As we approach the end of yet another financial year, there are some important changes that take effect from 1 July 2023, along with some current rules and initiatives that expire on 30 June 2023. Between now and 30 June there is a Federal Budget to be handed down that could change some outcomes here, but as we speak the wheels are in motion for these changes to happen unless there is intervention by the Government.
In addition to the usual end of year planning around the timing of income and expenses and planning for cash flow, the following is a summary of some important issues to keep in mind and plan for:
Temporary full expensing of depreciable assets expires on 30 June 2023. Any asset that is delivered, installed and ready for use in Australia prior to 30 June 2023 can be claimed as an upfront tax deduction. It is important to note that the depreciation cost limit for cars still applies to the full upfront deduction, so even if you spend $200,000 on a business car, the deduction is limited to $64,741. It is also worth noting that if your aggregated turnover exceeds $50,000,000, then the write-off will not apply for second hand assets.
However, if the asset has been ordered, even paid for, but not delivered and ready to use, then the full deduction is not available. Assets purchased and delivered from 1 July 2023 onwards revert to normal depreciation settings where the cost is deducted over the asset’s effective life.
Superannuation guarantee increase is legislated to happen on 1 July 2023, taking the rate from its current 10.5% to 11%, impacting the amount of super that business owners pay their employees.
If your payroll cycle crosses over 1 July 2023, you will be liable to pay superannuation at 11% on any wages paid after 1 July 2023, even if the work and services rendered that the superannuation relates to happened before 30 June 2023.
For example, if the payroll date falls on 2nd July and is one week in arrears and one week in advance, then superannuation is paid at 11% on the full wage amount, even though just over half the services were rendered in June when the superannuation rate is still 10.5%.
The EV Discount FBT Exemption is something that does not expire this year, but it could be something that is tied in with the temporary full expensing of assets. However there could be a challenge in getting the car you want delivered before 30 June given some manufacturers wait times. Aside from that, it could be something to consider with any annual remuneration packaging reviews.
Our overview of the EV Discount is online here.
Small Business Training and Technology Investment Boost deductions are not yet law, but are still intended to apply and can be claimed in the 2023 tax return. These are two separate initiatives and a small business is one with aggregate turnover under $50,000,000.
The technology investment boost applies to capture relevant expenditure between 30th March 2022 and 30 June 2023 and provides for a deduction of $120 for every $100 spent on digitisation. Expenses would include things like computer hardware and software, portable payment devices, cyber security, cloud based services, eCommerce and digital media. There is a cap on expenditure of $100,000.
The small business skills & training boost will also provide an additional 20% deduction on expenditure provided by eligible external training providers incurred between 30 March 2022 and 30 June 2024. The training must be for employees and be provided by a registered training provider and be for training within the scope of the provider’s registration.
Employees & Other Taxpayers
A number of changes affecting individual taxpayers are also in motion to happen. Some apply just to employees, but others apply to individual taxpayers regardless of whether they earn wage or investment income.
Low and Middle Income Tax Offset (LMITO) expires. The expiration of LMITO has been legislated for some time is not a case of a newly imposed tax hike. It is the removal of a tax rebate that was beneficial to many taxpayers, being those earning between $37,000 and $126,000. There is no change to the Low Income Offset, which provides a tax offset of up to $700 for people earning taxable income under $66,667.
Work from home deductions have undergone some significant changes, including and importantly in relation to substantiation. Please refer to our new WFH deduction guide.
HECS-HELP Study debts will be indexed 1st June 2023. Historically this hasn’t been a significant update, but these debts are now linked to two years of CPI and the expectation is that this year the debts will be indexed by a number close to 7%. Voluntary repayments can still be made at any time, but will need to be cleared with the Government before 1st June to avoid the impact of this indexation.
Superannuation concession contributions have a catch-up mechanism for people that have a total superannuation balance of less than $500,000 at the end of the previous financial year (so 30 June 2022 in this case).
The catch up amount is the unused concessional contribution limit going back 5 years, but not before 2018-19. This option can come in handy for people that have had a one-off gain and are willing to lock their money into the superannuation system until retirement. It is also intended to assist people who have been working overseas or interrupted work patters such as due to raising kids that want to catch up on their retirement savings. Any contributions need to be received and cleared by the superannuation before 30 June, so timing is important.
The Transfer Balance Cap is due to increase from $1.7m to $1.9m. For anyone that is in a position to start a pension now with more than $1.7m in their superannuation, they might want to consider planning for this increase in the cap. As this is a financial decision that includes considering market risks, it is important to seek appropriate personal advice if the rules and implications are not understood.
As noted, the Federal Budget in early May could change or defer some of these dates, but as things stand these changes are legislated to happen. Furthermore, these considerations are in addition to the usual compliance considerations and obligations, such as annual payroll reconciliations, or other end of year processes such as budgeting and forecasting.
Should you wish to discuss any end of financial year plans or initiatives, get in contact with your Accru advisor.