Updated: May 27
As we approach the end of the financial year 2023, there are a number of smart strategies business owners can implement to legitimately reduce tax liability and claim a tax deduction.
When times are tough, small businesses need all the help they can get.
We take a look at the tax concessions that may be available and strategies you may be able to use to minimise your 2023 end of financial year (EOFY) tax liability.
9 ways for small businesses to reduce tax in 2023 and claim a tax deduction
Temporary full expensing - Eligible business are able to deduct (in the first year of use or installation) the business portion of the cost of eligible depreciating assets purchased and first used or installed ready for use between 6 October 2020 and 30 June 2023. Business with aggregated turnover of less than $5 billion can deduct the business portion of the cost of eligible new depreciating assets or the full cost of improvements to existing eligible assets. Businesses with aggregated turnover of less than $50 million can also deduct the business portion of the cost of eligible second hand depreciating assets.
Expense prepayments - Eligible businesses can claim an immediate deduction for prepaid expenses where the goods or services to be provided are for a period of 12 months or less and ends before the end of the next financial year.
Capital gains tax (CGT) - Small businesses may be eligible for a range of CGT concessions, which may provide substantial tax savings. These concessions are available to small business owners who have disposed of active assets in the current financial year, or who are looking to dispose of an active asset. To be eligible for these concessions, the business must qualify as a small business entity or have net assets of $6 million or less (note, a range of other eligibility criteria applies depending on the small business CGT concession being claimed).
Pay as you go (PAYG) tax - Small businesses should review their PAYG instalments and notify the Australian Taxation Office (ATO) if the expected profit for this financial year is lower or higher than previous years, so instalments can be adjusted accordingly.
Lease repayments - Make repayments before 30 June to ensure a deduction can be claimed.
Office expenses - Purchase any necessary office equipment before the end of the financial year so you can claim these expenses. Ensure you have kept receipts for purchases made throughout the year.
Superannuation - Ensure any eligible superannuation contributions are made no later than 30 June so you can claim the deduction in this financial year. Ensure that required super guarantee (SG) contributions for employees of the business are made by no later than 28 days after the end of the quarter, so that no super guarantee charge becomes payable to the ATO.
Log books - Check that all of your motor vehicle log books satisfy the substantiation requirements.
Changing tax rates for ‘base rate entities’ - To be a base rate entity, a company must have aggregated turnover for the year of income less than the thresholds shown in the table below. In addition, from 1 July 2017, entity company will only be a base rate entity if no more than 80% of its assessable income for the year of income is 'base rate entity passive income'. This includes: distributions, franking credits, interest, royalties, rent, gains on qualifying securities and net capital gains. The thresholds for the aggregated turnover of base rate entities, and their applicable tax rates are as follows:
In addition, the unincorporated small business tax offset of up to $1,000 is available. From 2021-22, the offset is 16% of your basic tax liability relating to eligible net business income.
Timing is everything
These are all great ways for your small business to take advantage of any legitimate tax deduction. Some of these strategies can take time to plan and implement. So stay ahead of the curve and get in touch with your tax agent, accountant or certified financial planner soon to find out how you can reduce your tax bill in 2023.
What you need to know
This information is provided by Lush Wealth Financial Planning Advice Newcastle and Sydney. Online Australia-wide.
The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Join the club of Aussies who have their finances sorted, get in touch today!