As an owner of a business or entity structure, there are certain actions that need to be taken prior to 30 June to avoid adverse tax consequences.
1. PRIVATE COMPANY (“DIV 7A”) LOANS
Where a shareholder or associate of a private company takes money out of the company, this may be subject to the ‘Division 7A’ regime. Often, these funds are managed via compliant Division 7A loan agreements.
Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2022. Non repayment of these loans may give rise to deemed unfranked dividends taxable to the shareholder or associate.
Further, current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.
2. TRUSTEE RESOLUTIONS
Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2022 for all Discretionary (“Family”) Trusts.
Where a resolution is not prepared prior to 30 June, the trustee is taxed at the highest marginal tax rate of 47%.
Further, the ATO have recently released a number of draft Tax Rulings that may affect trust distributions to adult children, so tax planning for 2022 will be vital for anyone using a Family Trust.
3. YEAR-END STOCKTAKE / WORK IN PROGRESS
If applicable, you may need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2022, for your business. Review your listing and write-off any obsolete or worthless stock items.
If you are a small business entity and you estimate the value of your trading stock changed by less than $5,000, you can use the ATO’s simplified trading stock rules. Under these simplified rules you don’t have to conduct a formal stocktake at year end.
