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Many business clients like to review their tax position before the end of the income year and evaluate any strategies that may be available to legitimately reduce their tax. Traditionally, year-end tax planning for profitable small businesses is based around accelerating deductions and deferring income. The Year End Checklist in the link below explains some common strategies that may be considered for all business taxpayers.

A strategy often used to reduce taxable income (and, in turn, tax payable) in an income year is to bring forward any expected or planned deductible expenditure from a later income year. However, any individuals with potentially reduced income for the 2023 tax season may want to instead consider deferring any deductible expenditure (if possible).

SUMMARY AND FULL COMMENTARY UPDATES 

ATO Guidance targeting trust reimbursement agreements now finalised The Australian Taxation Office ( ATO ) has recently finalised its guidance in relation to trust distributions and “reimbursement agreements”. This guidance impacts all clients with family or discretionary trusts. The final guidance contained within Taxation Ruling TR 2022/4 Income tax: Section 100A reimbursement agreements and Practical Compliance Guideline PCG 2022/2 Section 100A reimbursement agreements – ATO compliance approach has been developed to support trustees and their advisors, who have been requesting clearer guidance to help them manage their tax obligations. The ATO guidance has been finalised following an extended consultation period with the tax community, and recommended changes have been incorporated based on this feedback. The ATO focus surrounding Section 100A relates to trust distributions made to beneficiaries, in order to achieve a tax advantage where the funds relating to the distributions are not paid out to a beneficiary, or are in some way reimbursed back to the trustee or other parties. Whilst these final documents do not significantly depart from the draft versions released in March 2022, which gave rise to much debate on the ATO’s renewed focus on trust arrangements (see our previous Tax Alert here ), there are some notable changes (see below) and they do provide additional examples which provide further clarity for trustees and advisers as to what trust arrangements the ATO will focus their attention on.

FBT: Christmas Parties & Gifts

ATO warning to SMSFs: "Paying the price for non-compliance" There are various courses of action available to the ATO when trustees of self-managed super funds ( SMSFs ) have not complied with the super laws, including applying administrative penalties. A number of factors determine the amount of the administrative penalty, including: the type of contravention; when it occurred; and the number of penalty units that apply. For example, if an SMSF contravenes a provision in relation to borrowings during the 2021/22 financial year, the ATO may apply a penalty of 60 penalty units and, at $222 per unit for that year, this would result in the SMSF trustee having to pay $13,320. This could be even more if there are multiple contraventions. We note that the Government recently introduced a Bill to Parliament to increase the value of a penalty unit for Commonwealth offences committed on or after 1 January 2023 from $222 to $275, which may make an SMSF trustee exposed to an even larger amount after 1 January 2023. The ATO imposed total administrative penalties of around $3.4 million on SMSF trustees last year for contraventions such as trustees illegally accessing super benefits, loans, or financial assistance given to members. Also, just because a trustee receives an administrative penalty doesn’t mean the ATO won't undertake any other compliance action, such as issuing a notice of non-compliance or disqualifying the relevant entity as a trustee.

Federal Budget 2023 commentary updates Last week the Federal Treasurer, Dr Jim Chalmers, handed down the Labor Government's first Federal Budget. Following the election of the Australian Labor Party to Federal Government in May 2022, this is the second Federal Budget for this calendar year, and it updates economic forecasts and identifies the priorities for the new Labor Government. We circulated the following commentaries last week, explaining the key issues released in the budget. If you have not seen them yet, please use the links below: To read the Summary, please click here To read the Full Commentary, please click here

Summary and full commentary updates

Small Business Immediate Flood Relief Program