At this time of the year, many business owners are speaking with their accountants about strategies to legally reduce their tax.
These strategies include delaying sales to the next financial year, prepaying business expenses, Farm Management Deposits (FMD) and making contributions to super.
Contributing to super is unlike most other strategies that are open to small businesses.
Delaying sales and prepaying expenses will assist in reducing tax this year but could just delay the tax problem to the next year.
FMDs are deductible in the year a deposit is made but must be brought in as income when the FMD is withdrawn.
With super, a tax deduction can be claimed when a contribution is made, and you keep the money.
However, it is "locked away" until you meet a condition of release, which is normally retiring or turning age 65.
Also, your super fund pays a tax of 15 per cent on these contributions.
The amount you can contribute to super and claim a tax deduction this year is $27,500 (up from $25,000).
However, if you have less than $500,000 in super, this cap can be higher.
This is known as catch-up concessional contributions, and it lets you use up any unused caps from the 2019, 2020 and 2021 years in this year.
If you did not contribute to super in the 2019-2021 years, this allows you to contribute up to $102,500 in the 2022 year (3 x $25,000 + $27,500).
This could assist if you had a higher income than normal, for example, capital gain on the sale of property.
It is important to note that there are restrictions on who can pay superannuation. If you are unsure on whether you can contribute to super, contact your accountant or financial adviser.
You should also contact your accountant or financial adviser if you wish to make catch-up concessional contributions, to ensure you qualify and you do not exceed your cap.
Finally, your accountant may be only allowed to provide you with general information about your ability to contribute to super and the caps available to you.
Superannuation is a financial product, and any recommendation must be given by a professional who is licensed.
