciated).
4. Other work-related expenses
Employees may also prepay any of the following expenses before 1 July 2022:
- Union fees.
- Subscriptions to trade, professional or business associations.
- Seminars and conferences.
- Income protection insurance (excluding death and total/permanent disability).
- Magazine and professional journal subscriptions.
Note: If prepaying any of the above expenses before 1 July 2022, ensure that any services being paid for will be provided within a 12-month period that ends before 1 July 2023. Otherwise, the deductions will generally need to be claimed proportionately over the period of the prepayment.
You will need to provide us with information to assist in preparing your income tax return. Please check the following and provide any relevant statements, accounts, receipts, etc., to help us prepare your return.
- Details of your employer(s) and wages.
- Lump sum and termination payments.
- Government pensions and allowances.
- Other pensions and/or annuities.
- Allowances (e.g., entertainment, car, tools).
- Interest, rent and dividends.
- Distributions from partnerships or trusts.
- Details of any assets sold that were either used for income-earning purposes or which may be liable for capital gains tax (‘CGT’).
- Other Income (e.g., foreign income).
Expenses/Deductions (in addition to those mentioned above):
- Award transport allowance claims.
- Bank charges on income-earning accounts (e.g., term deposits).
- Bridge/road tolls (if travelling on work).
- Car parking (if travelling on work).
- Conventions, conferences and seminars.
- Covid-19 testing costs for work purposes.
- Depreciation of library, tools, business equipment (incl. portion of home computer).
- Gifts or donations.
- Home office running expenses, such as:
- cooling and heating;
- depreciation of office furniture;
- lighting; and
- telephone and internet.
- Interest and dividend deductions, such as:
- account keeping fees;
- ongoing management fees;
- interest on borrowings to buy shares; and
- advice relating to changing investments (but not setting them up).
- Interest on loans to purchase equipment or income-earning investments.
- Motor vehicle expenses (if work-related).
- Overtime meal expenses.
- Rental property expenses, including:
- advertising expenses;
- council and water rates;
- land tax;
- property management fees;
- genuine repairs and maintenance; and
- telephone expenses.
- Superannuation contributions.
- Sun protection items.
- Tax agent fees.
- Telephone expenses (if work-related). u Tools of trade.
2021/22 Year-end Checklist for Business
Many business clients like to review their tax position before the end of the income year and evaluate any strategies that may be available to legitimately reduce their tax. Traditionally, year-end tax planning for profitable small businesses is based around accelerating deductions and deferring income.
Small Business Entities (‘SBEs’) – i.e., those with an aggregated turnover of less than $10 million – often have greater tax planning opportunities compared to other businesses, due to certain concessions generally only applying to them. SBEs usually also have the flexibility to pick concessions that suit their circumstances. However, for 2021/22, many of the SBE concessions are now also available to medium-sized businesses (‘MSBs’), i.e., businesses with an aggregated turnover of less than $50 million.
The following are common strategies that may be considered for all business taxpayers.
Maximising deductions for non-SBE business taxpayers
Deductions can be maximised for non-SBE business taxpayers by prepaying expenses, accelerating expenditure and/or accruing expenses that have been incurred.
Any part of an expense prepayment relating to the period up to 30 June is generally deductible.
In addition, non-SBE taxpayers may generally claim prepayments in full for expenditure that is:
- under $1,000;
- made under a ‘contract of service’ (e.g., salary and wages); or
- required to be incurred under law.
Note: Medium-sized businesses (‘MSBs’) may fully deduct prepayments made before 1 July 2022 (refer below).
Accelerating expenditure (including depreciation deductions)
Accelerating expenditure involves bringing forward expenditure on regular, on-going deductible items.
In fact, this is a useful strategy for any business taxpayer (i.e., including SBEs) because businesses can generally claim deductions for expenses they ‘incurred’ during 2021/22, even if the expenses have not actually been paid by 30 June 2022.
Examples of accelerated expenditure that may be incurred and claimed as a tax deduction in 2021/22 by a business taxpayer include the following:
- Consumables/spare parts.
- Fringe benefits. Any benefits to be provided, such as property benefits, could be purchased and provided prior to 1 July 2022.
- Superannuation contributions made to a complying fund, to the extent the contributions are actually made (i.e., they cannot be accrued but must be paid by 30 June 2022).
In addition to accelerating expenditure on business items such as those listed above, for 2021/22, non-SBE businesses may claim the following accelerated depreciation deductions for depreciating assets first used (or installed ready) for business use by 30 June 2022:
- Non-SBEs with an aggregated turnover of (generally) less than $5 billion can fully expense the cost of eligible assets as well as eligible improvements, regardless of cost.
Note: Non-SBEs may choose to opt out of full expensing on an asset-by-asset basis.
- If full expensing does not apply, or an opt-out choice is made, non-SBEs can generally claim the following depreciation deductions
- (if applicable) for their business assets:
- Assets costing less than $1,000 may be allocated to a Low Value Pool and depreciated at a rate of 18.75% (in 2022) and 37.5% thereafter.
- In most other cases, the asset’s cost is depreciated over its effective life (as determined by the taxpayer or the ATO).
Business taxpayers (including SBEs) are entitled to a deduction for expenses incurred as at 30 June 2022, even if they have not yet been paid.
Examples of expenses that may be accrued and claimed as a tax deduction in 2021/22 include:
- salary or wages and bonuses accrued for the number of days that employees have worked but have not been paid as at 30 June 2022;
- accrued interest outstanding on a business loan that has not been paid;
- commission payments owing to employees or other external parties;
- the fringe benefits tax (‘FBT’) instalment for the June 2022 quarter, if it is due but not payable until July 2022; and
- directors’ fees payable as at 30 June 2022, where the company is definitively committed to the payment.
Maximising deductions for SBE taxpayers
Deductions can be maximised for SBE taxpayers by accelerating expenditure and/or prepaying deductible business expenses (and also by accruing expenditure – refer above).
Accelerating depreciation expenditure
In addition to accelerating expenditure on various business items (refer above), for 2021/22, SBE taxpayers that use the simplified SBE depreciation rules may claim the following deductions
in relation to depreciating assets:
- A full deduction for the cost of eligible asset first used or installed ready for business use by 30 June 2022 (as well as eligible improvements), regardless of cost.
Note: SBE taxpayers that use the simplified SBE depreciation rules cannot directly opt out of fully expensing depreciating assets. Instead, they will need to firstly opt out of the simplified SBE depreciation rules entirely, and then opt out of full expensing an asset-by-asset basis.
- The SBE closing pool balance (before current year deductions), if any, will be fully claimed in the 2022 income year.
Note: SBE taxpayers using the simplified SBE depreciation rules cannot opt out of full expensing with regards to their SBE general pool (i.e., even if they opt out of the simplified SBE depreciation rules).
If appropriate, SBE taxpayers should consider purchasing and using (or installing ready for use) these items by 30 June 2022.
Prepayment strategies (SBEs and MSBs)
SBEs and medium-sized businesses (‘MSBs’) that make prepayments before 1 July 2022 can choose to claim a full deduction in the year of payment
(i.e., in 2021/22), if they cover a period of no more than 12 months (ending before 1 July 2023).
Otherwise, the prepayment rules are the same as for non-SBE taxpayers.
The kinds of expenses that may be prepaid include:
- Rent on business premises or equipment.
- Lease payments on business items such as cars and office equipment.
- Interest – check with your financier whether it’s possible to prepay up to 12 months interest in advance.
- Business trips.
- Training courses that run from 1 July 2022.
- Business subscriptions.
This is some of the information we will need you to bring to help us prepare your income tax return:
- Stock-take details as at 30 June 2022.
- Debtors listing (including a list of bad debts written off) as at 30 June 2022.
Note: To claim a tax deduction, the debt must be written off on or before 30 June.
- Creditors listing as at 30 June 2022.
This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.