AP’s founding partner, Garry Pinch, has built his career on taking start-up businesses from infancy to successful ventures.

The unwinding of tax concessions for small businesses will create opportunities and challenges for all business owners.

The amount of tax at risk is so large it could never have been contemplated by Treasury when designing the concession package. The cost in extra taxes has been made worse by rising property values and the speed at which some businesses recovered from COVID and lockdowns.

In many cases the cause of the hidden taxes is highly technical and the impact between business owners could vary.

 Instant Asset Write-offs

During COVID lockdowns, businesses were able to write off all their assets to reduce taxes. In many cases, the tax usually paid by business owners was reduced substantially. However, from 2022 many businesses will start to pay extra tax because they have no depreciation left to claim. Further if any of the written off assets are sold or traded in, the proceeds on sale maybe taxable in full. 

Cashflow Boost

Cash Flow Boost paid to employers to meet employees' wages is generally not taxable. However, if paid to a company, it may become taxable when paid as a dividend in later years.

ATO announces review of trust distributions to family members 

Recently, the ATO has advised their intention to tax certain distributions to family members at the top tax rate of 49%. If your business trades as a Trust and you distribute profits to family members, seek advice from your tax advisor before 30 June 2022.

Significant Capital Gains on sale of assets

The last three years have seen substantial gains in residential and commercial property values. Although Capital Gains are taxed concessionally, many gains will be taxed at the top marginal tax rate of 49% this year. 

If you have sold a property during the year, it is essential to get some advice before 30 June. Several strategies can be adopted to defer the capital gain to a later year and/or reduce the tax payable.

Unused Superannuation Contribution Caps

Business owners can contribute tax-deductible contributions of $27,500 each year to reduce tax payable. Business owners can also pay the shortfall contributions from previous years and receive a tax deduction in the year it is paid. This can be particularly important to reduce the tax payable on significant capital gains and high-income years.

Other tax issues business owners should consider

Businesses should also consider the tax benefits from:

• Writing off bad debts before 30 June
• Valuing stock at the lower of cost or market value
• Making prepayments before 30 June 
• Paying employee superannuation for the June 2022 quarter in June 2022
• Crystallising capital losses to offset capital gains
• Making superannuation contributions to qualify for co-contributions paid by the government
• Reviewing the legal structure of their business before a new year starts.
• Review the impact on HELP debts, excess tax on superannuation contributions and childcare subsidies if your income is higher than normal in 2022.

2022 is anticipated to be one of the most significant tax years for businesses as government stimulus measures start to unwind. Seeking professional tax advice before 30th June 2022 could avoid large, unexpected tax bills.

Contact Accounting Professionals for more information. Email: [email protected]