How to Strategically get ready for EOFY with Emilie Pearson – Part 2

We LOVED having Emilie on the show last week, here are some more gems that Emilie has shared with us that we thought might be useful as 3o June approaches! 

 

30 June is coming up so quickly! It seems to come around quicker every year! 

 

I have put together some information for you to look over before 30 June, to help put you in the best position possible. It is the same basic process I go through myself for our family tax planning. There aren’t really any dark secrets in tax!

Review your income and expenses for the year so far 

 

This is the very first thing I do. 

 

– What is your income for the year so far? If you are using Xero or Quickbooks, this is very easy to have a look at. 

– What income are you expecting to come in before 30 June? 

– What expenses will you need to pay before 30 June? 

 

This will give you an estimated income figure for the year. 

 

Of course, when we do your year end work, we will do our best to bring your taxable income down as low as legally possible. That’s our job! What you are trying to do is to get a ball park figure to see if you may need to consider any strategies before 30 June. 

 

What Centrelink or other benefits is your family receiving? 

Even though it is not tax related, this can be a VERY important consideration – and it is not something that we can see for you.  

– What is the maximum income you can earn before your benefits start being impacted? The best place to find this is to Google the benefit name and the word threshold. 

– Compare your expected income for the year to these thresholds. Are you below these thresholds? (if so, there is no problem) or above the thresholds (okay – let’s look at some strategies you may like to consider). 

 

Have a look at which tax bracket you are sitting in 

To help you with this, I have copied the ATO link for you to have a look at. 

ato.gov.au/Rates/Individual-income-tax-rates/ 

 

My usually suggestion (depending of course on peoples circumstances) is to keep people on as low a tax threshold as possible. 

 

The thing to keep in mind though is – if you spend $1,000 on something you don’t really need: 

  • Tax Saving in the $45k – $120k threshold is $325 
  • The actual cost to your pocket – $675 

Reducing tax by spending money on things you may not need costs you profit out of your pocket. Saving tax in itself may not be in your best interest. 

 

For this reason, my preference is for you to bring forward expenses or delay income (which I will go into further below). 

 

 Strategic Options to reduce income 

Here are the best options to strategically reduce your income: 

 

  • Physically pay any invoices you have received, but not yet paid. As a small business you will receive the tax deduction in the year you physically pay an expense. 
  • Prepay expenses – this can include things like prepaying business rent, subscriptions (if you have a monthly subscription – is there an annual option? This often comes with a discount attached), putting money onto an account – particularly useful if you have a Bunnings Trade Account. If you have a Team – a little known strategy is that you can also pay the June 2022 Quarter Superannuation Guarantee and bring the deduction forward to this year. 
  • Delay sending invoices to trusted clients (ones you know will pay). Again, as a small business, you will not pay tax on your income until your client pays you. 
  • Consider making a superannuation contributions for yourself. Please note that this will not reduce your income for Centrelink purposes, but it will reduce your income for tax purposes. You are allowed to make a tax deductible contribution to your superannuation fund of up to $27,500 for the 2022 Financial year. If anyone else has made a contribution on your behalf (usually an employer) then you will need to reduce the $27,500 by the amount they have contributed on your behalf. This is very important! If more than $27,500 is made as a tax deductible contribution on your behalf (so either you get a tax deduction, or your employer gets a tax deduction) then once the ATO figures it out, they will ask you to pay additional tax on the surplus amount. 
  • Temporary Full Expenses – which is the current name for being able to deduct the full cost of an asset in when you buy it, instead of having to depreciate it over a number of year. This is still in place for anything you buy before 30 June 2022. The things to keep in mind are that this rule is limited to the business use of an asset – so if it is 50% business use, 50% private – then you are only able to claim 50% of the cost. For any vehicles, this is additionally subject to the Luxury Car Limit (which is not very luxurious) 
Emilie Pearson, Growth Logic Advisors. 

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