Financial Year End Opportunities for Australian Businesses

The end of this financial year is fast approaching for many Australian businesses. This means that it's time to start thinking about whether or not your business will be able to make its tax obligations. As a small business owner, you might find yourself in need of some advice on how best to proceed with your taxation obligations. Fortunately for you, our blog post has everything you'll need to know about tax planning for the end of the financial year!

If you are an Australian business owner, there are a number of things that you can do to help your company grow for the following year.  One way is by using the end of the financial year to review where your business has gone and what areas need improvement. Another opportunity is to look at ways in which you can reinvest profits back into the business, so it continues to be successful throughout the next 12 months.

Finally, if you’ve been considering investing in new technology or upgrading old equipment, this would be an ideal time to do so. If any changes have been made during this process, make sure they're communicated with employees and customers alike! Then, let's dive into these opportunities more deeply.

A Guide To The Australian Financial Year

The close of the financial year is a significant point in time for enterprises located in Australia. Not only does the end of the fiscal year mark the time when businesses conduct a financial audit and draught their financial statements, but it also serves as a reminder to individuals that it is time to file their tax returns. Discover everything you need to know about Australia's fiscal year right here in this one convenient location.

What Does It Mean to Be in the Financial Year?

The government and enterprises utilise a period of twelve months known as the financial year to calculate their taxable income. At the end of each fiscal year, companies are required to finalise their books and fill out their tax returns. The tax return is a summary of the company's income and expenses for the previous fiscal year, and the Australian Tax Office (ATO) will use this information to calculate the amount of tax that your company is obligated to pay. The first of July marks the beginning of the new fiscal year in Australia.

How Long Does The Fiscal Year Last?

The 30th of June marks the conclusion of the fiscal year in Australia.

The type of commercial enterprise that you run will determine the due date for your income tax return, which must be submitted by a certain date. Everything you need to know about it is as follows:

• People who are self-employed or run their own businesses on their own must file an individual tax return between July 1 and October 31.
• In the case of a partnership, a tax return must be filed between the 1st of July and the 31st of October. You will need to get in touch with the registered tax agent that will be handling your tax return in order to obtain any additional information.
• Companies are required to submit their tax returns by the 28th of February at the latest; however, the specific due dates can vary. However, it is essential to check with the ATO in order to determine your particular date.

What Must You Complete Before the Financial Year Ends?

At the close of the current fiscal year, you need to finish a number of responsibilities. The following is a checklist of things that must be completed before the end of the financial year in Australia:

• Make sure your financial reports are ready. A profit and loss statement, balance sheet, cash flow statement, and the tax return from the previous year are required in order to file a tax return. Make sure that each of these documents is prepared to use.
• Pay your taxes and file your return It is now time to pay your taxes and file your return for the last fiscal year. You have the option of handling this task on your own or delegating it to a professional accountant.
• Send in your Business Activity Statement (BAS) - Business Activity Statements must be lodged on a monthly, quarterly, or annual basis, depending on the circumstance (depending on your turnover). If you are required to report annually (due to the fact that you voluntarily enrolled for GST and your annual GST revenue is less than $75,000), then the deadline for submitting your BAS statement is October 31.
• Examine your business and financial plans now that the fiscal year is coming to a close, since this is a good opportunity to get yourself organised for the coming year. Consider your long-term objectives and priorities, the feasibility of the business strategy you've developed, the shifts that have taken place in the economic and business climate, and the upcoming prospects. You should also review your bookkeeping in conjunction with your accounting in order to determine whether or not you were successful in meeting your goals and what adjustments, if any, you would like to make for the upcoming fiscal year.
• Ensure that your business and insurance policies are up to date (if this is essential) – Have there been any significant shifts in your circumstances throughout the course of the previous fiscal year? In that case, the coverage you have for your insurance might require some adjustments. You should also consider the extent to which your company has grown and whether or not you need to modify your business structure to accommodate this, as compliance and tax regulations may be different depending on the structure of your overall business. If you do need to modify your business structure to accommodate this, you should do so as soon as possible.

Opportunities for Australian Businesses in the Final Quarter of the Financial Year

If you are involved in business in Australia, you are almost certainly acutely aware that the end of the fiscal year will arrive on June 30 this year. Toss up that idea; business is irrelevant; if you're alive, you've probably been inundated with end-of-year advertisements for discounts on things like automobiles and electrical devices. I am aware that television and radio stations in Sydney have been conducting a full-scale assault. Putting that cacophony of noise to the side, I want to offer you two important pieces of advice for the end of the year.

I won't rehash information that is readily available from a variety of other accountants who can offer you very helpful tax advice towards the close of the fiscal year since I don't want to reinvent the wheel. As the 30th of June is less than a week away, I would like to bring your attention to two topics that should be front and centre in your thoughts.

Take Advantage of This Chance To Review And Set New Goals

It is easy to lose sight of the bigger picture when we are working so feverishly to finish up sales before the end of the year, close out the books, and strengthen our records so that we can finish our tax returns. However, in all candour, I feel that this time of year is one of the underappreciated opportunities to get the company back on track, reflect on the last year, and readjust our objectives for the year that lies ahead of us.

This strategy has the natural disadvantage of many members of staff being absent on vacation, which can lead to a general drop in motivation levels after a long year. In spite of the fact that many business leaders consider the time between Christmas and January to be an ideal time for introspection and growth, this strategy still has the inherent disadvantage of limiting growth opportunities. In the meanwhile, July is a period when the majority of the team is present, and the truth is, as the winter months approach, they will be grateful for the reset and boost to morale that comes as a result of an activity that requires them to reflect and recalibrate.

Do not overlook the benefits to your company that can come with a clean start to the new fiscal year by strategically planning and making sure that everyone in the company is on the same page. This can be accomplished by ensuring that everyone is on the same page. Get in touch with Own Your Mark so that we can have a conversation about how we can help guide the many types of strategy sessions that you run.

Prepay the Costs Right Away

In every company, there are certain tasks that are perpetually assigned to a lower priority than other work. You are familiar with the categories of objects to which I am referring, namely:

• The website update
• An overdue investigation into the workings of existing practises, regulations, and protocols
• A reinvention of our company's name and logo, moving away from the stale concept that we first introduced to the market five years ago
• The creation of a novel marketing plan with the goal of revitalising a segment of our company's operations that has fallen behind

The majority of advise given to taxpayers near the conclusion of the fiscal year focuses on encouraging them to make investments in depreciable assets such as automobiles, computers, and other types of machinery. Although completely sound, it's important to note that not all companies can directly benefit from following those recommendations.

However, I would say that practically every company has some kind of project that has been lingering in the recesses of your memory or on an old to-do list, and that these projects are similar to the brief instances that were provided earlier in this paragraph. We are aware that these things need to take place, and we aim to accomplish them as soon as possible; yet, we are provided with an opportunity that has both positives and negatives associated with seizing the moment NOW to take action.

In addition to the fact that many of us are motivated in some way by a deadline that has already passed, there is also an added financial incentive here in the form of a tax credit that can be carried forwards into the company's tax return for this year.

It goes without saying that you should always receive independent tax advice that is particular to your circumstances; nevertheless, general guidance from the Australian Taxation Office backs up the concept of recording prepayments at the end of the year. In particular, "if you are a small business entity... you can claim an instant deduction... for prepaid expenditure provided the payment is expended for an eligible service period not exceeding 12 months and the eligible service period ends in the next income year."

To put it another way, if you go to a professional to have some work done and pay for it before the 30th of June, it may in fact be eligible for immediate deductibility, even if the payment relates in part to services that will be rendered after the 1st of July. This is the case as long as you pay for the work before the 30th of June.

Now is the moment to launch that new website, hold that strategy session, design that logo, or begin providing financial advising services. As always, feel free to get in touch with me if you'd want to talk about the choices you have.

The Global Tax Guide for Operating in Australia

The majority of firms in Australia have their fiscal years conclude on June 30. However, it is feasible to apply for a substituted accounting period (SAP), which shifts the year-end to coincide with the fiscal year of a foreign parent company. This can be done by submitting the appropriate paperwork.

The tax laws of Australia are frequently amended in response to changes both at the domestic level, such as changes in government, and at the international level, such as the recent Base Erosion and Profit Shifting (BEPS) initiative of the Organization for Economic Co-operation and Development (OECD). It is important to give careful attention to the nature of the business that is going to be carried out in Australia as well as any tax consequences that may result.

The income tax, the goods and services tax (often known as the GST), the fringe benefits tax, and the capital gains tax are only some of the taxes that are levied by the federal government. A variety of taxes, including payroll tax, land tax, and stamp duty, are collected by state and territory governments.

Legal System

The common law system is in place across Australia's eight jurisdictions (six states and two territories). The power to make laws is shared between the state governments and the federal government. Nevertheless, in accordance with section 51 of the Australian Constitution, the legislative power of the federal government is constrained to only include those exclusive heads of power. All other topics are within the purview of the legislative power of state governments.

Authorities in Charge of Taxation

The Australian Taxation Office, sometimes known as the ATO, is the federal authority in charge of supervising and executing the taxes that are imposed by the federal government. The office of the federal Commissioner of Taxation is responsible for making decisions and providing opinions on matters pertaining to federal tax laws.

The most important direct tax is the income tax, which is collected by the federal government and managed by the Federal Commissioner of Taxation. This individual is also accountable for the daily operations of the Australian Taxation Office (ATO). The Income Tax Assessment Act of 1936 (Cth), the Income Tax Assessment Act of 1997 (Cth), and the Taxation Administration Act of 1953 are the primary pieces of legislation that govern taxes related to income (Cth).

Business Structures

Understanding how the Australian taxation law would apply to a particular individual or corporation requires first and foremost establishing the residency status of the business vehicle in question. It is possible for a non-resident to conduct business in Australia through either an Australian resident entity or a foreign entity; however, the procedures for registration and reporting will vary depending on which option is chosen.

Companies

If a business is formed within the borders of Australia, then it is considered to be a tax resident of Australia. A company is also considered to be resident in Australia if it conducts business in Australia and either I its central management and control is located in Australia or (ii) its voting power is controlled by shareholders resident in Australia. Both of these conditions must be met for a company to be considered to be resident in Australia.

The residence requirement will be considered met if, as a general rule, the directors of the firm routinely conduct business and make decisions within the borders of Australia. Once more, determining a firm's residency is a question of fact that is decided in each individual instance by examining the business or trade operations of the organisation.

Companies can either operate in the public market or on a proprietary basis. Corporations that are limited by guarantee, limited by shares, unlimited with share capital, or having no liability are the kinds that can be founded. Other forms of companies include those that have no responsibility (this last only applies to certain mining companies).

A foreign entity also has the option of registering an Australian branch in place of forming an Australian subsidiary company. This is an alternative to the incorporation of an Australian subsidiary company.

Partnerships

A partnership is a group of two or more persons who work together to run a business; the number of members in a partnership can range from two to twenty. The laws of a state or territory determine whether a partnership can be general or limited, and they govern how partnerships are formed. All of the members in the partnership are personally responsible for paying off any debts incurred by the business.

The residency status of each individual partner weighs heavily on the decision of where a general partnership will call home. It is possible for a limited partnership to be considered a resident of Australia if it was established in Australia, if it maintains its central management in Australia, or if it is engaged in economic activity within the country.

Trusts

Trust structures are also frequently utilised as vehicles for conducting business and making investments. For the purposes of taxes, trusts can be considered residents of Australia if, during a given fiscal year, either the trustee of the trust is a resident of Australia or the trust's central management and control is located in Australia.

Providing Funding for a Company's Subsidiary

Debt finance

Companies can get financed in Australia through the use of debt, which means the company will borrow money from outside lenders. When a company chooses to finance itself through the use of debt, not only is it able to keep complete control over its operations and governance, but in most cases, the interest it pays on its repayments is also tax deductible (subject to restrictions under the thin capitalisation rules).

Equity finance

Equity is another method that can be used to finance businesses. Equity finance can be obtained through a variety of channels, including private equity investors, venture capitalists, or an initial public offering on the Australian Stock Exchange, to name a few.

The manner in which taxes are applied to capital obtained via the sale of equity will be determined by the particulars of the transaction.

Evaluations of liabilities and assets

In Australia, there are tests for debt and equity interests, which establish whether a given arrangement gives birth to debt or equity interests. These tests can be found in the Australian Taxation Office. These guidelines can be found in Section 974 of the Income Tax Assessment Act of 1997. (Cth). When evaluating whether or not returns are subject to interest or dividend withholding tax, the status of an interest as either a debt or an equity factor is essential.

Royalties and profits from investments distributed to non-native residents

Companies, regardless of whether they are inhabitants of Australia or of another country but have a permanent base in Australia, may be compelled to withhold tax from investment income and royalties paid to non-residents. This obligation applies to both domestic and international companies.

The imposition of taxes on various financial arrangements

The tax treatment of gains and losses on financial arrangements is typically determined by special regulations referred to as the Taxation of Financial Arrangements (TOFA). These rules typically only apply to wealthy taxpayers. The objective of the TOFA guidelines is to lessen the weight that is given to tax considerations when determining the structure of financial agreements.

Direct Taxes

Individuals, corporations, and trusts can all be subject to income taxation.

Annual filing of tax returns to the federal government is required. Self-assessment is the foundation of the federal income tax system. The Australian Taxation Office (ATO) uses random or systematic audits as a method of monitoring and verifying the accuracy of self-assessments. There are several significant companies that make the decision to take part in the ATO's voluntary compliance initiatives.

The taxation of partnerships is referred to as "pass through" taxation. In most cases, individuals who participate in joint ventures and take a share of the product of the partnership will be treated as separate taxpayers for tax purposes.

Residents of Australia are required to pay tax on all income they earn, regardless of where that income was earned, although they may be eligible for tax credits in situations in which they have already paid taxes to another country on income that was earned overseas. Only income earned from sources within Australia is considered taxable for non-residents under normal circumstances.

Tax on the revenues of corporations

At the present time, the corporate income tax rate is set at 30%; however, a lower rate is possible for businesses that are considered to be small. Although it is necessary to file an annual tax return in order to determine an organization's actual income tax liability for the year, most businesses are required to pay "pay as you go" (PAYG) instalments throughout the year based on their estimated tax liability. However, it is necessary to determine an organization's actual income tax liability for the year by filing an annual tax return.

The term "taxable income" refers to the amount of money that is subject to income tax and is determined by taking "allowable deductions" out of "assessable income." Certain deductions for costs paid in operating a business and capital allowances for assets that are subject to depreciation are examples of deductions that are eligible for take-off. There is also the possibility of deducting losses that have been carried forwards from earlier years.

When a taxpayer's total permitted deductions for a specific fiscal year are more than the amount of income that is taxable for that year, the taxpayer will have a tax loss. In general, tax losses can be carried over into subsequent years without limit (subject to certain continuity rules).

When determining a company's future taxable income, a tax loss can only be deducted against future taxable income if the company satisfies the "continuity of ownership" test, or in some cases, the "same business" test. If the company does not satisfy either of these tests, the tax loss cannot be deducted against future taxable income.

Patent box tax regime

With an effective date of July 1, 2022, the Australian government has made public their intention to implement a patent box tax regime, which will impose a concessional rate of taxation of 17% on revenue that is received by corporations from qualified patents. This announcement was made.

The patent box will apply to revenue that is obtained from medical and biotechnology patents that are held in Australia. At the moment, the earnings that are made from such patents are subject to taxation at the rate that is applicable to corporations, which is currently 30% for large organisations and a lesser rate for small to medium enterprises.

In addition to the recently implemented patent box tax regime for medical and biotechnology patents, the government is currently holding consultations with industry organisations to assess whether or not a patent box tax regime should also be implemented to help Australia's renewable energy economy.

Capital gains tax (CGT)

Additionally, tax must be paid on capital gains realised from the sale of most capital assets; however, transactions involving Australian real property are the only types of transactions that are subject to taxation for non-Australian residents. The nett capital gains of the taxpayer, after accounting for the taxpayer's capital losses, are included in the taxpayer's total income that is subject to assessment in the same manner as the taxpayer's other items of income that are subject to assessment. A capital loss that has been realised can be carried forwards and used to offset any future gains in capital.

The capital gains tax (CGT) is applicable to a wide variety of occurrences, such as the sale of an asset, which has an impact on most types of property or rights that can be enforced. In general, the CGT liability is calculated by deducting the cost base of the asset from the capital profits from the event and multiplying the result by a percentage. Generally speaking, gains are not reviewed on an accrual basis; rather, they are evaluated only after they have been realised or when another certain event has occurred, such as the individual no longer being considered an Australian resident.

Gains on investments are subject to the same tax rates as regular income. On the other hand, resident people (and certain trust structures) may be entitled for a discount on CGT of up to 50 percent if they have owned the asset for at least a year before selling it.

There is a wide variety of tax relief available in the form of concessions and deferral programmes for both individuals and companies. Only gains in capital value that are generated from "taxable Australian property," which includes land, indirect interests in land, and mining or prospecting rights, are subject to taxation for non-residents in Australia.

Imputation system

When Australian resident firms pay dividends out of profits that have already been taxed, those dividends may be eligible to carry franking credits for the tax that the company itself has already paid. Depending on the extent to which a firm has chosen to use its franking credits for the distribution of dividends, dividends may be referred to as "completely franked," "partially franked," or "unfranked." Unfranked dividends are not subject to franking at all.

During a franking period, distributions are subject to uniform franking thanks to the use of special restrictions. Shareholders who do not reside in the country are not qualified to receive credits or rebates on franked payouts. Rather, if the payments are not fully franked, then dividends given to shareholders who are not residents of the country may be liable to a tax that is withheld from them. Distributions that are "completely franked" are exempt from having any tax withheld from them.

Tax consolidation

Because of the consolidation scheme, some groups of Australian resident entities (companies, trusts, and partnerships, but excluding branches) can apply to be classified as a single entity for the purposes of their respective countries' income tax systems.

This election is known as a "one-in-all-in" election, and what it signifies is that each totally owned subsidiary will immediately and irrevocably become a member of the group for the purposes of Australian taxation.

If a group decides to consolidate their operations, they will often be required to submit only one income tax return and maintain only one franking account for the consolidated group. This is one of the most significant advantages of consolidating their operations. For the purposes of taxation, intra-group transactions will be disregarded after a consolidated group has been established.

The transfer of assets, the provision of loans, the disbursement of dividends, and the return of capital are all examples of intra-group transactions. According to the "single entity" rule, losses that are attributable to the operations of one member of a group may be adjusted against the income generated by other members of the group.