2022 Year-end Tax Tips

The end of the current income year (2021–22) is approaching. There are a few tips on what you can do before 30 June 2022 to reduce your tax bill.

Key threshold amounts for tax offsets

If you are an individual taxpayer, including a sole trader or a partner in a partnership, or your business is carried on through a trust and you are a beneficiary or through a company and you are a shareholder, you may be entitled to the Low-Income tax offset (LITO) or the Low and Middle-Income tax offset (LMITO), depending on your taxable income. The key income thresholds are set out below.

• $37,001 – LMITO ($675) increases by 0.5 cents for every dollar above $37,000
• $37,501 – LITO (maximum $700) phases out by 0.5 cents for every dollar above $37,500
• $45,001 – 19% tax rate increases to 32.5%
• $48,001 – maximum LMITO ($1,500) payable
• $66,668 – LITO ceases to be payable
• $90,001 – maximum LMITO ($1,500) phases out by 0.3 cents for every dollar above $90,000
• $120,001 – 32.5%% tax rate increases to 37%
• $126,000 – LMITO ceases to be payable
• $180,001 – 37% tax rate increases to 45%.

$90,001 (singles) and $180,001 (families) are relevant thresholds for qualifying for the private health insurance tax offset (or insurance premium reduction) or liability for the Medicare levy surcharge – but add $1,500 for each dependent child after the first one.

LMITO is due to end this income year and will therefore not be available from the 2022–23 income year. You do not need to do anything to claim the LITO or the LMITO. The ATO will automatically apply the relevant offset if you are eligible on assessment when you lodge your 2022 income tax return.

Defer assessable income

If your taxable income for the income year is approaching any of the above key thresholds, you may want to consider deferring assessable income so your taxable income for the year remains below the relevant threshold.

For example, if you account for your income on a cash basis, you could delay issuing an invoice so you won’t be paid until after 30 June – that way, the income is taxed next income year. However, that may not work if you account for your income on an accruals basis. Of course, cash flow issues might mean you would prefer to be paid more promptly.

If you are in the process of selling property and the profit will be taxable as a capital gain, you could defer the sale until the next income year – but remember that the liability to pay CGT arises when you exchange contracts and not on settlement.

Increase deductions

Another way to keep taxable income below a relevant threshold is to increase deductions. For example, you could bring forward the purchase of one or more depreciating assets (new assets are deductible outright under temporary full expensing). An immediate deduction is also available for start-up costs and certain prepaid expenses.

Charitable donations are a good way to increase your deductions.

In certain circumstances, you can claim a deduction if you donate trading stock. Don’t forget to ask for a receipt.

Tip! As the end of the income year approaches, talk to us about the most appropriate ways you can minimise your tax bill.