Here are three initiatives your family business should think about executing before this EOFY.
Temporary full expensing
This initiative assists businesses and encourages investment and was created as part of the Government’s COVID-19 business plan This is your last chance to acquire new business assets and claim a 100 per cent deduction to reduce your overall tax for your business. For Companies, it is important to assess the impact of temporary full expensing on the franking credit balance and the ability to declare franked dividends especially when Division 7A loan arrangements are in place.
Broadly, this concession applies to businesses with:
- an aggregated turnover of <$5bn;
- the new asset was first held, first used or installed ready for use for a taxable purpose on or before 30 June 2023; and
- end 30 June 2023.
A business acquires a new printer for $55,000 incl. GST. The printer is ordered in March 2023 and will be installed in July 2023. In this scenario, the printer will be depreciated, the business will not be able to take advantage of the full expensing as it has not been installed prior to 30 June 2023. This tax incentive was not extended in the Federal Budget, so it will come to an end on 30 June 2023.
Whereas, had the printer been installed on 29 June 2023, the business would have had the option to claim a tax deduction of $50,000.
Technology investment boost
This is a one-off opportunity for your business to digitise operations on business expenses and portable assets – with one month to go, how can your business go about taking advantage of this boost?
The boost applies to businesses with:
- an aggregated turnover of <$50m;
- the entity must incur the expenditure wholly or substantially for the purposes of your digital operations or digitising your operations. Some examples of such expenditure are computer and telecommunications hardware and equipment, software, digital media and marketing; e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, cyber security systems, backup management and monitoring services.
- Certain expenses are ineligible for bonus deduction such as salary and wage costs; capital works; financing costs; training and education costs.
- The bonus deduction is equal to 20% of eligible expenditure but is subject to a $20,000 cap per income year or relevant period.
- applies to expenditure incurred from 29/3/22-30/6/22 and 1/7/22-30/6/23; and
- end 30 June 2023.
The technology investment boost is subject to law, which at the time of writing has bi-partisan support but remains in the Senate.
Big Boss Paper Pty Ltd is a mobile business selling printing A4 paper to business. During the period starting from 29/3/22-30/6/22 and 1/7/22-30/6/23, they acquired 2 new laptops for $10,000, two mini portable payment devices for $118 plus a xero subscriptions for $55 per month, payable on 30 of the month. As you can claim 120 per cent from 29/3/22, they can claim a standard deduction of $660 (12 months x $55) plus a bonus deduction of $176 which is calculated as [(CY12 months + PY4 months) x $55) x 20 per cent.
So the total deduction is:
| |
Standard deduction |
Bonus deduction |
Total deduction |
| Laptop |
$10,000.00 |
$2,000.00 |
$12,000.00 |
| Portable payment |
$118.00 |
$23.60 |
$141.60 |
| Xero Subscription |
$660.00 |
$176.00 |
$836.00 |
| Total |
$10,778.00 |
$2,199.60 |
$12,977.60 |
Although Big Boss Paper Pty Ltd spent $10,778, they can claim tax deductions of $12,977.60.
It’s important to note this bonus deduction is capped at $20,000 annually.
Carry forward concessional contributions
This is an opportunity for family businesses where family members have a superannuation balance of <$500,000 at the end of the previous financial year. They can pay a dividend or trust distribution to family members to contribute towards their carry-forward contributions and claim a personal deduction. Unlike the previous 2 strategies, this concession will continue past 30 June 2023.
How does this work?
Antonia works for her family business, and she currently has $400,000 in superannuation. The business contributes the superannuation guarantee percentage each year. The family business can pay a dividend to Antonia as a shareholder of the business or if the business is in a trust structure and Antonia is a beneficiary, they can pay a trust distribution to Antonia. Antonia can then use the funds to make a personal contribution of $40,000 and claim a tax deduction to offset the dividend income or trust distribution income.
Year
|
Contributed
|
Threshold
|
Balance
|
| 2023 |
20,000 |
27,500 |
7,500 |
| 2022 |
19,000 |
27,500 |
8,500 |
| 2021 |
18,000 |
25,000 |
7,000 |
| 2020 |
17,000 |
25,000 |
8,000 |
| 2019 |
16,000 |
25,000 |
9,000 |
| |
|
Total |
40,000 |
So the family business can claim $20,000 contributed for Antonia and then Antonia can also claim a personal deduction for an additional $40,000. Please note the unused cap amounts are available for a maximum of 5 years and will expire after this. You can only claim a deduction for superannuation contributions when you have taxable income. This is an effective strategy for building wealth for the family outside the business operations – a strategy that can assist in future succession. If this strategy is of interest, it is important you speak to your accountant or tax agent prior to implementing to ensure it works in your situation.
Be EOFY ready
As these initiatives conclude at the end of 30 June 2023, now is the time for your family business to book in a meeting with your expert advisors. At Grant Thornton, we can ensure your business is maximising and using all the concessions and financial boosts available for this EOFY.
The above information is provided as an information service only and, therefore, does not constitute financial product advice and should not be relied upon as financial product advice. None of the information provided takes into account your personal objectives, financial situation or needs. You must determine whether the information is appropriate in terms of your particular circumstances. For financial product advice that takes account of your particular objectives, financial situation or needs, you should consider seeking financial advice from an Australian Financial Services licensee before making a financial decision in relation to any of the matters discussed.
