June has arrived and so has winter, as the financial year draws to a close. Now that the federal election is out of the way, it’s time to focus on planning for the future with more certainty.

Cost of living pressures, inflation and interest rates were major concerns in the lead-up to the May federal election. The Reserve Bank of Australia (RBA) lifted the cash rate for the first time in over 11 years from 0.1% to 0.35%, as inflation hit 5.1%. This followed the US Federal Reserve’s decision to lift rates by 50 basis points to 0.75-1.00%, the biggest rate hike in 22 years as inflation hit 8.5%. Global pressures are largely to blame, from war in Ukraine and rising oil prices to supply chain disruptions and food shortages. The price of Brent Crude surged a further 27% in May.

As a result, the RBA has cut its growth forecast for the year to June from 5% to 3.5% and raised its inflation forecast from 3.25% to 4.5%. On the ground, the economic news is mixed. New business investment fell 0.3% in the March quarter but still rose 4.5% on the year. The NAB business confidence index fell from +16.3 point to +9.9 points in April, still above its long-term average. Adding to inflationary pressures, labour and materials shortages and bad weather saw building costs rise 2.8% in the March quarter, while retail trade rose further in April to be up 9.6% over the year.

On the positive side, unemployment fell further from 4% to 3.9% in April, the lowest rate since 1974, while annual wages growth rose slightly in the March quarter from 2.3% to 2.4%, still well below inflation.

EOFY checklist for businesses: 2022 edition

Getting your business’s end of financial year work done smoothly is no small task. This handy checklist offers a quick overview of the key processes and major to-do items.

End Of Financial Year (EOFY) isn’t just a marketing opportunity for businesses looking to entice business customers to make the most of available tax deductions (although that is a very popular approach). It’s also the most important time of the year for business owners to maintain compliance and set their business up for success in the following 12-month period.

There’s no wonder, then, that tax time induces a certain level of anxiety among many business owners – but it doesn’t have to be that way. In fact, some business owners outsource and automate their EOFY processes to the point that tax time never bothers them again.

If you’re not one of those hyper-organised types and you’d like to be, or perhaps you just need some guardrails to help direct you through the next few months, here’s a seven-point checklist to EOFY for the small-and-medium business owner.

1. Review recordkeeping processes

A non-negotiable aspect of EOFY means checking all reports and records are compliant with the Australian Tax Office (ATO).

The ATO requires businesses to keep records for at least five years, while at the same time more businesses are choosing to go paperless. This is something to consider when changing solutions providers or acquiring new technology solutions.

Tip: If you struggle with managing your expenses and keeping track of pesky receipts or invoices, you can use MYOB Capture App to snap a photo of invoices or receipts and have them automatically uploaded to your accounting software via the In Tray. This also makes it much easier to work with your accountant to maximise any relevant deductions.

Have your accountant review your automatic bank rules and the GST codes assigned to the Profit and Loss and Balance Sheet items to ensure you are lodging accurate Business Activity Statements (BAS). You will also want to make sure you’re on top of Taxable Payments Annual Reports (TPAR), Single Touch Payroll (STP) and more, as detailed further on.

2. Check your Business Activity Statements

BAS are designed to help you stay on top of your business taxes on a regular basis and, as such, this is the first key area of concern to tick off your EOFY list.

Make sure your BAS lodgements are accurate and up-to-date. If not, attend to your lodgements and arrange an ATO payment plan where necessary to help get you back up to speed in the next six months or so.

3. Prepare a Taxable Payments Annual Report (if relevant)

Taxable Payments Annual Report (TPAR) is a key ATO reporting requirement for many organisations that make payments to contractors or subcontractors.

In recent times, the Government has expanded the list of industry sectors that are required to lodge a TPAR via the Taxable Payments Reporting System (TPRS). Currently, that list includes:

• Building and construction

• Government grant providers

• Courier services

• Cleaning services

• Road freight

• IT services

• Security services

Tip: A TPAR must be lodged by 28 August each year and you can find out more about them via the ATO website.

4. Finalise payroll and super obligations

When it comes to reporting payroll tax and super, employers must use Single Touch Payroll (STP) to automatically deliver this information to the ATO.

A recent expansion of STP, known as STP Phase 2, sees employers delivering even more information to government agencies in this way. Given the mandatory start date for Phase 2 reporting is 1 January 2022, be sure to triple check your STP reporting is up to scratch.

Reconcile your payroll and get ready to provide 2022 Income Statements to your employees, making sure that salary sacrifice superannuation contributions (RESC) and certain reportable fringe benefits are being handled correctly.

Your super guarantee (SG) contributions also need to be accurate and up-to-date – your June SG is due 28 July 2022. If you have prior quarterly payments outstanding, contact your accountant or bookkeeper for guidance as soon as possible.

You will have up until 14 July to ‘finalise’ your employees’ EOFY payroll information through your STP-enabled payroll software – but this can be finalised as soon as you have reconciled the information and are happy with its completeness and accuracy, so no need to hold off on this one.

Tip: Doing all of this correctly means employees will be able to access their income statement online via myGov under the employment tab. If your employees don’t have a myGov account and cannot create one, or do not have a registered agent, they can call the ATO on 13 28 61 and they will provide it. You certainly can provide a copy, but there’s no legal requirement to do so.

5. Taking stock: Inventory, assets and liabilities

If your business carries stock, the stocktake of inventory should be completed by 30 June 2022, so decide on a suitable date and get that marked in your diary. If you have adjusted stock quantities and identified spoilage in your inventory, this should be adjusted as at 30 June 2022 to ensure it is reflected in the 2021/22 accounts.

If your business has substantial plant and equipment and you maintain an asset register, review this register and record any adjustments including description, location, quantity and damage/obsolescence and provide it to your accountant or bookkeeper so that any changes are reflected in your 2021/22 accounts.

Tip: Other liabilities worth taking stock of include customer deposits, gift vouchers and laybys as all of these can have a significant impact on the value of a business’s holdings and may impact your ability to borrow or sell your business in the future.

6. Complete reconciliations for FY21/22

Reconciliation is a process whereby a business owner, manager or bookkeeper compares actual transactions against supporting documentation in order to identify discrepancies, errors or any potentially nefarious activities.

This is an important step in a business’s EOFY processes as it allows management to identify any particular problems before reporting to the ATO, and so giving enough time to adjust or rectify as required.

Review your Balance Sheet and Profit and Loss Statement to show you have completed the following tasks:

• Bank accounts, petty cash, credit cards, loans and HP/chattel mortgages (monthly repayments on loans for fleet vehicles) are reconciled

• Compare your Accountants Receivables and Payables Reports to amounts shown on the Balance Sheet to ensure none are ‘out of balance’

• GST and PAYG withholding accounts are reconciled to the June BAS

• Wages and superannuation in the Profit and Loss report are reconciled to the PAYG Payment Summaries

• Amounts in suspense have been allocated to the appropriate ledger account or, if unsure, complete a note in the memo to assist your accountant or bookkeeper determine the correct treatment

• Personal expenses have not been claimed as business expenses

• Material differences to the prior year can be properly explained

7. Prepare for FY22/23

Getting ahead at EOFY doesn’t mean focusing solely on closing out the current financial year, but also putting yourself in the best possible position to succeed in the next one and beyond.

With new tax legislation and an ever-changing economic environment in play, business and tax planning is more important than ever.

We’ve collated the following shortlist of items for you to plan for as you head towards Financial Year 2022/23.

• Superannuation changes – As of 1 July, the Superannuation Guarantee Contribution increases to 10.5 percent, which coincides with the removal of the $450 threshold for super. This means more employers are likely to be paying out more superannuation with each payrun from the beginning of the new financial year.

• National wage increase – Yet to be confirmed, the month of June often brings an announcement from Fair Work regarding any changes to pay and wages, so keep an ear out for any news from the Ombudsman.

• Reporting – As a result of the above along with any other changes you’ve identified coming down the pipe, now’s a good time to update Profit and Loss and cashflow budgets for the year ahead, taking the time to compare budgets versus actuals for this period and applying any forecasts to the next.

• Price changes – Based on your updated reports and related planning, it may be time to reconsider your prices or even your pricing model.

• Tax planning – With new incentives for digital purchases and skills training announced as part of the recent Federal Budget, there’s even more to discuss with your accountant regarding tax planning for the year ahead. Have this conversation as early as possible to make sure you’re in a better position with your taxes come year-end 22/23.

• Policies and financing – The EOFY period is also a good time for business decision makers to take stock of their access to finance, repayment terms as well as any other insurance or similar policies that are currently in place and attracting cost. If it’s been some time since you reviewed these, it may be time to shop around to see what other offers are available in the market.

• Software and systems – When was the last time you reviewed your business management platform? This includes all the systems and processes related to your core workflows, such as accounting, payroll and inventory. If you’re trying to get various different systems to talk to each other, you’re probably losing money as well as at risk of being non-compliant or compromising your security. Is FY22/23 the year you upgrade to an integrated business management platform?

Source: MYOB April 2022

Reproduced with the permission of MYOB. This article by Chris McComb was originally published at https://www.myob.com/au/blog/eofy-checklist-for-businesses-bookkeeping/

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

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Tax Alert June 2022

ATO crackdown on family trusts and GST fraud

With attempted GST fraud on the rise and certain family trust payments under a cloud, the tax regulator is stepping up scrutiny of more transactions.

Here’s a roundup of some of the latest developments in the world of tax.

GST fraud warning

The Australian Taxation Office (ATO) has issued a strong warning to taxpayers not to engage in GST fraud and for current participants to come forward before it takes tougher action, such as imposing tax penalties and seeking criminal charges.

Using sophisticated risk models and intelligence from the banks, AUSTRAC and the Reserve Bank, the ATO has identified a significant fraud involving fake businesses claiming false GST refunds through fictitious activity statements. The average fraudulent amount being claimed is $20,000.

The ATO is aware information on how to attempt the fraud is being shared via social media and has reminded taxpayers they are not anonymous online, with around 40,000 scheme participants already identified.

New rules on family trusts

Taxpayers with family trusts need to check the implications of a new ATO draft guidance package on the taxation of family trust payments that could reduce the attractiveness of these tax structures.

Under its new approach in this area, the ATO will focus on common tax planning strategies relying on the section 100A exclusion covering distributions to companies and family members. The draft ruling clamps down on the use of agreements involving ‘ordinary family or commercial dealing’, making the section 100A exemption unavailable in some situations.

Although parts of the package are draft guidance, taxpayers with a discretionary trust should consider its implications prior to 30 June 2022, particularly where there are parent controllers of the trust and adult child beneficiaries.

SG contribution deadline approaching

Employers planning to claim a tax deduction in their 2021-22 tax return for Super Guarantee (SG) contributions made on behalf of their employees need to ensure their contributions are received by the employee’s super fund prior to 30 June 2022 to be eligible for the deduction.

Your payroll system also needs to be updated to accommodate the 1 July 2022 increase in the SG contribution rate to 10.5 per cent and removal of the existing $450 a month minimum threshold for employees to qualify for SG contributions.

Disclosure of business tax debts

The ATO is currently writing to businesses with tax debts to warn them their liabilities may be disclosed to credit reporting bureaus (CRBs) under the Disclosure of Business tax debts measures.

Disclosure to CRBs can be avoided by engaging with the tax office and making full payment or negotiating a payment plan.

Deductions available for work-related COVID-19 tests

Taxpayers have another tax deduction they can claim in their annual returns after legislation covering the deductibility of COVID-19 testing costs received Royal Assent prior to Parliament rising for the Federal Election.

Expenses incurred by individuals from 1 July 2021 in relation to work-related COVID-19 testing can be claimed as a tax deduction, provided you can substantiate the expenditure.

Employers are also exempt from paying FBT where they pay for or reimburse work-related COVID-19 testing costs for employees.

Lower tax instalments in 2022–23

The GDP ‘uplift’ rate used to calculate both pay-as-you-go (PAYG) and GST instalments has been announced for the 2022-23 financial year. The new rate applies to instalments due after 31 March 2022.

The new rate is only two per cent (which is lower than the 10 per cent rate applying under the statutory formula), providing valuable additional cash flow to small and medium businesses, sole traders and individuals with passive income.
If a business’ earnings exceed the amount calculated, it would then need to pay the extra tax owed at the end of the financial year.

While businesses will still be able to manually set instalments with the ATO, the new PAYG formula is reportedly designed to avoid penalties arising from underpayments.

Attracting ATO attention

New information has been issued on the behaviours, characteristics and tax issues of privately owned and wealthy groups that attract the ATO’s attention.

It is interested in entities with a tax or economic performance not comparable to similar businesses; low transparency when it comes to their tax affairs; and large, one-off or unusual transactions, including wealth transfers. Aggressive tax planning and outcomes inconsistent with the intent of tax law also interest the ATO.

Get your SMSF ready for 30 June

With the end of the financial year (EOFY) just around the corner, it’s important to ensure your SMSF meets its compliance obligations.

The rules around SMSFs are strict and if you don’t do things the right way, your fund could end up paying extra tax.

Here’s some key tasks trustees need to complete prior to 30 June 2022.

 

Check minimum pension drawdowns

Check that any members being paid an account-based pension have received the right amount for the current financial year.

Even though the government has extended its 50 per cent reduction in the minimum pension payment, underpayment can cause compliance problems for your SMSF. So ensure pensioner members have been paid at least their minimum percentage factor prior to 30 June. Documentation needs to be updated and minuted to avoid any problems with the fund’s auditor.

Trustees should also discuss with members receiving a super pension whether they intend taking advantage of the temporary extension in the coming financial year.

 

Stay within the contribution rules

For 2021-22, the general cap on concessional (before-tax) contributions is $27,500, while non-concessional (after-tax) contributions are limited to $110,000.  

An individual member’s annual cap may be different to these amounts, so check that members have verified their current position before accepting contributions. Otherwise, they may face tax penalties.

Legislation has now passed abolishing the work test from 1 July 2022 for contributions made by older SMSF members. For this EOFY, however, trustees still need to check whether contributing members aged between 67 and 75
meet the work test (or work test exemption) before accepting their contributions.

 

Verify bring-forward contributions

An important EOFY strategy for many SMSF members is using a bring-forward arrangement to access up to three years annual non-concessional contribution caps. For eligible fund members, this can be up to $330,000 in a single year.

SMSF trustees should remind members commencing a bring-forward arrangement they need to meet all the eligibility criteria and that their personal non-concessional cap may be lower if they already have a large Total Super Balance (over $1.48 million).

Although members aged 67 to 74 are unable to commence a bring-forward arrangement in 2021-22, your fund will be able to accept these contributions from older members once 1 July 2022 arrives.

 

Review the fund’s investment strategy

Other important trustee tasks prior to EOFY are checking the fund has a documented investment strategy and that it has been reviewed for its ongoing suitability.

Trustees are required to minute all investment decisions, including why an investment was chosen and whether all trustees agreed with the decision.

You also need to ensure your SMSF’s investments (such as real estate and collectibles) are valued at market value prior to EOFY. The valuation must be based on objective data with supporting documentation, so if a professional valuation is required, don’t leave it to the last minute.

 

Get the paperwork in place

Trustees are also required to consider whether members should be provided with life and Total and Permanent Disability (TPD) insurance, so ensure this has been reviewed and documented.

If your SMSF is required to hold insurance for members, check the current insurance policies provide adequate cover and all premiums are paid before 30 June.

Also check the SMSF’s recordkeeping is updated, fully documented and ready for inspection by the fund’s auditor or accountant. This includes minuting trustee decisions; collating bank, dividend and investment statements; and preparing details of any asset purchases or sales.

 

Review the capital gains position

If your SMSF has members in accumulation phase, review any capital gains made during the financial year and the period these assets have been held.

It may be worth considering whether to dispose of investments with unrealised capital losses if the fund made capital gains during 2021-22. The realised capital losses can then be offset against the capital gains to potentially reduce the fund’s tax bill.

 

Prepare for the audit

Trustees must have appointed an approved SMSF auditor no later than 45 days before you need to lodge your SMSF annual return. You need to have an auditor organised, even if no contributions or payments have been made during 2021-22.

SMSF auditors are required to examine both the fund’s financial statements and assess its compliance with super law, so ensuring all the fund’s records are in order and ready for review will streamline the audit process.

If you would like help preparing your SMSF for the financial year end, contact our office today.