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End of Financial Year planning

Written by The Tax Institute’s Tax Policy and Advocacy Team

   

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Introduction

As 30 June 2022 approaches, we turn our minds towards how we, as tax practitioners, can best prepare ourselves and our clients for tax time. The end of this financial year presents particular challenges for practitioners. There is the extensive list of announced but unenacted tax measures including those announced as part of the Federal Budget 2022–23 and during the recent election campaign, and uncertainty of the ATO’s interpretation around several contentious areas of tax legislation. Additionally, practitioners are generally weary from an incredibly challenging two+ years of pressure and many remain below the 85% lodgment target for 2021, with a new compliance season just over a week away.

To assist the new government, we have prepared an Incoming Government Brief that sets out the key tax and superannuation measures, ranked by priority according to what The Tax Institute considers are the most pressing issues. The Brief can be found here.

To assist practitioners to prepare for the end of the financial year, we have prepared a series of checklists that highlight key changes and commonly overlooked provisions.

IMPORTANT
These checklists do not contain a comprehensive or exhaustive list of issues you need to consider for your clients as part of your end of financial year planning. There may be other issues you need to think of. These checklists serve as a guide to a range of issues and do not constitute advice. They do not provide a detailed explanation of whether a taxpayer may be eligible for a deduction or a tax concession, or the relevant conditions for a provision or administrative approach to apply or not apply.

List of Checklists

  • Individuals — This checklist contains key changes and commonly overlooked provisions relating to work-related costs (including clothing, laundry and dry-cleaning expenses, working from home expenses and car expenses), COVID-19 test deductibility, the Low and Middle Income tax offset (LMITO) and the non-commercial loss provisions.
  • Rental properties — This checklist contains key legislative changes and commonly overlooked provisions relating to repairs and maintenance, travel costs, vacant land deductions, capital allowance and capital works deductions, the treatment of second-hand depreciating assets used in a residential rental property and the possibility of CGT event K7 happening to these assets.
  • Business — This checklist contains key changes and commonly overlooked provisions relating to temporary full expensing of depreciating assets, professional firm profits, trading stock, bad debts, commercial debt forgiveness, the proposed skills and training and technology investment boosts, the Taxable Payments Annual Report, GST adjustments under Division 129 of the GST Act, and CGT events J2, J5 and J6 (about the small business roll-over).
  • Capital gains tax — This checklist contains commonly overlooked provisions relating to CGT event E4, pre-CGT assets (CGT event K6 and Division 149 of the ITAA 1997), the CGT discount and digital assets (including cryptocurrency and non-fungible tokens).
  • Companies — This checklist contains key changes and commonly overlooked provisions relating to directors’ resolutions and minutes to declare a dividend, Division 7A and sub-trust arrangements for unpaid present entitlements, loss carry back offset and the company loss provisions.
  • Trusts — This checklist contains key changes and commonly overlooked provisions relating to trustee distribution minutes and resolutions (including circulating resolutions), section 100A, annual trustee reporting, trust disclaimers and the trust loss provisions.
  • Superannuation — This checklist contains key changes and commonly overlooked provisions relating to the sole purpose test, minimum pension payments, the bring forward of non-concessional contributions, the carry forward of unused concessional contributions caps, section 290-170 notice of intent to claim a deduction for a personal contribution, non-arm’s length income (NALI) rules, investment strategies and the in-house asset rules.
  • COVID-19 considerations — This checklist contains key changes and commonly overlooked provisions relating to JobSeeker payments, the COVID-19 disaster payment, the pandemic leave disaster payment and rent deferrals and waivers.

The full content of this article, including the detailed checklists, is available to download or via the PDF viewer on the right.

Planning for 30 June 2022

Tax is a consequence of transactions to achieve commercial or personal outcomes. The purpose for these transactions may be for asset protection, estate planning or other non-tax driven reasons. End of year tax planning is not about manufacturing transactions to achieve a certain tax outcome; rather, it’s about ensuring obligations are met to obtain the most advantageous outcome overall.

Scams

As the end of financial year nears, criminals and fraudulent actors attempt to prey upon unsuspecting businesses and individuals. The ATO, the Australian Securities and Investments Commission (ASIC) and the Tax Practitioners Board (TPB) all warn taxpayers and practitioners to be cognisant of arrangements requesting personal information. The scams include threats and false demands to provide personal information in response to a non-existent tax debt; advertisements offering services for a fee to obtain an Australian Business Number (ABN) or Tax File Number (TFN); emails from a fake TPB email address requesting verification of tax agent details; and calls from fraudsters impersonating ASIC officers.

Further information for identifying and reporting scams can be obtained from the ATO website, the ASIC website, the TPB website and the Australian Cyber Security Centre website.

Strengthening client verification against identity theft

Identity theft is insidious. It can wreak devastating financial, social and personal havoc on victims, leaving scars for many years. The risk of identity theft has never been higher or had more serious implications. Increasingly, we see widespread and sophisticated criminals attempt to commit tax refund fraud by stealing taxpayers’ identities.

Client verification protects your firm and your clients by accurately identifying each client and validating the legitimacy of their identity documents.

The ATO has released client verification guidelines (guidelines) for client verification within tax and superannuation practices to address the growing risk of identity theft and fraud for practitioners who use Online services for agents (OSfA) or practitioner lodgment services (PLS). These guidelines should be read in conjunction with the guidance released by the TPB.

On 31 January 2022, the TPB released Practice Note TPB(PN) 5/2022 Proof of identity requirements for client verification (Practice Note). The Practice Note provides practical guidance and assistance to registered tax practitioners when verifying client identities, as well as guidance on engagements relating to individual clients as well as non-individual clients (such as a company or a trust).

The purpose of the new guidance is to provide greater certainty around how tax and superannuation practitioners should verify their clients’ identities and how this is evidenced. Phase 1 of the guidelines was implemented as a ‘soft touch’ from 1 July 2021 and involves identifying new clients. Many practitioners are already doing this voluntarily as a matter of standard practice management. Phase 2 will mandate a digital solution for client verification. There is currently no fixed date for Phase 2.

2021–22 tax rates and thresholds

These checklists refer to several rates and thresholds. The 2021–22 tax rates tables can be found here.

The Tax Institute will be providing an updated version of the 2022–23 tax rates tables which can be found here when available. This will be updated quarterly, so you will have access to the most recent information throughout the year.

Concluding thoughts

Other considerations for your clients

We reiterate that the predominant purpose of end of financial year planning should not be solely focused on tax minimisation. It is beneficial when tax is reduced. However, this time of year presents an opportunity for practitioners to understand clients and be proactive addressing identified risks.

End of financial year planning can be a time when practitioners review their clients’ objectives and can propose pathways to undertake to help their clients meet these objectives.

Some questions that may be considered are:

  • Does my client’s structure meet their current and future commercial requirements?
  • Is my client adequately protected from risks of their business/profession/investments?
  • Does my client have their estate planning in order?
  • Do they have a valid Will, advanced health directive, power of attorney or power of guardianship?
  • Do they have binding death benefit nominations, are they valid and are they non-lapsing?

Considerations for your practice

End of financial year planning can also be an opportunity for you to ensure you are meeting your requirements as a practitioner for your firm. Changes in technology and COVID-19 have changed the way practitioners operate and interact with clients and staff. The TPB, ASIC, ATO and other professional bodies have consequently updated the requirements for practitioners to mitigate against new risks. As a practitioner, it is important that these requirements are regularly reviewed.

For changes in your business procedures, it is imperative that practitioners update their quality assurance manuals to reflect these changes and mitigate against new threats.

Final thoughts

The above checklists are not an exhaustive list of all the tax provisions practitioners should consider prior to the end of the financial year. Every financial year offers different planning opportunities and when the clock strikes midnight on 30 June 2022, these opportunities for 2021–22 will be gone.

After this time, practitioners can start planning for the new financial year which will be accompanied by many changes, especially with the resumption of Parliament and an updated Federal Budget 2022–23 being touted for on or around 25 October 2022. Our July 2022 blog will explore what to expect from 1 July 2022.

We welcome your feedback on what other aspects practitioners should consider prior to the end of financial year in our Community member-only forum.

Legislative abbreviations

Abbreviation

Description

GST Act

A New Tax System (Goods and Services Tax) Act 1999

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

IT(TP)A

Income Tax (Transitional Provisions) Act 1997

LCR 2021/2

Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement

PCG 2017/13

Division 7A – PS LA 2010/4 sub-trust arrangements maturing in or after the 2016–17 income year

PCG 2020/5

Applying the non-arm’s length income provisions to ‘non arm’s length expenditure’ – ATO compliance approach for complying superannuation entities

PCG 2021/4

Allocation of professional firms’ profits – ATO compliance approach

SISA

Superannuation Industry (Supervision) Act 1993

SISR

Superannuation Industry (Supervision) Regulations 1994

SMSFR 2008/2

Self Managed Superannuation Funds: the application of the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993 to the provision of benefits other than retirement, employment termination or death benefits

TAA 1953

Tax Administration Act 1953

TASA

Tax Agent Services Act 2009

TD 2022/1

Income tax: commercial debt forgiveness – does the exclusion for debts forgiven for reasons of natural love and affection require that the creditor be a natural person?

TR 2021/1

Income tax: when are deductions allowed for employees’ transport expenses?

Further guidance and information

Further guidance and information is available from the ATO website.

If you have any specific concerns that have not been outlined above, please email taxpolicy@taxinstitute.com.au.

Correct as of 21 June 2022

  • SME & family business
  • Members-only
  • Superannuation
  • Large business
  • Personal tax
  • Stimulus measures
  • Retirement & wealth
  • Business taxation
  • Personal tax & transfer system
  • Tax administration

  

  

  

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DISCLAIMER: The material and opinions in this article should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.