Key Tax Planning Strategies for Businesses in 2023

As the financial year comes to a close, individuals and businesses alike should start thinking about their tax planning strategies.

Tax planning involves making informed decisions about how to manage your finances in a way that legally reduces your tax liability, by taking advantage of various tax deductions, credits, and other concessions.

By planning ahead and being proactive, you can ensure that you’re maximising your tax savings and minimising your tax burden.

This can be especially important for those who are self-employed or run their own businesses, as there are many potential tax deductions available that can help reduce their taxable income.

However, tax planning is not a one-size-fits-all process. It’s important to consult with a qualified tax professional who can help guide you through the process and ensure that you’re complying with all relevant tax laws and regulations.

By working with your Johnsons MME Advisor, you can rest assured that you’re making the most of all available tax benefits while avoiding potential pitfalls and penalties.

In saying that, let’s look at 4 key tax planning strategies for businesses and individuals to consider:

1. Optimising tax-deductible expenses

Optimising tax-deductible expenses has long been a popular tax planning strategy and can involve bringing forward or delaying outright tax-deductible business expenses, making personal super contributions, and turning non-tax-deductible debt into tax-deductible debt.

How does it work?

Timing your expenses, for example, making the decision to undertake repairs and maintenance on property or taking vehicles and machinery in for servicing, repairs, or new tyres in June rather than waiting for July could be a much-needed boost to your tax-deductible expenses.

Making personal super contributions and submitting a notice of intent to claim deductions for up to $27,500 per person is an effective way of increasing deductions at the individual level for those expecting large distributions from untaxed sources.

As interest rates increase, so does the total interest paid, which in turn increases the potential tax savings from a deduction for interest. Financing more expensive assets provides the dual opportunity of accessing temporary full expensing (detailed in the next section) and claiming the interest expenses from your equipment loans.

One strategy for turning non-tax-deductible debt into tax-deductible debt is to take out loans in the name of your trading entity to pay out loans owed to shareholders or beneficiaries of trusts. This can allow the entity to claim the interest deductions and can be particularly effective if a business has built up substantial loans to shareholders or beneficiaries.

In order to claim the deduction, it’s necessary for the shareholder to have a fixed entitlement in the business, which may include owning ordinary shares or units and being able to exert control over the distributions from the business entity.

It’s important to note that different tax-deductible expenses can benefit some businesses and individuals more than others, so it’s important to work with your qualified Johnsons MME advisor to determine the best course of action.

2. Temporary Full Expensing

Temporary full expensing can be a significant tax planning strategy if your business is looking to purchase new assets.

These measures allow businesses to claim an immediate deduction for the full cost of new assets in the first year they are used or installed, rather than having to depreciate the cost over several years. This can provide a much-needed boost to cash flow and can help you to stay competitive by investing in new equipment or technology.

It’s important to note that these measures are set to expire on June 30, 2023. Assets must be first held, first used, or installed ready for use for a taxable purpose by 30 June 2023 to be eligible. Any assets ordered before 30 June 2023 but not delivered until after 30 June 2023 will not be able to access temporary full expensing. So, if you are considering purchasing new assets, you should act quickly to take advantage of this temporary opportunity.

If you’re considering the purchase of new equipment or other assets, it’s important to carefully assess your options and determine whether taking advantage of temporary full expensing is the right strategy for your business.

Working with your Johnsons MME advisor can help ensure that you’re making informed decisions and maximising the benefits of this and other tax planning strategies.

3. Loss Carry-back

The loss carry-back measure is a tax planning strategy that can be used by businesses to offset a current year’s loss against a profit in a previous year, potentially resulting in a refund of the tax paid in the earlier year, a reduced tax liability, or a reduction of a tax debt owed.

This strategy can be particularly helpful for businesses that have experienced a downturn due to circumstances such as the rising cost of living, inflation, or changes in the industry landscape.

By carrying back the losses, businesses can potentially improve cash flow and ease financial strain during challenging times.

However, it’s important to be mindful that utilising the loss carry-back measure will reduce a company’s franking account balance. This can impact the company’s ability to pay fully franked dividends to shareholders, which may in turn affect overall planning considerations.

As with any tax planning strategy, it’s important to carefully assess the potential benefits and drawbacks of the loss carry-back measure before deciding to utilise it.

Working with a qualified tax professional, your Johnsons MME advisor, can help ensure that you’re making informed decisions and maximising the benefits of available tax strategies.

4. Allow for changes to Work From Home Claims

If you’re a sole trader or small business owner who runs your business from home, you may be able to claim tax deductions for your home office expenses.

However, it’s important to allow for recent changes to Work from Home claims and keep accurate records to avoid any issues with the Australian Taxation Office (ATO).

Starting from 1 July 2022, the ATO released new guidelines for claiming ‘working from home’ deductions. You can choose to claim based on the actual costs incurred or use a fixed rate method of 67 cents per hour.

To claim these deductions for the current financial year, you’ll need to keep a record that represents the hours you’ve worked from home between 1 July 2022 and 28 February 2023, such as a written agreement with your workplace for regular work from home hours or similar document estimating hours worked from home for the year. From 1 March 2023 to 30 June 2023, you’ll need to keep a record of the actual total hours worked from home, such as a timesheet or diary record.

It’s worth noting that you must also be able to prove that you’ve paid for the expenses covered by the fixed rate method, including telephone, internet, gas/electricity, computer, and stationery supplies.

By staying on top of your record-keeping and following the ATO guidelines, you can ensure that you’re claiming the correct deductions for your home office expenses and avoiding any unwanted attention from the tax authorities. As always, it’s best to seek professional advice if you’re unsure about any aspect of your tax planning.

The importance of tax planning for business

Overall, tax planning is essential for businesses as it can significantly impact your financial success.

By taking a proactive approach and seeking professional guidance where necessary, you can ensure that you’re taking advantage of all available tax deductions and concessions. This can result in improved cash flow, reduced tax liability, and increased profitability.

Businesses need to prioritise tax planning and work with qualified tax professionals to develop a comprehensive strategy that aligns with their unique needs and goals. By doing so, you can position yourself for long-term financial success and stability.

Start your tax planning by booking a meeting with your Johnsons MME advisor today.