Planning Ahead: Corporate Tax Strategies for 2022 and Beyond in Australia

Effective tax planning is vital for Australian businesses in 2022. Key strategies include leveraging incentives, preparing for tax reforms, and optimizing business structures to enhance tax efficiency amidst changing economic conditions.

As Australian businesses enter 2022, effective tax planning remains crucial for navigating the evolving economic landscape and preparing for potential changes in tax law. With recent updates and expected reforms, businesses should focus on strategies to optimise their tax position while remaining compliant. In this blog, we explore key corporate tax strategies for 2022 and beyond, including leveraging tax incentives, preparing for upcoming changes, and optimising business structures for tax efficiency.

Several changes in Australia’s corporate tax landscape should be on the radar of business owners and accountants for 2022. Here are a few key updates:

Corporate Tax Rate: Australia has maintained its corporate tax rate at 30% for larger companies. However, small and medium-sized businesses (those with an annual turnover of less than $50 million) continue to benefit from a reduced tax rate of 25%. Businesses should ensure they meet the eligibility requirements to take advantage of the lower tax rate, which can result in significant savings.
Instant Asset Write-Off: The Australian Government's temporary increase to the instant asset write-off threshold has been extended. Businesses can immediately deduct the cost of eligible new and second-hand assets, such as equipment and vehicles, up to a value of $150,000. This is a valuable opportunity for businesses to reduce their taxable income by making capital investments before the end of the 2022 financial year.
R&D Tax Incentive: The Research and Development (R&D) Tax Incentive provides businesses that engage in eligible R&D activities with a tax offset. Small businesses can claim up to 43.5% of their eligible R&D expenses, while larger businesses can claim a reduced rate. Businesses that innovate or develop new products and services should ensure they are capturing all eligible R&D expenses to maximise this benefit.

Preparing for Potential Tax Reforms in Australia

With new leadership and shifting priorities, there are potential changes to Australian tax policy that businesses should prepare for in the medium and long term:

Tax Reforms Under Consideration: The Australian Government has discussed potential changes to business tax policy, including tightening international tax rules to address multinational corporations shifting profits to low-tax jurisdictions. While reforms have not been finalised, businesses with international operations should assess their tax structures and prepare for stricter reporting requirements.
Capital Gains Tax (CGT) Changes: There are discussions around changes to how capital gains are taxed, particularly for businesses looking to sell or restructure. If these changes are implemented, businesses should consider structuring ownership in a way that can minimise CGT exposure, potentially through capital gains tax concessions or deferring gains through the sale of assets in a tax-efficient manner.
GST Changes: As the Australian Government continues to address compliance issues around the Goods and Services Tax (GST), businesses should ensure they are complying with any new GST regulations. As e-commerce grows, there may be more focus on collecting GST from online sales, which could impact businesses involved in cross-border transactions. Staying up-to-date on GST laws will be key for businesses engaged in international trade.

Optimising Deductions and Tax Incentives

To make the most of the current tax laws, Australian businesses should focus on optimising available deductions and incentives:

Small Business Tax Concessions: Small businesses can benefit from a range of tax concessions, including the ability to immediately write off business assets and access simplified depreciation methods. By taking full advantage of these concessions, businesses can reduce taxable income and lower their overall tax liability.
Tax-Effective Employee Benefits: Offering tax-effective benefits, such as salary packaging arrangements or providing fringe benefits that attract lower tax rates, can help reduce a business’s taxable income while providing value to employees. It's important to stay compliant with the fringe benefits tax (FBT) rules to avoid unnecessary tax liabilities.
Superannuation Contributions: Contributing to employee superannuation funds is an effective way for employers to reduce taxable income while providing for their workforce’s retirement. Businesses should consider making additional contributions to superannuation, which can be deductible for tax purposes, helping to reduce overall tax exposure.

State and Local Tax Considerations

In addition to federal taxes, Australian businesses must also be mindful of state-level taxes and their obligations:

Payroll Tax: Each Australian state has its own payroll tax thresholds and rates. Businesses should regularly review their payroll tax obligations, as the threshold for exemption varies between states. By carefully monitoring payroll thresholds, businesses can avoid unnecessary payroll tax liabilities.
Land Tax and Property Taxes: For businesses owning property, land tax is an important consideration. Land tax is levied by states and territories on the value of land, and each state has its own rates and exemptions. Businesses should regularly assess their land holdings to ensure they are not paying more land tax than necessary.
State-Specific Incentives: Many Australian states offer tax incentives to businesses investing in particular sectors, creating jobs, or engaging in research and development activities. These incentives can provide businesses with a significant tax advantage and should be explored during the business planning process.

Long-Term Tax Planning for Business Succession

In addition to short-term tax planning, businesses should consider the long-term impact of tax on business succession and estate planning:

Business Succession Planning: Succession planning is essential for business owners looking to transition their business to the next generation or to external buyers. Implementing strategies such as using family trusts, shareholder agreements, and capital gains tax concessions can help reduce tax liabilities during a business sale or transfer.
Estate Planning and Tax Minimisation: Business owners should incorporate tax-efficient strategies into their estate planning, including structuring their estate to take advantage of exemptions and allowances available under Australian tax law. This can help minimise inheritance tax liabilities and ensure a smooth transition of ownership.

For businesses in Australia, 2022 presents an opportunity to take full advantage of current tax incentives while preparing for potential reforms. By staying informed about tax changes, optimising tax deductions, and planning for the future, Australian businesses can position themselves for success. Working with experienced tax advisors and accountants will ensure that businesses navigate the complexities of tax law effectively and efficiently.

If you would like to review your strategies for 2022, book a complimentary consultation with DGMS Group.

Australian Taxation Office. (2021). Business tax incentives. www.ato.gov.au
Australian Government, Department of Industry, Science, Energy and Resources. (2021). R&D Tax Incentive. www.business.gov.au
Australian Taxation Office. (2021). Fringe Benefits Tax (FBT) Guide. www.ato.gov.au
Australian Government. (2021). Tax reforms and updates. www.taxreforms.gov.au