Adieu 2021, Welcome 2022!
Before we say goodbye to the 2021 financial year, let’s make sure we do our absolute best to minimise our tax to keep our hard-earned money to ourselves, not the taxman!
As company tax rate has been gradually decreasing, it is crucial to prepare yearly tax plans more than ever to bring forward any allowable deductions. If your accountant doesn’t provide this service, come and see us before it gets too late!
For the 2021 financial year, here are the common strategies that people use to reduce this year’s tax.
Plan your strategy to pay as little tax as possible for the 2021 financial year
1. Top up your super
For the extra amount you contribute to your superfund, it becomes a tax deduction in your return. The money that goes into your super gets taxed at 15% instead of your marginal tax rate.
For example, if you are an individual with a taxable income between $45k to $120k, you are at the marginal tax rate of 34.5% (inc Medicare Levy, exc offsets). It means, every dollar you put in your super, you save 19.5 cents.
This year, you can top up your super up to $25,000.
2. Pay your employee’s June quarter super guarantee charges before 30 June 2021
Superannuation contribution is deductible when it is paid. Pay your June quarterly superannuation before 30 June 2021 to receive the tax deductions this year, not the next year when the tax rate is reduced by 1%.
3. Asset Purchase
Seeking to buy a car or equipment for your business? If so, hurry to get it ready before 30 June 2021. The total amount of motor vehicle (Up to $59,136) or equipment will be fully deductible even if you purchase it with finance.
4. Issue dividend
Are you, your family members, or your trust a shareholder of your company? Have you considered issuing dividends this year? The fully franked dividend has a pre-taxed amount embedded, and you can receive a tax refund (franking credit refunds) by giving dividends.
For example, suppose your non-income earning family member receives a fully franked dividend of $33,300 (taxable income $45,000 & assuming no other income). In that case, they are looking at the tax refund of $6,888 this year (Franking Credit of $11,700 less tax payable $4,812, Inc Medicare Levy & offsets).
The 2021-22 Federal Budget is a balancing act between a better than anticipated deficit ($106 bn), an impending election, and the need to invest in the long term.
Among all changes, here are four things that will apply to most businesses and families.
1. Loss-carry back providing immediate deductions for business investment in capital assets
Companies will be able to carry back losses (if any) from the 2020 and 2021 financial years to offset previously taxed profits in the 2019 and 2020 financial years. Under this measure, tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.
The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. The tax refund will be available on election by eligible businesses when they lodge their 2020-21, 2021-22, and 2022-23 tax returns.
(Applicable to the companies with an aggregated turnover of less than $5 billion)
2. Extension of the low and middle income tax offset
The Low and Middle Income Tax Offset (LMITO) will be extended for another year. The LMITO provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000 and will be retained for the 2021-22 year. The tax offset is triggered when a taxpayer lodges their tax return.
$37,000 or less
Between $37,001 and $48,000
$255 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,080
Between $48,001 and $90,000
Between $90,001 and $126,000
$1,080 minus 3 cents for every dollar of the amount above $90,000
3. Extension of an immediate tax deduction for the purchase of assets
Businesses will be able to continue to fully expense the cost of new depreciable assets in the first year of use. This measure will enable an asset’s cost to continue to be fully deductible up front rather than being claimed over the asset’s life, regardless of the cost of the assets by 30 June 2023.
4. Child care subsidy increase for families with multiple children
From 1 July 2022, the Government will:
- Increase child care subsidies available to families with more than one child aged five and under in child care, and
- Remove the $10,560 cap on the Child Care Subsidy.
For those families with more than one child in child care, the level of subsidy received will increase by 30% to a maximum subsidy of 95% of fees paid for their second and subsequent children (tapered by income and hours of care).
Tax legistration changes from 1 July 2021
From 1 July 2021, here are the top 3 things that you should be aware;-
- Company tax rate change – The company tax rate will change from 26% to 25% in the 2022 financial year
- Super Guarantee Charge – Employee superannuation contribution rate will change from 9.5% to 10% from 1 July 2021
- Concessional contribution cap – Concessional contribution will change from $25,000 to $27,500.
Spark Accountants – About Us
A business accountant as passionate about your business as our own
Working closely with family business owners and small businesses, we help you make informed decisions to maximise your profitability, optimise your cash flow and minimise your tax.
As experienced business accountants based in Brisbane, we take complete care of your books and give you the tools, strategies, and numbers-know-how to ensure your business thrives.
Providing personalised service and advice that is tailored just for your business, we’re right by your side, driving your business to move forward.
Where accounting and business advisory was once a difficult activity for business owners, advances in technology now allow small businesses to better connect with their accountant and benefit from similar services that the big firms provide.
As technology-loving accountants, we partner with Xero, setting up your business on their cloud accounting platform and working with you to streamline your accounting, take your bookwork blues away and help you focus on growing your business.
Samantha Park, CA
Director | Tax & Business Advisory | Spark Accountants
3 Clunies Ross Court, Eight Mile Plains, QLD 4113
PO Box 221, Annerley, QLD 4103, Australia
T: +61 7 3607 3837
M: +61 424 615 214
For more information on Spark Accountants please visit sparkaccountants.com.au