With the End of Financial Year (EOFY) just around the corner, it’s not too late to start your year-end tax planning which includes thinking about how you can take advantage of any additional tax deductions before 30 June. Spending some time planning now may result in receiving a little more in your refund or could even reduce your tax bill.
Most public hospital employers allow an employee doctor to enter into a salary sacrifice arrangement. A salary sacrifice arrangement is essentially where an employee forgoes a portion of their salary to pay for items by money which has not yet been taxed.
Public hospitals have access to generous Fringe Benefits Tax (FBT) exemptions, whereby employees are able to salary package up to $9,010 of benefits in the form of mortgage repayments, rent, motor vehicle expenses and more.
An important year-end tax planning strategy is to ensure your full salary packaging allowance is fully utilised each financial year. Now is a good time to review your current arrangement and maximise any additional benefits.
A capital gain arises when a taxable capital asset is sold at a profit. For an individual medical practitioner, this most commonly relates to the sale of:
- Shares held as investments
- Investment property, or
- Distributions of capital gains from managed funds.
As part of your year-end tax planning strategy, it is timely to review your asset portfolio prior to 30 June to identify any unrealised losses that could be used to offset any capital gain made prior to 30 June.
For example, a capital loss on shares may be offset against a capital gain made on the sale of an investment property. It is important to note that capital losses are not lost if not used, losses are simply carried forward until a later tax year when a capital gain arises.
The 2023 superannuation contribution caps are:
Concessional Contribution Cap $27,500
Non-Concessional Contribution Cap $110,000**
**for members under 75 years of age or paid within 28-days after the month an individual turns 75
Personal superannuation contributions
If you wish to contribute to super and claim a personal superannuation deduction in the 2023 financial year, the contributions must be paid, processed, and received by the super fund prior to 30 June 2023. You must also lodge your ‘intent to claim form’ prior to lodging your tax return to be eligible to claim a deduction.
There are two additional measures that you may wish to utilise prior to 30 June:
- The bring-forward arrangement: Depending on your age and total super balance, you may be able to bring forward up to three years’ worth of the non-concessional contributions cap to make additional tax free non-concessional contributions.
- The carry-forward arrangement: Where your superannuation balance is under $500,000 as at 30 June 2022, you may be able to carry forward any unused concessional contributions caps from prior years (from 2019/2020 up to five years).
Certain conditions need to be met to apply the above.
Employee and spouse superannuation contributions
For doctors in practice there might also be an opportunity to make a tax-deductible contribution to superannuation for your spouse prior to 30 June 2023, where your spouse is an employee of your business and receives a wage for services rendered.
It is important to note wages to family members must be reasonable for the work performed.
Employers wishing to obtain the full tax deduction in this financial year for their employees’ superannuation contributions must ensure that these are paid prior to 30 June 2023. To ensure clear receipt of funds, we recommend processing by 19 June.
Temporary full expensing of asset purchases
An immediate deduction for the purchase of business assets is allowed for practices with an aggregated turnover under $5 billion. This means an immediate tax deduction can be claimed for the:
- Business portion of the cost of new eligible depreciating assets
- Business portion of the cost of eligible second-hand assets, and
- Balance of the small business pool at the end of each income year in this period.
While this excludes leased assets and capital works, it means that if you’re a doctor in private practice you might be able to claim a deduction for the purchase of new equipment, computers, phones or a small car (a depreciation limit of $60,733 applies to cars and limits the amount of deduction on new car purchases) if they have been bought and were available for use prior to 30 June 2023.
It is important to note this measure is currently due to expire on 30 June 2023, after which time the expensing of assets will likely revert to assets being depreciated over their useful lives.
Planning considerations for medical practices and practice owners
- As at 1 January 2022, Single Touch Payroll (STP) has now entered Phase 2. Software providers have requested deferrals while they implement these changes. If you are unsure if your software provider is compliant, please contact us.
- For staff bonuses to be deductible this financial year, the decision to pay the bonus and the determination of the bonus must be made and documented prior to 30 June 2023.
- Consider prepaying any large expenses (rent, insurance, subscriptions, interest) to bring the deduction into this year. However, be mindful that you must continue to prepay this expense or you will have a year without a deduction.
- If you have a Self-managed Superannuation Fund in its pension phase, ensure that the minimum pension has been withdrawn.
- Where you have a Trust in your group structure, ensure that you determine the distribution of the income and sign the Trust Distribution Resolution prior to 30 June 2023.
- Write-off any bad debts that you can.
- The ATO has proposed changes to the taxation of distributions from discretionary trusts. These changes affect income distributed to beneficiaries on lower marginal tax rates who may not receive the beneficial use and enjoyment of the funds being distributed. The full ruling and associated guidelines are detailed in TR 2022/4 and PCG 2022/2 respectively. If your practice distributes any profits from a discretionary trust, contact your trusted adviser to discuss how these may impact your practice.
For more information on your tax planning including how to maximise your after-tax position, please contact your local William Buck health specialist.