With 30 June 2022 fast approaching, we have put together information on a number of areas you need to be aware of for the end of the financial year.
Superannuation is deductible when paid so it is important to ensure that any superannuation contributions for you or your staff are paid before 30 June 2022 so the tax deduction can be claimed in the 2022 financial year. It is only when the superannuation contributions are received by the superannuation fund, that it is considered “paid”. We recommend contributions are paid before 20 June 2022 to allow time to be processed by the clearing house and received by the super fund before 30 June 2022.
The concessional contributions cap is $27,500 in the 2022 financial year. If an individual goes over this cap, the excess amount is included in their 2022 year tax return and taxed at the individual’s marginal tax rate.
It is important to confirm the amount of superannuation contributions that have been received by your superannuation fund during the financial year, and what your employer (if applicable) will still contribute prior to 30 June 2022. This will help you calculate the amount of personal superannuation contribution you can make before 30 June 2022 so that you do not exceed the cap.
Personal Exertion Income
For our medical professional clients, your income earned is deemed as Personal Exertion Income. As defined by the Australian Taxation Office (ATO), Personal Exertion Income is classed as income derived by the personal efforts or skills of an individual.
The ATO looks through any structures such as trusts or companies to attribute any Personal Exertion Income earned by an individual from their personal efforts to the individual themselves.
It is therefore important to ensure that profits earned from personal efforts when operating via a trust or company are appropriately paid out to you before 30 June 2022.
The ATO requires that distribution minutes for trusts are prepared and signed prior to 30 June 2022. These distribution minutes detail how the income of the trust will be distributed to beneficiaries for the 2022 financial year. Minutes must be prepared in accordance with the trust deed and deal with any potential streaming of different classes of income.
It is also worth noting that the ATO has the right to audit and amend trust income tax returns for up to 4 years after the date of assessment. Since trusts are generally not taxable and do not receive notices of assessment, the amendment period may be greater than 4 years. By retaining a nominal amount of income in the trust at 30 June 2022, the ATO will generate a notice of assessment for the trust after lodgement of the tax return. The issuing of this notice of assessment will then limit the amendment period for the ATO to review to 4 years.
The ATO has also updated its guidance on how profits of professional firms are to be allocated to ensure professional practitioners are paying their “fair share” of tax. This guidance impacts medical practitioners who have a service entity within their group. In order to be considered low-risk for audit, the medical practitioner needs to show more than 50% of the group income in their name and pay tax at an average rate of more than 30%.
Additionally, the ATO has also recently released a long-awaited ruling on how it will apply section 100A to trust distributions. Section 100A was introduced to counteract tax avoidance. In particular, trustees will need to review distributions to adult children or other family members (for example, parents and siblings), as well as beneficiaries with losses.
Temporary Full Expensing
This allows businesses with a turnover of less than $5 billion to immediately deduct the cost of new business assets which were first held, installed or ready for use between 6 October 2020 and 30 June 2023. If you need to purchase any new plant and equipment for your business you may want to bring forward the purchase prior to 30 June 2022 and claim a tax deduction for this financial year.
Fringe Benefits Tax
Fringe benefits tax (FBT) can apply where a payment is made to an employee but in a different form to salary or wages. The most common benefit provided are cars. There are some exemptions that apply including:
- minor and infrequent benefits provided of less than $300; and
- the provision of portable electronic devices mainly for use in the employee’s employment (limit of one per employee per year).
We recommend reviewing any benefits provided to employees and lodging a nil FBT return.
Note that no FBT should apply where an employer is simply reimbursing or paying an employee’s work-related expenses while working from home.
Payroll Tax audit activity increases for Medical Practices
The definition of wages for payroll tax can be wide reaching and can extend to payments to doctors working in a medical practice, such as in the recent case of Thomas and Naaz. The service agreement in this case gave the practice a large degree of control over the doctors’ activities, the doctors were deemed to be employees and therefore payments made to the doctors were deemed to be wages for payroll tax. The findings of this case have triggered payroll tax audits for the medical industry. We recommend reviewing service agreements and any previously lodged payroll tax returns in light of this.
Revisit Retirement Planning
Leading up to 30 June 2022 is a great time to review your structure and ensure that it continues to be appropriate and is meeting your requirements. If not, you have until 30 June 2022 to ensure you attend to any changes to your group structure, prior to commencing the new financial year.
Tax Planning and Cash flow budgeting
It is recommended you speak to your accountant to understand the timing and quantum of your tax liabilities to assist with your budgeting. Tax planning should be reviewed in May/June each year.