Tax Planning - Maximising Your Tax Advantage

PLEASE NOTE, THIS ARTICLE HAS BEEN AMENDED FROM THE PREVIOUS VERSION THAT APPEARED IN THE APRIL 2022 EDITION.

The past two years have undoubtedly been a challenging period for many in the hospitality industry. However, South Australia’s relative success in managing COVID-19, coupled with the range of government support measures that have been made available, has meant that a number of hospitality operators have found themselves in a stronger financial position than originally anticipated.

With the end of financial year fast approaching, tax planning should now be high on your list of priorities, as there are key considerations for the current 2021-22 tax year that could have a significant impact on your financial plans and investments for the year ahead.

Importantly, for those business that have found themselves in a better-than-expected position, and even for those that haven’t fared as well, there are some simple steps you can take to optimise your tax position and put yourself in a good position for when June 30 rolls around.

TIMING IS EVERYTHING

For those operators who have accessed measures such as the State Government business support packages, unlike last year, any money received through such programs will not be assessed as part of your taxable income.

For those business operators who have found themselves in a strong cashflow position heading toward June 30, there are several steps you can take to optimise your tax position and maximise the amount of money that remains in your pocket.

For those with cash at hand, there are opportunities to invest now or bring forward expenses that you would otherwise incur in the 2022- 23 financial year to put yourself in a more advantageous tax position.

TEMPORARY FULL EXPENSING

In recent years the Temporary Full Expensing was introduced as a stimulus measure and a follow-on to the Instant asset write-off scheme. This temporary depreciation method continues the valuable tax incentive for eligible businesses who are considering purchasing and installing new business assets.

For hospitality businesses, this could include any large equipment upgrades such as fridges or furniture. It means that eligible businesses can deduct the full cost of eligible depreciating assets of any value if they are purchased and ready to use before the end of the financial year.

Even if you haven’t fared as well over the past 12 months, investing in upgrades is a way to fast-track your recovery and financing those upgrades is a way to minimise the cashflow impact while also maximising the tax benefits.

If you are considering taking advantage of Temporary Full Expensing, it’s important to note that any equipment needs to be installed and ready to use by June 30 to take advantage of the tax benefit this financial year. With the overall cut-off date for the scheme pinned for 30 June 2023, any purchases made in the 2022-23 financial year will still be eligible for Temporary Full Expensing, but the tax benefits will be delayed by a year. Be sure to get in touch with our Finance Team to discuss a suitable arrangement for your business.

BRINGING FORWARD EXPENSES INTO THE CURRENT FINANCIAL YEAR

Another consideration for publicans would be to bring forward any spending or invoicing into the current financial year for work or expenses that are planned for the year ahead. This could include planned renovations, rent or insurance costs, as this expenditure can be offset against your taxable income to put your business in a more advantageous position heading into next financial year.

Bringing forward planned staff expenditure is also another good way to maximise your tax position. Consider paying your superannuation liability or paying out any planned staff bonuses prior to June 30 to ensure these expenses are on the books before the end of financial year.

As we’ve previously discussed, many of the opportunities to pivot due to economic conditions is largely dependent on keeping strong proactive management of your business and regular bookkeeping practices. If you are questioning what improvements can be made in any of these areas, don’t hesitate to contact us for a chat.

A PRE-JUNE 30 TAX PLANNING CHECKLIST

Bring staff expenses forward – if you have outstanding superannuation liabilities or plan to give any staff annual bonuses, consider bringing these expenses forward to ensure they are deductible.

Document accrued staff entitlements – other staff entitlements should also be documented before EOFY as they are deductible when incurred rather than when they are paid.

Review your debtors – if you have unpaid accounts that are unlikely to be settled before June 30, you may be able to write these off as bad debts in order to claim a tax deduction.

Resolve trustee income distributions – if you operate your business or have investments held in a trust, ensure you make trustee income distribution resolutions prior to June 30 to ensure ATO compliance and tax effectiveness.

Declare dividends and reconcile shareholder or director loans – this includes Division 7A loans and minimum repayments should be made prior to June 30. Franking percentage on declared dividends should also be confirmed.

Accrue personal expenditures – consider topping up personal voluntary super contributions up to the maximum annual deductible amount of $27,500 and prepaying interest on investment loans for geared assets such as rental properties.

Deferring income – depending on your cashflow situation, you may be able to defer debtor payments until after June 30 in order to push recognition of accrued income to the next financial year, reducing your overall tax liability.

Instant asset-write off – now called the Temporary Full Expensing measure, consider purchasing key business assets now, remembering they must be installed and ready for use prior to June 30 to be eligible for a deduction this financial year.

Pre-pay business expenses – you may be able to claim a deduction this year for works or expenditure planned in the next 12 months (provided your business has a turnover under $10m per annum).

Review compliance and reporting obligations – these can include:

• Vehicle log books

• Finalisation and reconciliation of Single Touch Payroll

• Taxable Payments Annual Report

Pat Hodby and Tom Paine are Directors at Perks, South Australia’s leading privately-owned accounting and private wealth firm. They are the driving force behind the Perks Hospitality specialisation team and have both provided key advisory and operational support to a number of owner-operators in the sector, ranging from the structuring of their business, to back-of-house bookkeeping, to the streamlining and digitization of their support systems. Pat is also an active industry advocate for publicans and the hospitality industry and owns a successful pub in the Adelaide Hills.

Pat Hodby

Tom Paine